Finland is threatening to upend an agreement that eurozone countries made in July to expand the European Union bailout fund.
Finland would contribute less than 2 per cent of the guarantees provided to the fund, known as the European Financial Stability Facility. But the country’s demands, the subject of intense negotiations in recent days, threaten to derail the fragile consensus that is preventing Greece from defaulting on its debt. Spain and Italy, whose economies are receiving support from the European Central Bank, are scheduled to conduct debt auctions this week.
Officials from European finance ministries spent much of Friday in long-distance negotiations about the collateral issue but did not reach an agreement. Conflicting reports about the negotiations have fed market confusion. The news media in Germany and other countries reported on Friday that Finland had dropped its demands, but the reports were swiftly denied by Finnish officials. The climate created by the collateral dispute could make it more difficult for the European Central Bank to continue to defend Italy and Spain in bond markets and contain their borrowing costs. This month the bank has spent €36 billion ($52 billion) intervening in debt markets in an effort, so far successful, to cap bond yields for the two countries.
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