Greece implemented the biggest debt writedown in history on Monday, swapping the bulk of its privately-held bonds with new ones worth less than half their original value.
Although the exchange will keep Greece solvent and at the receiving end of billions in international rescue loans, markets were underwhelmed amid fears that the country's debt load remains too heavy.
A statement from the finance ministry said bonds issued under Greek law with a total face value of euro177.2 billion ($232.5 billion) were exchanged. A smaller batch worth euro28.5 billion, issued under foreign law or by state enterprises, will be swapped in coming weeks.
The debt exchange opens the way for Greece's second international bailout, expected to be finalized this week by finance ministers from eurozone nations. It will also transfer the majority of the country's debt from private into public ownership _ its eurozone partners and the International Monetary Fund.
Jean-Claude Juncker, the prime minister of Luxembourg who is also the main spokesman for the 17 countries that use the euro, said he expects the final approval for the bailout on Wednesday, but indicated that was mainly a matter of procedure.
Without the swap and the euro130 billion ($172 billion) bailout, Greece faced an uncontrolled default on its debts in less than two weeks when a big bond redemption was due.
Though the bond swap will wipe euro105 billion ($138 billion) off Greece's euro368 billion ($485 billion) debt mountain, giving Athens breathing space to enact more austerity, many analysts think the country's debt remains unsustainable.
The yields on the new bonds, with maturities of between 11 and 30 years, are trading at rates between 13 and 19 percent. That indicates that investors think Greece needs to cut its debt a lot more before it can return to markets for funding.
"Markets are telling us that Greece still faces a Herculean task," said Louise Cooper, markets analyst at BGC Partners. "If the country's problems were solved by the biggest ever sovereign restructuring ever and the first default in Western Europe for 70 odd years _ the last one was Italy in 1940 _ then why are the new and shiny bonds trading for the first time today as junk?"
Late Monday, at the end of a meeting of eurozone finance ministers in Brussels, Juncker announced the optimistic prediction that Greece's debt could now decline to 117 percent of GDP by 2020, less than the 120 percent that had been expected by debt inspectors in a recent report. Juncker said the new estimate was due to greater-than-expected voluntary participation in the writedown.
This estimate, however, represents a best-case scenario. A previous report from Greece's international debt inspectors said there is a significant chance that the country's debt could run far off target if the economy doesn't return to growth quickly.
Greece succeeded last week in getting the vast majority of its investors to agree to the debt-reduction deal.
It got the support of 83.5 percent of private investors, who will take real losses of more than 70 percent on their holdings of Greek debt. Of the investors holding bonds governed by Greek law, 85.8 percent agreed. The deadline for foreign-law bonds _ which saw a 69 percent takeup rate _ has been extended to March 23.
Despite the success of the bond swap, the longer-term task facing the country, which is due to hold elections within the next couple of months, is tough. After agreeing to a further batch of harsh reforms to secure new bailout funds, Greece must now implement them.
The list includes cutting 15,000 civil service jobs this year, merging or scrapping dozens of public sector entities, selling off state assets and enacting deep budget cuts. The country must also reorganize its tax, health and judicial systems.
Even more austerity measures are expected in June.
"From our side, the target is now the full implementation of the program and of course the return of Greece to growth," Finance Minister Evangelos Venizelos said Monday.
Since the beginning of 2010, Greeks have been clobbered with waves of pension and salary cuts amid constant tax hikes. Reactions have ranged from union-organized strikes and demonstrations _ many of which turned violent _ to attacks on politicians and disruption of parades. Last year alone, nearly 6,000 protests and demonstrations were held nationwide, according to police figures.
On Monday, Prime Minister Lucas Papademos chaired a ministerial meeting on potential violence during independence-day celebrations on March 25.
Greece has been locked out of the markets by sky-high interest rates and has been relying on funds from an initial euro110 billion ($145 billion) bailout since May 2010.
Despite receiving more than euro70 billion ($92 billion) of the initial rescue loans and passing the austerity measures, the country remains unable to service its debts as the economy has plunged into a deep recession.
European leaders agreed last October that Greece needed a second bailout if it was to avoid a disorderly default that could have dragged down the euro.
Elena Becatoros and Derek Gatopoulos in Athens, and Gabriele Steinhauser in Brussels also contributed to this report.