BRUSSELS (Dow Jones)--Euro-zone policymakers haven't made any progress this week on resolving Finland's demand for collateral for contributing to Greece's second bailout, according to a person familiar with the situation.
Euro-zone governments are discussing alternative forms of collateral that could meet Finland's requirements for participating in the bailout after a bilateral deal reached earlier between Greece and Finland was rejected by key member states, including Germany and the Netherlands.
That deal would see Greece pay Finland hundreds of millions of euros in cash from its bailout loans as collateral against those same loans at the expense of other euro-zone members. Since Finland is set to contribute just 2% of Greece's total rescue package, guarantees from the richer euro-zone nations would be going directly to Finland.
The person said there were no discussions Wednesday between all member states on a new deal and none are planned for Thursday, despite an initial intention to hash an agreement by the end of this week. He didn't rule out, however, talks being underway on a bilateral level.
Germany insists on finding a solution that can be accepted by all euro zone countries.
"It seems that a possible outcome is either collateral for all member states or no country will get it," said another person, who remains hopeful a solution can be found by the end of day Friday.
Finland Wednesday said it would continue talks with Greece and other euro-zone countries to find a solution but reiterated it won't participate in the Greek bailout unless it obtains collateral.
Finland's demands are seen as a potential threat to a EUR109 billion loan package for Greece agreed by euro-zone leaders July 21.
Leaders agreed the bloc's bailout fund, the European Financial Stability Facility, should be expanded and made more flexible, so that it could buy bonds on the secondary market and provide credit lines to countries locked out of markets. National parliaments across the euro area must vote and approve the changes, though, and the collateral issue must be settled before the final EFSF proposal is even written.
"All the practicalities have to be resolved before the whole set of measures will be reviewed by the parliaments," the first person said. "There is no deadline."
The European Commission has asked that all the details for the EFSF legislation be clarified by end of August.
Uncertainty surrounding the bailout as a result of the collateral dispute was pushing the cost of insuring Greece's debt higher Thursday. Greek five-year sovereign credit default swaps were 112 basis points wider at 2250, according to Markit. Greek two-year bond yields rose above 42%, according to Tradeweb.
Finland's policy is in part a result of April's general election, which saw support for the bailout-opposing True Finns Party soar to 19% from 4.1% in 2007. The True Finns finished third and the election led to a new government coalition made up of six political parties.
By Riva Froymovich
Source: http://online.wsj.com
Euro-zone governments are discussing alternative forms of collateral that could meet Finland's requirements for participating in the bailout after a bilateral deal reached earlier between Greece and Finland was rejected by key member states, including Germany and the Netherlands.
That deal would see Greece pay Finland hundreds of millions of euros in cash from its bailout loans as collateral against those same loans at the expense of other euro-zone members. Since Finland is set to contribute just 2% of Greece's total rescue package, guarantees from the richer euro-zone nations would be going directly to Finland.
The person said there were no discussions Wednesday between all member states on a new deal and none are planned for Thursday, despite an initial intention to hash an agreement by the end of this week. He didn't rule out, however, talks being underway on a bilateral level.
Germany insists on finding a solution that can be accepted by all euro zone countries.
"It seems that a possible outcome is either collateral for all member states or no country will get it," said another person, who remains hopeful a solution can be found by the end of day Friday.
Finland Wednesday said it would continue talks with Greece and other euro-zone countries to find a solution but reiterated it won't participate in the Greek bailout unless it obtains collateral.
Finland's demands are seen as a potential threat to a EUR109 billion loan package for Greece agreed by euro-zone leaders July 21.
Leaders agreed the bloc's bailout fund, the European Financial Stability Facility, should be expanded and made more flexible, so that it could buy bonds on the secondary market and provide credit lines to countries locked out of markets. National parliaments across the euro area must vote and approve the changes, though, and the collateral issue must be settled before the final EFSF proposal is even written.
"All the practicalities have to be resolved before the whole set of measures will be reviewed by the parliaments," the first person said. "There is no deadline."
The European Commission has asked that all the details for the EFSF legislation be clarified by end of August.
Uncertainty surrounding the bailout as a result of the collateral dispute was pushing the cost of insuring Greece's debt higher Thursday. Greek five-year sovereign credit default swaps were 112 basis points wider at 2250, according to Markit. Greek two-year bond yields rose above 42%, according to Tradeweb.
Finland's policy is in part a result of April's general election, which saw support for the bailout-opposing True Finns Party soar to 19% from 4.1% in 2007. The True Finns finished third and the election led to a new government coalition made up of six political parties.
By Riva Froymovich
Source: http://online.wsj.com
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