Finland has reached a collateral agreement with Greece to support the latter in repaying its debts, with Austria expressing concern over the fairness of such agreements across the Eurozone. The collateral will be invested in AAA-rated bonds, with returns aiding Greece's repayment obligations. The ongoing European financial crisis has raised fears about leadership effectiveness and the socio-economic repercussions for future generations.

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Europe is cracking
An article published in the Greek newspaper Ekathimerini reports a bi-lateral deal
between Finland and Greece; this is of course not widely spread in the media: take a sip,
read and have fun!
“Austria kicks up fuss about Finnish collateral deal
Austrian minister suggests his country might ask for same agreement with Greece.
Austria opposes Finland's deal with Greece on collateral for loans and will demand
collateral as well if eurozone countries approve Finland's deal, a spokesman from Austrian
finance ministry was quoted in a newspaper report as saying.
"The collateral model has to be open to all the euro zone countries. We will figure out if
that's the case,» Harald Waiglein from the finance ministry told Finland's biggest
newspaper Helsingin Sanomat in a phone interview.
Earlier this week Finland reached a deal with Greece on collateral, its key condition for
joining to help the debt-burdened country.
The agreement between Finland and Greece will allow the southern European nation to
deposit cash in a state account that Finland will invest in AAA rated bonds. The interest
generated will raise the amount to match the required collateral. Finland will return the
money, plus interest, once the bailout loan is repaid, Finance Minister Jutta Urpilainen
said.
If Greece is unable to pay back its loans to the temporary stability mechanism, Finland
would take possession of the capital put up by Greece following a procedure agreed upon
in advance.
If Greece pays off its debt, it would get back the money that it put up as collateral, as well
as the income derived from it.
Details on the timing and exact amount are still to be determined after the extent of
private participation in the bailout has been hammered out on the European level,
Urpilainen said, likening the timeframe to the 15 to 30 years discussed for the private
sector’s role.”
“The collateral will be invested to bring the highest possible return,” she said. “We will
have a central role, as this arrangement will take place under Finnish law. We will consult
Greece on deciding which securities the funds will be invested in.”
Financial stocks in Europe took a hammer today: the FTSE 350 banks (graph below) is
down 6.7% and 20% in less than 2 weeks. I guess some banks are finding it very difficult to
finance in the interbank market and are increasingly turning towards the ECB, with OIS
spreads up.
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By the way, one will notice that the short selling ban on financial implemented in several
European countries is ineffective; maybe, just maybe, the main sellers are not the ugly so-
called speculators, just investors taking cover. It just exemplifies how far away from reality
is the European leaders are and how much dogmatism is leading to blindness.
I have unfortunately not had much time to write for the past 2-3 months whilst there is so
much to say about this ongoing tragedy that will have implication well beyond the
economy and finance. We are living moments of historical (biblical?) proportion that will
shape the world balance of power and the future of our children and grand children who, I
am afraid, will have much lower standard of living. The endgame is approaching (we will
not have to wait for an other 3 years) and the poor quality of the European leadership, the
absence of European Statesmen/women does not make me optimistic for the outcome.
Finally the meeting between Sarkozy and Merkel was merely intended for domestic
political battering and is just adding incredulity. The three measures announced (well to
be discussed with other European countries after the summer) are pitiful:
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• By 2012 summer, all 17 Eurozone countries to adopt in their constitution a golden
rule by which budget should be balanced (thank you Germany did so just after the
2008 crisis). Hold on, isn’t in the Maastricht Treaty that a maximum of 3% budget
deficit and 60% debt ceiling were included and that nearly no country abided by
(France no the least)? So, if countries do not enforce an international Treaty (which
to my knowledge is superior to any single country law, constitution included) why
should politicians do so with their own Constitution which anyway can be modified
at will when one gets the majority required (and examples are numreous).
• Taxing financial transactions from September onwards has no chance to get off the
ground if it is not a worldwide agreement of the major financial centers. And there
is nothing new as it has been already discussed for years (Tobin tax).
• Creating an economic government with a President elected for two years headed by
Van Rompuy (this is adding credibility) and a Council of the eurozone with two
meetings a year. The looser? Juncker (what about the Eurogroup in all this?)!
Sarkozy is too happy to once again slap Juncker.
Conclusion:
Virtuous countries do not want to pay for profligate ones (who can blame them
particularly since Germany already paid war damages until the mid-nineties, then for its
reunification without the help of anybody, and still found the strength and discipline to
dramatically improve productivity): so forget the Eurobonds (they will come back in
further discussions, believe me by threatening to collapse of the eurozone; the Club Med
wants Germany to pay).
The ECB continues eating its hat and buys junk Club Med/PIIGS bonds in the secondary
market (when in the primary one, FED style?) and is insolvent.
The wall of worry is getting bigger by the day and inflation will finally be the solution of
last resort with the middle-class heavily hammered as usual. I hope this time they will not
have short memories…
Source:
Ekathimerini:
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_18/08/2011_402687
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