BRUSSELS, Aug 29 (Reuters) – Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held there as security for new loans to Athens, according to an internal document seen by Reuters.

The plan, drafted in June, remains a central plank of current Finnish demands for collateral in return for providing more aid. If it does not get its way, Finland may pull out of the Greek bailout, sparking renewed chaos on financial markets.

Although small at around 1.4 billion euros, Finland’s planned support for Greece is important because its triple-A credit rating adds weight to the 109 billion euro rescue agreed on July 21, the second bailout package Athens has received.

Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone’s attempt to save Athens from default.

In the document, Finnish officials set out how the Greek government and its privatisation agency would authorise the transfer of assets to a holding company based in Luxembourg that would be used as security for states giving assistance.

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BRUSSELS, Aug 29 (Reuters) – Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held there as security for new loans to Athens, according to an internal document seen by Reuters.

The plan, drafted in June, remains a central plank of current Finnish demands for collateral in return for providing more aid. If it does not get its way, Finland may pull out of the Greek bailout, sparking renewed chaos on financial markets.

Although small, Finland’s support for Greece is important because its triple-A credit rating adds weight to the latest, 109 billion euro rescue drawn up by euro zone states on July 21, the second bailout package Athens has received.

Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone’s attempt to save Athens from default.

In the document, Finnish officials outline how the Greece privatisation agency would authorise the transfer of assets to a holding company based in Luxembourg that would in turn be used to as security for states giving assistance.

The privatisation agency would own all the shares in the asset holding company, although the shares would be held in custody by a third party. Since the holding company would be based in Luxembourg, it would operate under Luxembourg law.

Such a move would likely prove controversial in Greece, where the government has strongly rejected suggestions of offering land or company shares as collateral for future loans.

BRUSSELS/HELSINKI, Aug 26 (Reuters) – Finland is standing by its demand for collateral as an “absolute precondition” for new loans to Greece, an official said on Friday, while others said the government was open to tweaking its deal with Athens for security on its loans.

An EU news website earlier reported that Finland had abandoned its demands for collateral under pressure from Germany. A Finnish government official, speaking on condition of anonymity, said that was not the case.

“There seems to have been some misunderstanding. Our demand is still very valid. Collateral is an absolute precondition for Finland to take part in the package,” the official told Reuters.

“Discussions are continuing to find a way that makes it possible to have that collateral.”

An aide to Finance Minister Jutta Urpilainen, however, said Finland was open to tweaking its agreement if other euro zone members object.

“If the deal between Finland and Greece does not suit other countries, we have to find some alternative models,” said Matti Hirvola, Urpilainen’s aide said. “The talks are ongoing. We hope we can find a model that suits everybody.”

Other euro zone countries have responded angrily to the Finnish deal, with some saying they should get equal treatment, and the resulting row threatens to deal work on implementing a second Greek bailout and other steps to ease the euro zone’s debt crisis.

BRUSSELS, Aug 24 (Reuters) – If there is one pitfall Western officials appear determined to avoid in Libya, it is making the same mistakes that were made in Iraq eight years ago.

It is not so much the way the six-month conflict in Libya has been pursued, with France, Britain and others providing support to the rebels from afar, operating under a NATO banner and with a U.N. mandate, but the thinking and planning of the post-Muammar Gaddafi phase.

Gaddafi, in power for 42 years, has still not left the scene and his whereabouts and that of his sons remains unclear.

But for several weeks, and in coordination with the rebel National Transitional Council — now recognized by more than 30 countries including the United States and the EU’s member states — detailed planning has been going on over how to administer Libya once Gaddafi and his backers are gone.

In Iraq, the approach taken by the United States after the overthrow of Saddam Hussein was haphazard — asked days after Baghdad had fallen what his plan was, the U.S. administrator, Lieutenant-General Jay Garner, responded: “I’m just going to carry the football downfield and see what happens.”

