Greek bailout could fall on collateral debate: experts


Mon, Aug 22, 2011 - Page 10

A debate over which eurozone countries can demand collateral from Greece in exchange for loan guarantees threatens to derail the quick approval of Athens’ second bailout program, experts warn.

“Finland has said right from the beginning that it would not back any loans without collateral and if this arrangement is no longer acceptable to other nations then it takes us back to square one,” Finnish Institute of International Affairs head Teija Tiilikainen said.

When eurozone leaders agreed on a 160 billion euro (US$230 billion) Greek rescue plan last month, Finland, which is one of only six EU nations with a top “triple-A” credit rating, was assured it could seek collateral for its portion of guarantees issued to raise bailout funds.

Helsinki reached a deal with Athens over the past week and immediately some of the other 16 eurozone nations cried foul.

“We’ve struck a deal with Greece and now it’s up to the other eurozone nations to approve it,” Finnish Finance Minister Jutta Urpilainen said on Wednesday.

Analysts at BofA Merrill Lynch Global Research said that the deal between Finland and Greece raises concerns since it “effectively voids much of the contribution of the former to the new EFSF [European Financial Stability Facility] financing package for the latter.”

The eurozone’s contribution to the bailout will be made via the EFSF, which raises money on the bond markets on the basis of guarantees issued by highly rated members.

Slovakian Finance Minister Ivan Miklos said on Thursday that if Athens agreed to provide collateral to Helsinki, then all EU creditor states should also receive collateral.

The finance ministries of Austria and the Netherlands, also “AAA”-rated countries, have indicated that they would also seek collateral if Finland receives it.

Greece said on Friday it had yet to receive requests for collateral from any other country.

“If there are requests from other countries, it will be up to the Eurogroup [of eurozone finance ministers] to find a solution,” Greek Finance Minister Evangelos Venizelos said on an Athens radio station.

Chief analyst for Nordea Bank Jan von Gerich told the leading Finnish daily Helsingin Sanomat that Greece simply cannot afford to do so.

“Greece does not have the means to hand out these kinds of guarantees, or else the entire loan package will have to be increased substantially,” von Gerich said.

Guntram Wolff of the Brussels-based Bruegel think tank Bruegel, said that Finland’s collateral deal could shake the foundations of the entire rescue package.

“If all of these countries would do as Finland does, then this would significantly reduce the amount of effective loans given to Greece and in that sense, the Finnish-Greek deal [risks] jeopardizing the whole package for Greece,” he said.

The Finnish finance ministry -refused to comment on the debate, but one official said that Finland had transparently insisted on collateral for most of this year and so the deal should not have come as a surprise.

Eurozone bailouts were a hot-button topic leading up to Finland’s general elections in April.

Urpilainen’s Social Democrats, the second-largest party, insisted they would not be part of a government that approved loans without collateral and parliament ratified the demand as a criteria for extending guarantees.