Greece implemented the biggest debt writedown in history on Monday, when it swapped the bulk of its privately-held bonds with new ones worth less than half their original value.

A Finance Ministry statement said bonds issued under Greek law with a total face value of €177.2 billion ($230.36 billion Cdn) were exchanged. A smaller batch worth €28.5 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 the 17 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.

Without the swap and the €130 billion ($169 billion) bailout, Greece faced defaulting on its debts in less than two weeks when a big bond redemption was due.

Though the bond swap will wipe €105 billion ($137 billion) off Greece's €368 billion ($478 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 per cent. 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?"

Deadline extended

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 per cent of private investors, who will take real losses of more than 70 per cent on their holdings of Greek debt.

Of the investors holding bonds governed by Greek law, 85.8 per cent agreed. The deadline for foreign-law bonds — which saw a 69 per cent 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.

"The budget must be balanced; otherwise we won't be able to borrow from anybody," government spokesman Panagiotis Kapsis said on Greek radio.

Greece has been locked out of the markets by sky-high interest rates and has been relying on funds from an initial €110 billion ($143 billion) bailout since May 2010.

Despite receiving more than €70 billion ($91 billion) of the initial rescue loans and passing a series of 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.