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Failure of Greek debt deal could cost $1.3 trillion

Decision day for the Greek debt crisis is drawing near, and insiders are predicting that if things go awry it could cost the world economy $1.3 trillion.

Holders of Greek bonds have to decide by this Thursday whether they will trade in their old Greek bonds for new bonds that are worth less.

Bond holders have an interest in agreeing to the swap because if it doesn’t work, Greece is likely to default on its debt when it has scheduled payments on March 20. In a confidential memo that has just surfaced, the industry group representing bond holders has said that the consequences of such a default could be $1 trillion in losses.

“When combined with the strong likelihood that a disorderly Greek default would lead to the hurried exit of Greece from the Euro Area, this financial shock to the [European Central Bank] could raise significant stability issues about the monetary union,” the International Institute of Finance’s memo said, according to a copy posted on a Greek news website.

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Even with the potential damage, it is not clear if all the bond holders will sign on, and Greece said it will only go ahead if it gets 75% participation. Many of the bonds are currently held by hedge funds who bought them up on the cheap and who are now disappointed with the level of the cuts that Greece is insisting they take.

The IIF put out a statement Monday listing all the bond holders who are willing to take the deal. Bloomberg estimated that they only account for 20% of the total participants needed. Greece’s finance minister told Bloomberg Television this is the only chance bond holders will get.

“This is the best offer because this is the only one, the only existing offer," Evangelos Venizelos said.

If they don’t take it, today’s stock market declines may look like small potatoes.

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