Finland is open to adjusting its collateral arrangement with Greece after several euro members criticized the Nordic country for securing a bilateral deal to protect its commitment, Prime Minister Jyrki Katainen said.
"Everybody knew beforehand that this is a red line for us, we have tried to solve the problem, we have done it together with Greece," Katainen said yesterday in an interview in Helsinki. "It's a well-functioning technical solution, but if this particular model isn't possible, then we have to try to find another model."
Finland's Aug. 16 announcement that it had secured extra assurances its contribution to a second Greek bailout will be repaid triggered a backlash of criticism and prompted calls for similar deals from Austria and the Netherlands, which both share Finland's AAA rating, as well as Slovakia and Slovenia. Austria has warned Finland's collateral deal threatens to undermine rescue efforts.
Finland's arrangement highlights divisions in the Euro area, Moody's Investors Service said in a report yesterday. Bilateral agreements would be credit negative for Greece and other countries now receiving, or in line for, bailouts, as it shows continued differences among Euro-area states over support measures, Moody's said.
Austrian Finance Minister Maria Fekter has proposed a separate collateral model after deriding Finland's arrangement as being "financially unviable" and having the potential to "blow up" Greece's second rescue package. The government in Vienna wants euro members to have less access to collateral deals if their banks are already benefiting from incentives included in the private sector portion of Greece's new 159-billion-euro rescue.
The Netherlands won't accept Austria's proposal, Dutch Finance Minister Jan Kees de Jager wrote in a letter to parliament yesterday. "Such an arrangement, like Finland's deal, isn't compatible with the principle of equal treatment of all euro countries and would, just like the Finnish proposal, lead to a greater levy" on the region's rescue fund, he said.
Finland's demand is "Russian roulette," and raises the likelihood of a global recession, Chief Economist Timo Tyrvaeinen at Aktia Oyj in Helsinki said in a note today.
Finland's agreement requires Greece to deposit cash in a state account that the Nordic country will invest in top-rated bonds. The interest generated will raise the amount to cover Finland's bailout contribution. The deposit will be equal to 20% of the collateral needed, according to Fekter. Finland hasn't disclosed the amount. The deal needs approval from other euro members.
Senior officials from euro-area governments are discussing the collateral agreement by Finland and Greece, European Union spokesman Amadeu Altafaj said today.
Collateral is "better than nothing, but it doesn't change the warped model," Timo Soini, leader of Finland's euro-skeptic The Finns party, said by telephone yesterday. The costs of preventing a Greek default "are skyrocketing and even though the financial elite doesn't want to admit it, Europe's running out of money," said Soini, whose party this month polled as Finland's most popular political group as voter opposition to bailouts mounts.