It did not get much better. Paul Bremer, who took over from Garner in May 2003, decided to dissolve the Iraqi army, putting tens of thousands of angry men with guns on the streets, directly contributing to the rise of the insurgency.

He also pursued a vigorous policy of ‘de-Baathification’, which alienated large portions of the population, from teachers to civil servants, many of whom had been forced to belong to Saddam’s Baath party rather than being true believers.

BRUSSELS (Reuters) – A worsening euro zone debt crisis may ultimately force the bloc to expand its 440 billion euro ($625 billion) bailout fund, despite political opposition in key contributing countries, some officials and analysts say.

An emergency summit of euro zone leaders last month agreed to let the fund, the European Financial Stability Facility, deploy its money in new ways to fight the crisis. But it did not take a major step for which investors were hoping: give the EFSF more firepower.

Since then, the euro zone’s debt problem has become even more worrying, threatening to move beyond small countries such as Greece to engulf large states such as Spain and Italy.

The spread of the Italian 10-year government bond yield over German Bunds jumped to a euro-era high of 3.85 percentage points on Tuesday, a level which, if sustained over the long term, could prevent Italy from borrowing in the markets at affordable rates.

To convince the markets that this will not happen, rich euro zone governments may have no choice but to override opposition among their taxpayers and pledge to contribute to a drastic expansion of the EFSF — perhaps doubling or tripling it.

“You need to convince the world that Europe is going to sort itself out,” said John Fitzgerald of the Economic and Social Research Institute, a Dublin-based think tank.

“A way of saying that is to have the fund so large that it can handle anything that comes its way. It would stop speculation in Spain and Italy,” said Fitzgerald, who sits on the board of the Irish central bank.

BRUSSELS (Reuters) – A worsening euro zone debt crisis may ultimately force the bloc to expand its 440 billion euro ($625 billion) bailout fund, despite political opposition in key contributing countries, some officials and analysts say.

An emergency summit of euro zone leaders last month agreed to let the fund, the European Financial Stability Facility, deploy its money in new ways to fight the crisis. But it did not take a major step for which investors were hoping: give the EFSF more firepower.

Since then, the euro zone’s debt problem has become even more worrying, threatening to move beyond small countries such as Greece to engulf large states such as Spain and Italy.

The spread of the Italian 10-year government bond yield over German Bunds jumped to a euro-era high of 3.85 percentage points on Tuesday, a level which, if sustained over the long term, could prevent Italy from borrowing in the markets at affordable rates.

To convince the markets that this will not happen, rich euro zone governments may have no choice but to override opposition among their taxpayers and pledge to contribute to a drastic expansion of the EFSF — perhaps doubling or tripling it.

“You need to convince the world that Europe is going to sort itself out,” said John Fitzgerald of the Economic and Social Research Institute, a Dublin-based think tank.

“A way of saying that is to have the fund so large that it can handle anything that comes its way. It would stop speculation in Spain and Italy,” said Fitzgerald, who sits on the board of the Irish central bank.

BRUSSELS (Reuters) – Euro zone leaders have agreed on a bold rescue package for debt-stricken Greece and will give their financial rescue fund sweeping new powers to prevent market instability spreading through the region.

An emergency summit of leaders of the 17-nation currency area pledged on Thursday to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

The leaders also made detailed provisions for limiting the damage if, as seems likely, credit rating agencies declare Greece to be in temporary default — the first such event in the 12-year history of the euro.

The package pleased financial markets because it suggested that for the first time since the Greek debt crisis erupted early last year, the euro zone was taking a comprehensive, long-term approach to the problem, rather than simply lending Greece more money to avoid disaster in the near term.

“We have thus sent a clear signal to the markets by showing our determination to stem the crisis and turn the tide in Greece, thereby securing the future of the savings, pensions and jobs of our citizens all over Europe,” Dutch Prime Minister Mark Rutte said after eight hours of talks.

