Bloomberg News

EU Can’t Let Finn Collateral Derail Greek Rescue, Salgado Says

August 20, 2011

(See EXT4 <GO> for more on Europe’s sovereign debt crisis.)

Aug. 19 (Bloomberg) -- Euro-region governments can’t let Finnish demands for collateral in return for Greek aid derail a second rescue package for Europe’s most-indebted country, Spanish Finance Minister Elena Salgado said.

It’s not “reasonable” that a collateral agreement in return for 109 billion euros ($157 billion) in new loans to Greece would be offered to just one euro-region country, she said. A voluntary formula, not necessarily based on the Finnish plan, could be adopted for countries that want extra protection, she said. Spain isn’t seeking collateral as it doesn’t think it’s necessary, Salgado said.

“This is an open discussion,” Salgado said today in an interview in Madrid. “We should all bear in mind that it mustn’t stand in the way of a solution for Greece, and if we all aim for that, I’m sure we will reach a solution.”

Finland demanded collateral as part of a July 21 agreement by euro-area leaders to provide the new aid package to Greece and grant broader powers to the region’s rescue fund. Finland has since reached a bilateral collateral deal with Greece that prompted Austria, the Netherlands, Slovenia and Slovakia to say they would seek similar guarantees, threatening to delay the rescue package.

The flap over collateral contributed to a slump in Greek bonds today, with the yield on the country’s two-year note jumping 2.4 percentage points to top 37 percent for the first time in a month.

Cash Deposit

Salgado said she was confident that both the Greek aid package and the expanded powers for the euro-region rescue fund would be approved by the end of September, as pledged by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

The agreement between Finland and Athens requires Greece to deposit cash in a state account that Finland will invest in AAA-rated bonds. The deposit will be equal to 20 percent of the collateral needed, Austria Finance Minister Maria Fekter said yesterday.

“The Finnish formula shouldn’t be considered a done deal,” Salgado said. “The discussions in the euro group are open and it’s not the first time a country proposes something and then changes its position slightly in the common discussions.”

European Commission spokesman Amadeu Altafaj today warned against introducing new conditions that would lead to “excessive collateralization” regarding Greece.

--With assistance Zoe Schneeweiss in Vienna and Kati Pohjanpalo in Helsinki. Editors: Andrew Davis, Kevin Costelloe

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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