European governments are nearing a resolution to Finland’s demands for collateral from bailout recipients, thus removing a major obstacle to Greece’s second rescue package. Of the 17 nations in the euro zone, Finland is the only one seeking to require countries like Greece to put up collateral in exchange for bailout funds.
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Euro-zone finance ministers are meeting today in Luxembourg to discuss whether Greece’s proposed second rescue package is acceptable to all 17 euro-zone nations. They have devised a package that would have Greece putting up collateral in Exchange for Finland’s guarantees to the European Financial Stability Facility, while Finland would in turn forgo potential earnings from the Greek rescue deal, such as profits earned by the EFSF, and would accept collateral that might have junior status in the case of default.
Though finance chiefs will discuss the collateral issue today, but Finnish Finance Minister Jutta Urpilainen is not sure whether they will be able to find a solution today. “We are trying to find a solution that everyone can accept,” said Urpilainen.
Luxembourg Finance Minister Luc Frieden has said that any collateral arrangement should be an available option for all countries in the euro zone, not just Finland. “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.”
Collateral deals have nearly been closed before, with Finland reaching an arrangement with Greece on August 16 only to have it rejected by other euro-zone nations.
Greece is still awaiting a decision on whether it will receive its sixth 8 billion-euro installment from its original aid package, as the cabinet’s newly-announced budget doesn’t cut the deficit, in terms of its percentage of GDP, as much as required by its troika of lenders per the terms of its bailout. Greece is also waiting to find out whether it will receive its second 109-billion-euro bailout, which would require more austerity measures like the budget cuts and tax increases of the last two years.