On July 21st, Eurozone officials together with the International Monetary Fund agreed to provide Greece with a second bailout package. This bailout became necessary when Greece found itself unable to borrow funds at an acceptable rate. The premium demanded by investors pushed the yield spread on Greek debt to record highs and Greece simply could not afford this additional expense.
In order to prevent an outright default on upcoming debt obligations, a commitment of 109 billion euros in emergency funding was quickly brokered. The only problem is that now, more than a month later, individual governments continue to bicker on the details and the money is still to be delivered.
Finally deciding that enough is enough, European Central Bank President Jean-Claude Trichet today urged officials to end the delay tactics and formally approve the rescue package.
“The full and timely implementation of the July 21st agreement between the heads of state or government is of essence,” Trichet said in comments to the European Parliament’s economic affairs committee earlier today.
Finland Demands Collateral for Greek Loan
Germany’s growing contempt with the need to provide hundreds of billions or euros in support for at-risk countries has been well-documented. However, in recent weeks it has been Finland that has been most vocal in opposition to the hand-outs and last week, Finland decided to take an unprecedented step to protecting its investment in Greece.
On August 19th, Finland announced that it had reached a “side” deal with Greece in which Greece agreed to place 1 billion euros in accounts managed by Finland to serve as collateral in a private deal between the two countries. This news has not been well-received by the other Eurozone members.
First of all, Greece is broke so just where exactly did Greece come up with the cash to serve as collateral? There can be only one answer – and the idea that any portion of the money already fronted to Greece to stave off bankruptcy now being used as collateral for Finland must be particularly galling to German Chancellor Angela Merkel. After all, Merkel has faced a great deal of heat from German taxpayers and on more than one occasion has been forced to defend her government’s actions to voters at home.
Secondly, only Finland so far has negotiated a collateral deal with Greece. This is either a stroke of genius on the part of Finnish authorities or an example of unmitigated nerve. Either way, Finnish Prime Minister Jyrki Katainen has made it clear that Finland’s participation in the rescue scheme is entirely dependant on this bilateral agreement to ensure protection for Finland’s investment.
Still, this doesn’t say much for Finland’s confidence in Greece’s prospects, does it?
Scott Boyd is a regular contributor for the OANDA MarketPulse FX blog.
