True Finns’ legacy risks burning Greece aid plan

August 18, 2011

Finns are quickly shedding their image as consensus-seekers who shy away from open conflict. They are sticking to their guns on seeking collateral from Greece in return for participation in a second aid package for Athens, even though their demands risk jeopardising the whole Greek bailout.

After the populist anti-euro True Finns made big gains in April elections, the new Finnish government and its finance minister, Social Democrat Jutta Urpilainen, made clear the Nordic country would not take part in any aid plan without receiving collateral. Finland, which needs parliamentary approval to join the deal, must take part or else the whole package will be derailed. On Tuesday, Urpilainen announced that an agreement over collateral was in place. 

Greek media reported that Greece’s finance minister, Evangelos Venizelos, came up with the idea of providing cash instead of, say, shares in state-owned firms as collateral.

The idea of providing cash as collateral might sound strange — if you have the money, why do you need a bailout in the first place? But since Finland is due to contribute only about 2 percent of the total aid, Greece found putting up other people’s money a more palatable option than putting up property, which could be seen domestically as giving away the crown jewels.

This arrangement has suddenly thrown the whole package into doubt, with Austria now saying it wants the same terms, and also the Dutch, Estonians, Slovenians, Slovaks immediately jumping on the collateral bandwagon even if they had not pushed for this earlier in the negotiations.

While none of the large economies have — so far — pushed for collateral, the countries that have done so would contribute about 12 percent of the total aid. This raises questions about whether some countries could accept worse terms than their peers and forgo collateral, or whether this is turning into a serious problem that could further unnerve already jittery markets.

“Finland’s insistence on collateral unduly complicates the process to come to a swift agreement on Greece, thus increasing the risk of political noise in the coming days and weeks,” Barclays Capital economist Francois Cabau wrote in a note.
The True Finns must be chuckling.

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