The Final Word on Greece ( part 2 or is it 3, who knows anymore )

By FXEmpire.com

issued a report Monday that said GDP the broadest measure of economic activity, will decline by 4.5% this year. The economy, which has been in recession for years, shrank 6.8% in 2011, according to government data.

The government bank said in its report that Greece has a “historic responsibility” to take advantage of the restructuring and bailout program to turn its economy around.The report noted that there is widespread “distrust” in the Greek government’s ability to follow through on its reform program, as reported by CNN.

“This distrust is justified,” the report said, adding that past efforts at reform had “come up against the illusion” that prosperity could be driven by running up deficits.

“There is no room for such illusions anymore,” the central bank said. “The truly harsh and painful losses that Greek citizens have had to endure cannot be recouped by returning to the ways of the past.”

Creditors holding insurance contracts on sovereign bonds will receive more than EUR2.5 billion in payouts after the EU assisted Greece in a complex debt restructuring. The payout on so-called credit default swaps (CDS) was determined following an auction Monday that established the “recovery value” of Greek government bonds that were not swapped under the recent debt exchange.

Recently Greece reached an negotiated settlement with private sector creditors to restructure EUR172 billion worth of Greek bonds, the largest restructuring of sovereign debt in history. The swap, which involved a writedown and debt swap, as a condition to secure a second EUR130 billion multi-year bailout from the EU and IMF occurred last week. The deal covered 85.5% of the total EUR206 billion worth of Greek debt held by the private sector.

But the terms became binding for all holders of Greek bonds issued under Greek law after the government invoked clauses that had been retroactively added to the terms of the contracts. As a consequence, the International Swaps and Derivatives Association ruled that a “credit event” had occurred, triggering the payouts on CDS contracts. The restructuring was negotiated to be considered voluntary, which made CDS protection moot for bondholders taking part in the agreement. The payouts will go to investors who opted out of the restructuring and who owned CDS protection.

Meanwhile, Greek Prime Minister Lucas Papademos downplayed concerns that Greece may need further debt restructuring in the future. In an interview with the Financial Times, Papademos said the full implementation of Greece’s economic reform program should put the nation on the path toward a sustainable debt load. “We will do whatever is needed to ensure that this was the last restructuring of Greek sovereign debt,” he told the newspaper.

Originally posted here