French President Nicolas Sarkozy said measures agreed at the summit, the fifth this year on the crisis, would together reduce Greece’s debt by 24 percentage points of gross domestic product from about 150 percent today.

Greek Prime Minister George Papandreou said the deal would cover his country’s funding needs until 2020 and make its debt sustainable, but analysts questioned whether the reduction would be enough to avoid a restructuring in the medium term.

BRUSSELS/LONDON, July 21 (Reuters) – Greece’s private sector creditors have agreed to take a 21 percent loss on their bond holdings as part of a 37 billion euro contribution to Greece’s rescue plan agreed on Thursday.

Four options are being offered to creditors, including three exchange offers and one rollover offer into debt of up to 30 year maturity, as well as a bond buyback scheme. The aim is to provide more sustainable funding to Greece and cut its debt pile, said the Institute of International Finance (IIF), which represents over 400 firms and led talks for the private sector.

The IIF said the bond exchange would help reduce Greece’s debt pile by 13.5 billion euros, and by offering a menu of new instruments it aims to attract 90 percent investor participation in the plan.

This would provide financing to Greece of 54 billion euros from mid-2011 to mid-2014 and a total of 135 billion euros from mid-2011 to end-2020, it said.

The EU said the net contribution of the private sector from now until mid-2014 would be about 37 billion euros, or 50 billion including its buyback plan. Through to 2019, the private sector’s net contribution is estimated at 106 billion, the EU said. The IIF did not give a net figure.

“Greece was gasping for air,” said Charles Dallara, managing director of the IIF.

“You can’t expect a country implementing these reforms to get enough oxygen in the economic system to be able to deliver the reform. This gives it some breathing space,” he told Reuters in an interview.

FRANKFURT/BRUSSELS (Reuters) – The European Central Bank’s readiness to drop its opposition to a ‘selective default’ as part of a Greek rescue must have been secured with a concession from euro zone leaders, sources and analysts said.

ECB President Jean-Claude Trichet has for weeks repeatedly and implacably rejected the idea of a short-term or selective default, fearing the market contagion it could prompt.

Just two weeks ago he told the ECB’s monthly policy meeting: “We say no to selective default, no to a credit event,” although some of his colleagues have been more equivocal.

To fold on that position abruptly without cover from euro zone governments would have been tough to swallow as his term draws to a close, although last year he sharply switched tack on opposing the ECB buying peripheral government bonds.

Trichet joined German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin at short notice late on Wednesday — almost five hours after the two government leaders began their talks to prepare for Thursday’s euro zone summit.

Merkel and Sarkozy reached a joint position and Trichet appears to have indicated he could accept a deal on the basis that it would be far-reaching and led by the EFSF rescue fund.

Dutch Finance Minister Jan Kees de Jager confirmed that selective default for Greece was now a possibility, telling the Dutch parliament on Thursday: “The demand to prevent a selective default has been removed.”

BERLIN/BRUSSELS (Reuters) – The European Central Bank (ECB) is willing to let Greece slip into temporary default as part of a crisis response that would involve a bond buyback but no new tax on banks, EU sources said on Thursday.

German Chancellor Angela Merkel and French President Nicolas Sarkozy crafted a common position on a second Greek bailout in late night talks in Berlin with ECB President Jean-Claude Trichet, sources in both governments said.

Minds have been concentrated by the danger Europe’s debt crisis could engulf the much bigger economies of Spain and Italy. Greece, Portugal and Ireland have already succumbed.

Merkel told reporters on arrival in Brussels for a crucial euro zone summit: “I expect that we will be able to seal a new Greece programme. This is an important signal. And with this programme we want to grasp the problems by their root.”

She gave no details but Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, previously opposed by the ECB, was now a possibility

“The demand to prevent a selective default has been removed,” he told the Dutch parliament.

Euro zone sources said a buyback of discounted Greek bonds to help reduce Athens’ crippling debt pile was now seen as the most promising way of making private investors contribute to the cost of a second financial rescue.