Bloomberg News

EU Said to Near Deal on Finnish Demand for Greek Collateral

October 03, 2011

(Updates with comments from Urpilainen in fourth paragraph, Frieden starting in fifth. See EXT4 <GO> for more on the European debt crisis.)

Oct. 3 (Bloomberg) -- European governments are close to resolving Finland’s demand for collateral to underpin bailout loans, removing an obstacle to Greece’s second rescue package, three people familiar with the discussion said.

Finance ministers meeting in Luxembourg today are considering whether the proposal is acceptable to all 17 euro countries. The goal is a package with relatively unattractive terms so that Finland would be the only country to force Greece to put up collateral, said the people, who declined to be identified because the talks are private.

Under the proposal, Greece would put up collateral in exchange for Finland’s guarantees to the European Financial Stability Facility, the people said. Finland in turn will forgo potential earnings from the Greek rescue deal, such as profits earned by the EFSF and the collateral might have junior status in case of a default, the people said.

Finnish Finance Minister Jutta Urpilainen said euro finance chiefs will discuss the collateral issue today, “but can we find a solution, that’s impossible to say. We are trying to find a solution that everyone can accept.”

Luxembourg Finance Minister Luc Frieden said any collateral arrangement should be available for all countries in the single- currency region. “I don’t think one country will be considered privileged vis-a-vis others,” he said in an interview in Luxembourg.

‘Waive Your Rights’

“We will have an instrument that will be adequately priced,” Frieden said. “In other words, if you take that collateral, you have to waive your rights to something else. I consider this as a minor technical issue that is about to be solved.”

Deals on collateral have been close before. Finland reached an arrangement with Greece on Aug. 16, only to see it rejected by other euro countries.

Greece still faces hurdles to winning the 109 billion-euro ($146 billion) follow-up package, including doubts over its ability to squeeze additional savings out of a population weary of two years of budget cuts and tax increases.

Finland’s plea for collateral prompted Slovakia, Slovenia, Austria and the Netherlands to consider demanding similar treatment, adding to the nuisances that dogged Europe’s effort at crisis-fighting unity.

The collateral clash pitted Greece against AAA rated Finland, home to a euro-skeptic movement that catapulted to third place in April elections by opposing further bailouts.

While the party now known as “The Finns” didn’t make it into the ruling coalition, it captured the Finnish mood and hardened the stance of new Prime Minister Jyrki Katainen in the euro-rescue bartering.

Tonight’s meeting started at 5 p.m. in Luxembourg.

--With assistance from Stephanie Bodoni, Jeff Black and Nejra Cehic in Luxembourg, Kati Pohjanpalo in Helsinki. Editors: James Hertling, Patrick G. Henry

To contact the reporters on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net; Rebecca Christie in Luxembourg at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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