Finland Gets Collateral Deal With Greece
Finnish Finance Minister Jutta Urpilainen
Georges Gobet/AFP/Getty Images
Finnish Finance Minister Jutta Urpilainen.
Finnish Finance Minister Jutta Urpilainen. Photographer: Georges Gobet/AFP/Getty Images
Finland reached an agreement with Greece on receiving collateral to cover its bailout contribution as the Nordic nation rejected any form of joint regional liability such as selling common euro bonds.
The “next weeks are very decisive in that we will see how other countries will respond to this collateral arrangement,” Finance Minister Jutta Urpilainen said yesterday at a press conference in Helsinki. “Finland has been critical of joint euro bonds and our stance is that every country is liable for its own debts.”
Finland’s collateral demands were included in a July 21 agreement by euro area leaders after the AAA rated nation fought for extra assurances it won’t lose money on its bailout contribution. The 17-member currency bloc is split on how far members should go to support its most indebted nations. German Chancellor Angela Merkel and French President Nicholas Sarkozy rejected euro bonds at a meeting yesterday and said they would first press for closer economic integration with tougher deficit rules.
Urpilainen said steps toward joint liability, such as euro bonds, would undermine the founding principles of the common currency and risk creating a transfer union.
“Finland’s stance remains that there should be no more joint liability,” she said. “We want to adhere to the founding treaties and the principle that every country is liable for its own debts.”
Second Bailout
Greece won a second bailout after a previous 110 billion- euro ($158 billion) package failed to solve the euro area’s debt crisis. The new plan agreed on by European leaders last month includes 50 billion euros in contributions from private investors through bond exchanges and buybacks to cut Europe’s biggest debt.
The agreement between Finland and Greece will allow the southern European nation to deposit cash in a state account that Finland will invest in AAA rated bonds. The interest generated will raise the amount to match the required collateral. Finland will return the money, plus interest, once the bailout loan is repaid, Urpilainen said.
The difference in yield between Finland’s 10-year bond and German bunds of a similar maturity was little changed at 39 basis points today. The euro declined 0.2 percent against the dollar to trade at 1.4375 at 8:32 a.m. in London.
Collateral Investment
Details on the timing and exact amount are still to be determined after the extent of private participation in the bailout has been hammered out on the European level, Urpilainen said, likening the timeframe to the 15 to 30 years discussed for the private sector’s role.
“The collateral will be invested to bring the highest possible return,” she said. “We will have a central role, as this arrangement will take place under Finnish law. We will consult Greece on deciding which securities the funds will be invested in.”
Finland’s agreement with Greece allows the Nordic country to “recycle other euro members’ money to use as collateral as the funds Greece deposits must come from the bailout loans,” Reijo Heiskanen, chief economist at OP-Pohjola Group in Helsinki, said by phone. “Finland is a free-rider, letting others bear the risk. This isn’t a course available for all euro countries.”
Lawmakers in the Nordic country will discuss Finland’s contribution to the European Financial Stability Facility as the first item after parliament convenes on Sept. 6, she said. Finland opposes any enlargement of the EFSF, she said.
“In the future, Finland will only participate in any new bailouts if we get collateral,” she said. “Greece was the first one and collateral has now been arranged. I hope no new countries need help, but if new ones ask for aid, the same principle will apply to them.”
To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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