Eurozone finance minister have a agreed a second bailout for Greece after marathon talks in Brussels, which ended late on Monday.

Greece will receive a package of loans worth more than 130 billion euros ($170 billion) and have about 107 billion euros of its debt written off. To make that happen, Greece now needs to forge a deal with private sector investors over the next few days.

The debt swap will see Greek bondholders accept a writedown of 53.5 percent on their old Greek bonds. The deal is crucial in bringing Greece's debt burden back to a sustainable level by reducing it from currently 160 percent debt-to-GDP ratio to 120 percent by 2020.

The Institute of International Finance (IIF),which represents private sector bondholders in the negotiations, said the planned Greek debt swap is "the biggest ever restructuring of sovereign debt" it had dealt with.

IIF said it hoped that all banks, investment funds and insurance companies, holding Greek debt, would join a deal "voluntarily", thus averting a disorderly Greek default and a complete writedown of their assets.

Speculation rife

However, some investor groups are reluctant to reach an agreement. So-called hedge funds and other high-risk investors have taken out insurance against a Greek default by buying Credit Default Swaps (CDS), which would get them high payouts in case of a default.

Their investment would fail as "bond insurers make no payments if a restructuring agreement is reached voluntary," Hendrik Lodde, European bond analyst for DZ Bank, told DW.

"They [CDS] would simply disappear from the market," he said, adding: "That is why some investors would rather like to see a genuine default on a non-voluntary basis."

Legal muscle

According to a report in the German business newspaper Handelsblatt, the group of investors accepting losses voluntarily was not yet big enough for the debt deal to go ahead. Under international finance laws, 90 percent of creditors must agree to the debt restructuring.

Therefore, Athens on Tuesday published details of a draft law that included a so-called collective action clause to enforce participation by any reluctant investor.

However, the move could be interpreted by financial markets as "disorderly default," said Hendrik Lodde, meaning that "claims from Credit Default Swaps would immediately become valid."

Default or not

In addition, US-based ratings agencies would "see a need to act," Jürgen Matthes, researcher at the Institute of the German Economy (IW), told DW.

"If the debt deal is voluntary, they appear willing to set Greece on a 'default rating' only for a preliminary period. The outlook for Greece would be better on lower interest rates and less debt servicing, leading to a speedier recovery of the country's debt rating," he said.

However, in the case of a "disorderly default", he warned, Greece would be stigmatized for much longer, making it more difficult to get re-financing from financial markets.

Contagion fears

In recent months, financial markets have increasingly feared an uncontrolled spread of the Greek debt crisis to other eurozone countries and Europe's financial institutions.

Notably, the volume of CDS papers held by banks has been regarded as a time bomb. IW expert Jürgen Matthes, however, said he believed the "fear of contagion was overrated."

Figures published recently indicated that "CDS volumes may be comparatively low regarding their net-worth," he said, but added that dangers could arise "if a single bank had issued a big number of CDS, and was going to suffer from huge payouts" it had to make in the wake of a Greek default.

Author: Zhang Danhong, Uwe Hessler
Editor: Joanna Impey