The head of the International Monetary Fund says she wants the fund to contribute €28 billion ($36.4 billion Cdn) to a €130 billion bailout for Greece.

Christine Lagarde said Friday that "the scale and length of the fund's support is a reflection of our determination to remain engaged" in helping Greece.

The €28 billion likely includes €10 billion left over from the IMF's contribution to Greece's first €110 billion bailout.

Lagarde said the IMF's executive board would decide on the final contribution next week.

Debt-ridden Greece needs the bailout to avoid a disorderly default that could destabilize the rest of Europe.

Earlier Friday, the International Swaps and Derivatives Association, a private organization that rules on credit events, ruled Friday that Greece has officially defaulted on its debt.

While hardly news and widely-expected, the decision that what the ISDA calls a restructuring credit event has occurred will trigger the payment of Credit Default Swaps, which is essentially insurance against a default.

Those payouts on CDS linked to Greece are expected to be $3.2 billion US.

The ruling came after the country secured a strong majority of private creditors to participate in the biggest national debt writedown in history, bond swap deal that will wipe off about €105 billion from its national debt.

Fitch downgrades Greece

When the debt relief plan was first announced last year, eurozone leaders and the ECB worked hard to avoid a credit event, because they feared the payout of CDS could destabilize big financial institutions that sold them.

That ISDA has said CDS payouts are spread over many financial firms and likely too small to significantly hurt any one of them.

Earlier Friday, bond rating firm Fitch Ratings Friday became the third major agency to declare that Greece has effectively defaulted on its debt and downgraded its risk assessment to "restricted default."

The downgrade was expected. Moody's and Standard & Poor's have already downgraded Greece to default level, saying they consider the debt swap to be a default.

Following weeks of intense discussions, the Greek government said early Friday that 83.5 per cent of private investors agreed to take part.

The swap was a key condition for Greece to receive a €130 billion ($169 billion Cdn) package of rescue loans from other eurozone countries and the International Monetary Fund.

Eurozone finance ministers said after a conference call on Friday that Greece would get its second rescue.

"There is no doubt that we will be able to decide on the release of the second Greece package next week," German Finance Minister Wolfgang Schaeuble said.

The ministers also released up to €35.5 billion ($46 billion) in bailout money to fund the debt swap.

Investors exchanging bonds will receive up to €30 billion — or 15 per cent of the remaining money they are owed — as a sweetener for the deal and €5.5 billion for outstanding interest payments.

Economy contracts more than expected

"We have achieved an exceptional success ... and I believe everyone will soon realize that this is the only way to keep the country on its feet and give it a second historic chance that it needs," Finance Minister Evangelos Venizelos told Parliament.

"A window of opportunity is opening" with the success of the deal to reduce the country's €368 billion debt by €105 billion, or about 50 percentage points of gross domestic product, he said.

The bond swap is a radical attempt to pull Greece out of its debt spiral and put its shrinking economy back on the path to recovery. The hope is that by slashing debt, the country can gradually return to growth and eventually repay the remaining money it owes.

The magnitude of that challenge was underscored Friday when Greece’s national statistical authority said that the recession in the last quarter of 2011 was deeper than initially forecast, reaching 7.5 per cent instead of seven per cent.

The Greek economy is expected to shrink for a fifth straight year in 2012, stagnate in 2013 and modestly expand in 2014.

Given the state of the Greek economy, this won’t be the end of debt relief, TD Bank Senior Economist Martin Schwerdtfeger predicted.

"At the end of the day, this is very likely going to be just the first Greek debt restructuring," he said.

And that could be bad news for taxpayers who foot the bill for what are known as Greece’s official lenders: the other governments in the eurozone and the International Monetary Fund.

Because the new bonds offered in the private debt swap now put private creditors like banks and hedge funds on the same footing as those official lenders, "next time around, a private restructuring will have to impose the same conditions on official creditors," Schwerdtfeger said.

He also predicted the attention of the markets will now focus on Portugal and Ireland.

"The tough conditions imposed on Greek private bondholders will make it very difficult for them to issue debt at reasonable interest rates," he said, "despite the progress they have made thus far with their structural reforms and fiscal consolidation efforts."

"The high yields on Portuguese bonds are a clear indication that bondholders do not fully trust the sustainability of Portuguese sovereign debt, even under the auspice of the IMF and the EU."

"The bottom line is that the preliminary results on the Greek debt swap are an important step, but by no means the end of the European sovereign debt crisis."

The investors will exchange their bonds with new ones worth 53.5 per cent less in face value and easier repayment terms for Greece. A total of €206 billion ($268 billion) of Greece's debt is in private hands.

The swap will effectively shift the bulk of the remaining debt into public hands — mainly eurozone countries contributing to Greece's bailouts.

European markets, which had rallied on Thursday on expectations of a successful deal, were muted on Friday.

London's FTSE 100 index closed up 0.47 per cent while Frankfurt's DAX gained 0.67 per cent and the Paris CAC 40 was up 0.26 per cent. The euro fell 1.2 per cent to $1.31 US at late Friday afternoon.