Finnish collateral demands complicate Greek bailout acceptance

There have been quite contradictory reports on the agreement between Greece and Finland regarding collateral in exchange of the new rescue loans. Since Finland is a small fish in the pond, it was indeed able to get its collateral demands accepted as a minor nuisance by the Greeks. This agreement calls for Greece to deposit money in an account as the collateral.

The arrangement needs to be accepted by the other participating members though, and this does not go down well in other countries as public support for the bailouts across the AAA rated EU countries is minimal. Several countries have already said that if Finland gets collateral, they need such too or at least for it not to hurt their creditor positions. This obviously puts the acceptance of the current construction at risk. Greece has said it will only give collateral to Finland.

In longer term the fact that there isn’t public support for further bailouts should mean that such leaders who promise to oppose any such actions will be elected. Popular support isn’t there for tighter fiscal union either at this time, even though ultimately that would allow for a better way out. The idea about jointly sold ”Eurobonds” (there is a major terminological issue here as this is not to be confused with an existing international bond instrument of the same name) is rather likely to come into play once the situation really escalates again. So far the politicians are still just trying to buy time until the passage of more permanent systems.

The entire thing in Finland stemmed from the political rhetoric and promises from the new leftist Finance Minister during election campaigning. The issue was stressed so many times that her party, the Social Democrats, would rather let the government fall than back down on the demand, so the remaining options were Finland not partaking at all, something that was deemed pretty much impossible, or creating an exception of this kind.

This then allows the Finance Minister and her party to one up their ally (out of necessity rather than anything else) the conservative National Coalition party and their Prime Minister, who said numerous times during the election debates, that it will not be possible to get collaterals, failing to see that while it may be completely insensible, in a loose union constructed like this at times of crisis, sometimes anything goes.