Greece bond exchange the largest debt restructuring in history Reporting from Athens - Better a big loss than chancing even greater losses. That's the bet that big banks and private investors wagered on, the Greek Finance Ministry said Friday, when they agreed to commit $227 billion of their holdings of Greek bonds to a debt restructuring deal designed to offer assurances to the world that a Greek default can be stalled. The landmark exchange, the largest debt restructuring in history, buys time for the small Mediterranean nation to fix its economy while clearing the way for a new injection of bailout funds toGreece'scash-strapped coffers. Indeed, just hours after Athens announced that 85.8% of private-sector investors had committed to swapping their bonds for new ones with less than half of the original value, European finance ministers signed off on a first batch of fresh bailout money to keep the bedraggled Greek economy afloat. The $46.9-billion disbursement is part of a bigger $170-billion bailout that Athens, European officials and a bank lobby group cobbled together after months of complex and, at times, excruciating negotiations. The debt exchange ensures that Athens remains solvent and, most pressingly, pays out $17 billion in bond redemptions due March 20. Failure to have lured more than half of the bondholders into the deal would have pushed Greece into a chaotic default within weeks, plunging Europe's single-currency zone into crisis mode again, with potentially disastrous consequences for the euro and for global markets. Despite strong willingness by creditors to proceed with the deal, Athens signaled its intent to arm-twist reluctant investors to take up the bond-swap offer, activating so-called collective action clauses that the Greek Parliament passed retroactively last month. Finance Minister Evangelos Venizelos told reporters that by use of such legal tools, which the Greek Cabinet approved during an urgent meeting Friday, total participation would be raised to 95.7%. Unruly investors, he said, "were naive" in thinking that they would be paid in full while participants in the process would incur losses. "This deal is historic and it opens a window of opportunity ... in making Greece's debt more sustainable, reaching 120% of gross domestic product by 2020," Venizelos said. Since international creditors cast Greece a first financial lifeline of $142 billion two years ago, Athens has been struggling to fix its economy, slipping deeper into a debt trap. The restructuring is projected to shave $141 billion off the nearly $500 billion the country owes. With the specter of a devastating default hanging for years over this sun-kissed country, several investors have taken out insurance policies that would reimburse them in such a case. Late Friday, a special agency, the International Swaps and Derivatives Assn., decreed the debt-relief deal a "credit event," triggering about $3.2 billion in payouts of such insurance policies by major banks and investment funds. As markets were relatively buoyed around the world by hope that Greece's debt woes could be managed, analysts warned that the contentious debt exchange exercise could create a new problem in the dangerous debt crisis plaguing Europe. "The idea of Greek default transformed from being a Greek punishment to a gift with the pending question: 'If Greece doesn't have to pay, why do I?' - threatening a far more disruptive outcome that is yet to be fully discounted," Warren Mosler, a distinguished trader based in the Virgin Islands, wrote on his website Mosler Economics. That is, should Greek bonds be formally discounted, the consequences of merely the political discussion of that question will be all it takes to trigger a financial crisis rivaling anything yet seen. Whatever the outcome, Greece's debt woes will be far from over. With austerity biting deep into the economy, the state's finances are showing further signs of deterioration and the unemployment rate soaring to a record 21%, according to national statistics issued Thursday. "The threat of an imminent default has been pushed back as a result of the successful bond-swap deal," said former Finance Minister Stefanos Manos. It's a relief. But in the end, the net gain will be zero because those left to manage and pursue further fiscal changes and reforms in Greece will be those who created this mess in the first place. "Not reassuring, is it?" he asked. Carassava is a special correspondent.