EU commission spokesman Amadeu Altafaj Tardio said on Friday that Finland – and all other eurozone countries – is free to ask Greece for collateral for loans to be made under the terms of its second bailout.
He added that low-level political talks about the “appropriateness” of Finland’s request have begun, but do not have a deadline.
There has so far not been any announcement of Malta’s position on this collateral debate, which has developed over the past few days, and questions sent to government spokesmen yesterday remained unacknowledged and unanswered.
It all began last Tuesday when Finland, the northernmost euro member, reached an agreement with the government in Athens requiring Greece to deposit cash in a state account that Finland will invest in AAA-rated bonds. The bilateral arrangement requires approval from other euro members, according to the Finnish Finance Ministry.
Finland has taken a hard line after the anti-bailout True Finns party burst onto the domestic political scene and scooped 19.1 per cent of the vote in the April elections.
Finland’s collateral demands were included in a 21 July agreement by eurozone leaders to provide a new €159 billion aid package for Greece and grant broader powers to the region’s rescue fund.
At the summit, AAA-rated Finland fought for extra assurances that it will not lose money over its backing for the European Financial Stability Facility. The 21 July agreement needs to be ratified nationally.
No date has been set as yet for the Maltese parliament to meet to ratify this agreement. The Parliament website still says Parliament will resume on 3 October.
But the Tuesday deal has had a domino effect. Austria and the Netherlands, both rated AAA, as well as Slovenia and Slovakia, then said they will seek deals similar to that reached by Finns. Finland said it is open to broadening the arrangement to include more countries.
Finland’s efforts to get collateral in exchange for new emergency loans to Greece could “blow up” the rescue plan endorsed by euro leaders last month, according to Austria’s Finance Minister Maria Fekter.
“The Finns have negotiated with the Greeks that they get 20 per cent of collateral in cash from the other member states,” Fekter told reporters in Vienna last week. “If every country demanded 20 per cent, the entire package would blow up.”
Fekter said she had contacted Finnish Finance Minister Jutta Urpilainen the day after the Nordic country announced its deal to air her views.
“The model has to be open to all euro countries. We plan to find out if this is the case”, said Austrian Finance Ministry spokesman Harald Waigelin in a telephone interview with Helsingin Sanomat on Wednesday.
Dutch Finance Ministry spokesman Niels Redeker said that The Hague had always “indicated in discussions in Brussels that if Finland got a collateral agreement then we also want a collateral agreement.”
The Slovenian Finance Ministry told the AP news agency that it is looking for “possible guarantees” for its loan.
These countries only account for about 11 per cent of the total loan, but the move serves to further undermine the already fragile sense of solidarity in the 17-nation eurozone – as well as making markets more jittery.
While no big countries have yet asked for collateral, it raises the general question of whether some euro countries will simply accept worse loan terms than others, by not asking for guarantees.
“We have negotiated this model between the two countries, we’ve sought to find a model that these two countries can agree on,” Urpilainen said in an interview. “This is what happened. Finland doesn’t oppose extending collateral to other countries.”
The Nordic country “was commissioned to establish a concept for all of Europe”, Fekter said, adding that Finland has struck a deal “that is at the expense of all the other countries”. Collateral demands from all contributing euro members would make the package “financially unviable”, she said.
Fekter said euro members whose banks have limited exposure to Greece should have a greater right to demand collateral as part of a new aid package. The proposal was spelt out in a letter to other eurozone finance ministers, she said.
Euro members’ right to collateral from Greece should be restricted if their banks contribute to the rescue package because such lenders are already being offered incentives to take part, said Fekter.
The collateral agreement “allows Finland to participate in the Greek loan,” Finland’s Finance Minister Urpilainen said last Tuesday. “Without this arrangement, Finland won’t participate,” she said, adding that the “next few weeks are very decisive in that we will see how other countries respond to this collateral arrangement.”
Slovakia said on Thursday that all European creditor states should receive collateral for the aid they give to bailed-out Greece after Athens agreed to provide guarantees for Helsinki.
“I consider it unacceptable for any country not to have the collateral, if other countries have it,” Slovak Finance Minister Ivan Miklos told reporters.
“Because if this is a loan – and that’s what everyone is calling it – the debtor should have no problem in offering collateral for the loan,” he said, adding however that it may be hard to identify suitable assets.
Slovakia, which joined the eurozone in 2009, was the only holdout among eurozone members against the bloc’s first rescue package for Greece in 2010.
A spokesman for Olli Rehn, the European Commissioner for economic and monetary affairs, said: “It is up to eurozone member states to assess if this deal between Greece and Finland corresponds to the spirit of these conclusions and does not introduce any element that could be considered a distortion. That discussion is going on.” He declined to comment on whether finance ministers would be called upon to ratify the final decision.
EU officials had hoped that the finishing touches to the bail-out agreement – which is expected to be made up of loans from the International Monetary Fund and the eurozone’s bail-out fund, the European Financial Stability Facility – would be made by the end of August in order to facilitate the next payment of loans to Greece next month.
However, delays now look inevitable.
Rehn’s spokesman said: “I’m not aware of any formal requests along those lines and I can’t engage in speculation.” However, he reiterated the sentiments of José Manuel Barroso, the president of the European Commission, in his letter to eurozone governments of 3 August, that changes should avoid “introducing excessive constraints in terms of either additional conditionality or collateralisation of the EFSF lending”.
The need to put up collateral – whether in the form of cash or other assets – may also ultimately impair Athens’ ability to pay back the general loan.
Finland, needing parliamentary approval for the Greek bailout, has said that what other countries do is their business.
“From Finland’s point of view it’s clear: we don’t really have to be worried if other countries want similar or other guarantees from Greece,” Jussi Lindgren, financial secretary at the Finnish Finance Ministry, told Finnish broadcaster YLE. “They would have to negotiate their own deals, and see if it’s at all possible.”
The €109 billion in new public aid to Greece includes €35 billion of “credit enhancements” linked to a plan for private creditors to contribute through bond exchanges and rollovers. In addition, €20 billion of the public aid will be used for a buyback of Greek debt.
Part of the new bailout is a plan under which banks can exchange their Greek government bonds for new securities that are collateralised. France’s BNP Paribas (BNP) SA, Dutch ING Groep NV and Germany’s Commerzbank AG are among the banks that have said they will participate in the exchange and may therefore benefit from the collateral. So far, no Finnish or Austrian bank has signed up to the plan.