ATHENS, Greece (AP) — Greek lawmakers on Thursday debated emergency legislation to approve a massive bond swap that would wipe euro107 billion ($142 billion) off the country's privately-held debt, as new projections showed the economy will suffer the worst contraction in Europe this year.
Parliament will vote in the evening on the proposed deal, which has already been approved at committee level. The governing coalition controls a strong enough majority to easily pass the law.
The writedown to be imposed on banks, pension funds and other private holders of Greek government bonds was agreed upon this week by finance ministers from the 17-member eurozone.
The meeting in Brussels also approved a new euro130 billion ($172 billion) bailout to prevent Greece from going bankrupt and keep the country within the euro area. Finance Minister Evangelos Venizelos said he hoped the new agreement on rescue loans would be signed and validated by the end of March.
Speaking in Parliament, Venizelos insisted that ratifying the bond swap was the only way forward, and the alternative would be catastrophic, setting Greece back decades.
"The true dilemma is: either sacrifices with prospects, or complete destruction with no prospects. Either cuts which are harsh ... or the inability to pay salaries and pensions. Either reduction of fortunes, or a complete loss of fortunes. Either high unemployment or generalized unemployment," he told lawmakers.
He added: "Now Greece is obtaining a window of opportunity. We must make the most of it. We have not finished. We are starting again with better terms. We mustn't repeat mistakes, we mustn't have delays .... We must complete the implementation of the program."
Greece has been surviving since May 2010 on a first batch of international rescue loans as it became unable to finance its huge debt load.
But more than two years of harsh austerity implemented to secure the rescue funds have left the economy in freefall, with businesses closing in the tens of thousands and unemployment at a record high 21 percent in November.
In its latest projections Thursday, the European Commission forecast a 0.3 percent contraction in the eurozone economy this year, with Greece leading the way down with a massive 4.4 percent decline. That would be the fifth straight year of recession in Greece.
The debt relief deal will force private bondholders to exchange their devalued Greek government bonds with new ones with a 53.5 percent lower face value, longer maturities and lower interest rates — an average 3.6 percent, compared to the previous 4.85 percent.
"This law has to be voted one day before it comes into effect and the (bond swap) is officially announced," Venizelos told lawmakers.
Once the public offer is made, bondholders will be given 10 days to respond whether they will take part in the exchange. The bill being debated includes collective action clauses that, if activated, will allow a majority of bondholders favoring the swap to impose their decision on holdouts.
"If we do not implement that legislation, every speculator will be able to keep out of the process in the expectation of being paid in full," Venizelos said Wednesday.
Venizelos wants the deal to be completed by March 12, two days before the country starts to run out of cash.
Athens is hopeful that voluntary participation in the bond swap can reach or exceed 85 to 90 percent.
Parliament is also due to vote next week on further harsh austerity measures in 2012 worth euro3.2 billion ($4.2 billion). These will include reductions to already depleted pensions, and deep cuts in health, education and defense spending.
Pantelis Kapsis, the government spokesman, warned that Greece faces further tough decisions in June, when debate will start on cutbacks for 2013-14, which have already been agreed with creditors
"I must remind you that we face a great fiscal adjustment ahead," Kapsis said.
State hospital doctors went on a 24-hour strike Thursday, and several hundred doctors and health workers held a peaceful protest march to Parliament in central Athens.
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Elena Becatoros in Athens contributed.
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