18 August 2011

FT: Greek rescue package faces further hurdles

Two of the eurozone's key creditor countries said on Thursday that their backing for Greek bail-out loans may be contingent on securing concrete collateral from Athens, a move that would create fresh hurdles to the new €109bn Greek rescue that may be difficult to surmount.

The announcements by Austria and the Netherlands, two of the eurozone’s six triple A rated members, follow a tentative deal reached on Tuesday between Athens and Finland, another triple A eurozone country which for months has demanded collateral in return for its support for the bail-out.

The Greek bail-out deal reached last month allowed for such bilateral agreements as a way to placate the Finnish government. Senior eurozone finance ministry officials started a two-day meeting to review the deal in Brussels on Thursday. But approval of the Finnish side agreement now appears set to open a Pandora’s box, with as many as four other countries that face a bail-out backlash at home seeking to strike similar deals with Athens. According to Jutta Urpilainen, the Finnish finance minister, Greece agreed to make a cash deposit to Helsinki matching the size of Finland’s loan guarantees in the new bail-out, money that would then gather interest after being placed in highly secure investments.

European diplomats said Slovenia had indicated during technical discussions that it might seek a collateral deal, and the finance minister of Slovakia, which opted out of the first Greek bail-out, told a press conference Thursday that he would also request a bilateral agreement.

The broadening demands for side deals could siphon away much-needed cash from Athens as it attempts to meet tough debt and deficit targets in its bail-out programme. Amadeu Altafaj-Tardio, spokesman for Olli Rehn, the European Union economic chief, said Mr Rehn was pushing for a “rapid and full implementation” of the Greek deal, saying it was critical to “safeguard the financial stability of Europe”.

Full article (FT subscription required)

© Financial Times