Speculation on whether Greece needs another bailout is premature and Europe needs to wait and see whether measures agreed to date help the nation regain control of its debt, Finland’s Prime Minister Jyrki Katainen said.
“The decisions taken now are the correct ones to support Greece in its extremely difficult situation,” Katainen said in an interview in Helsinki today. “We are committed to the deal by the finance ministers. There’s no point in conjecturing on what that might mean in the future.”
Euro-area finance ministers this week drew up a debt-relief agreement for Greece that reduced the rates on bailout loans and suspended interest payments for a decade. The government in Athens was also given more time to repay its debt and will be able to buy back its bonds. German Finance Minister Wolfgang Schaeuble and Dutch Prime Minister Mark Rutte have since hinted at the prospect of further aid amid conjecture the measures may prove inadequate to spur a sustainable recovery.
The ultimate objective is to ensure Greece stays inside the euro, Katainen said. A splintering of the currency bloc would have devastating consequences for all 17 members, he said.
“Our aim isn’t to force Greece out of the euro,” he said. “That would be a catastrophe for Greece and the rest of the euro area.”
Finland is one of four remaining AAA rated euro nations that have been firm in their demands that bailout recipients comply with strict austerity programs. Finland and Germany have rejected joint borrowing and pushed fiscal policy coordination to ensure euro members’ budgets remain sustainable.
Finland is the only euro member to have negotiated collateral in exchange for backing emergency loans that don’t give it seniority. For that privilege, the nation was required to fork over its contribution to the European Stability Mechanism’s capital upfront. Finland also agreed to forgo any profits on loans made by the temporary fund, the European Financial Stability Facility.
This week’s accord also cleared Greece to receive a 34.4 billion-euro ($44.7 billion) loan installment next month. The deal targets a reduction in government debt to 124 percent of gross domestic product by 2020 and below 110 percent of GDP by 2022.
“Whether Greece will attain this goal is anyone’s guess,” Finnish Finance Minister Jutta Urpilainen said in an interview in Helsinki. “It’s largely up to Greece, on how well they are able to stick to their commitments and implement reforms.”
Even with those measures, Greece’s debt load, which will peak at almost twice the size of its economy in 2014, remains unsustainable, Moody’s Investors Service said today. The chance of a default is “high,” Moody’s analysts wrote.
“Of course the euro area, at least Finland, think it has realistic chances of achieving this,” Urpilainen said. “That’s why we’ve been flexible in certain issues.”
The cost of easing Greece’s debt terms will be about 2.78 billion euros for Germany in the form of forgone profit from future European Central Bank Greek holdings, Schaeuble said. The Netherlands faces a loss of 70 million euros a year over the next 14 years, according to Finance Minister Jeroen Dijsselbloem.
Finland’s bill from the measures is about 10 million euros from lower rates on bilateral loans, Urpilainen said. That doesn’t include lost profits to the Bank of Finland, she said yesterday. The focus now is on executing the decision, Urpilainen said.
“We shouldn’t double-guess on what’s going to happen in the future, instead we should implement the decisions that have been taken now,” Urpilainen said. “We should proceed step-by- step.”
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