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6:50am UK, Sunday March 11, 2012
It paves the way for an enormous second bailout for the country to keep Europe's economy from being dragged further into chaos.
Greece would have risked defaulting on its debt in two weeks without the agreement, sparking turmoil in the markets and sending shock waves through the other 16 countries that use the euro.
Prime Minister Lucas Papademos called the deal - which shaves some 105bn euros (?88bn) off Greece's 368bn euro (?308bn) debt load - an important "historic success" in a televised address to the nation on Friday night.
"For the first time, Greece is not adding but taking debt off the backs of its citizens."
The country said 83.5% of private investors holding its government debt had agreed to a bond swap, taking a cut of more than half the face value of their investments as well as accepting softer repayment terms for Greece.
The swap aiming to turn around the country's debt-ridden economy was a key condition to secure a 130bn euro (?109bn) rescue package from other eurozone countries and the International Monetary Fund (IMF).
The managing director of the Institute of International Finance, which negotiated the deal with Greece for large investors, called the bond swap "the largest ever" debt restructuring.
"This has been painful and the pain is not over yet. But I now can see light at the end of the tunnel for the Greek economy," Charles Dallara told Greece's Mega television.
Of the investors holding the 177bn (?148bn) in bonds governed by Greek law, 85.8% joined. The deadline for those owning foreign-law bonds has been extended to March 23.
The crisis has sparked protests and riots on the streets of Athens
Creditors holding Greek-law bonds who refused to sign up will be forced into the deal.
The decision to force losses on some bondholders means that the debt relief will trigger payouts of so-called credit default swaps, a type of insurance on bonds.
The International Swaps and Derivatives Association (ISDA), the private organisation which rules on such cases, said its committee ruled that a "restructuring credit event" occurred.
When the debt relief plan was first announced last year, eurozone leaders and the European Central Bank worked hard to avoid a credit event because they feared the payout of credit default swaps could destabilise big financial institutions that sold them.
:: Read more on the eurozone crisis on our dedicated topic page
But since then, that prospect has started to look less threatening. The ISDA said that if triggered, overall payouts will be significantly below the ?2bn in net outstanding credit default swap contracts linked to Greece. The exact level of payouts will be determined on March 19.
The Fitch ratings agency downgraded Greece to "restricted default" over the bond swap - a move that had been expected. Fitch was the third agency to downgrade Greece into default, after Moody's and Standard & Poor's.
The agencies are expected to raise the country's credit rating after the completion of the swap.
The finance ministers from the 17-nation eurozone said Greece had fulfilled the conditions to get approval for the bailout next week.
Nicolas Sarkozy says the Greek debt problem has now been solved
The head of the IMF, Christine Lagarde, has recommended the organisation contributes around ?23m to a new rescue package, including 10bn euros (?8bn) left over from Greece's first bailout. The IMF's board is set to decide on the final contribution next week.
European leaders have mostly hailed the deal as a seminal moment in their effort to stem the crisis and get Greece on its feet.
"The page of the financial crisis is being turned," said French President Nicolas Sarkozy but Germany said any impression the crisis is over "would be a big mistake".
Greek finance minister Evangelos Venizelos said: "I believe everyone will soon realise that this is the only way to keep the country on its feet and give it a second historic chance that it needs."
However, some economists are concerned Greece is merely buying time. The breather allows European governments and banks to strengthen their financial defences, leaving them less vulnerable if Greece eventually cracks.
The deal and expected bailout do "more to protect Europe from Greece than for Greece itself," said Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics.
The debt crisis, sparked by years of overspending and waste, has left Greece relying on funds from international rescue loans since May 2010.
Austerity measures, including repeated salary and pension cuts and tax hikes, have led to record unemployment with more than one million people out of work - a fifth of the labour force.
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