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From:Saturday, July 2, 2011 12:43 PM +0300
Subject:Analysis: 2nd Greek bailout to hit Finnish collateral snag  
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Analysis: 2nd Greek bailout to hit Finnish collateral snag

By Jan Strupczewski
BRUSSELS | Fri Jul 1, 2011 2:05pm EDT

(Reuters) - Greek politicians have removed one obstacle this week to a second bailout for their country but euro zone officials must now overcome Finland's condition that it can lend more to Athens only if Greece provides collateral.

The bloc's finance ministers are likely to tackle the issue at a conference call on Saturday, after the Greek parliament approved two austerity bills which the European Union and IMF had made a pre-condition for releasing the vital fifth tranche of the initial bailout agreed last year. Now the focus shifts to talks on a second bailout, likely to be about the same size as last year's 110 billion euros ($156 billion).

That will run up against the Finnish collateral condition, which is non-negotiable because it has been agreed by the Finnish parliament. Waiving it would bring down the government in Helsinki, euro zone officials involved in the talks on Greece said.

"This is not something that we merely wish for -- no, it is something that we must have in order to be able to go along with a new programme for Greece," said a document prepared for Finnish diplomats and seen by Reuters.

"It is highly unusual for Finland to place very firm red lines, but this is such a case," the document said.

The Finnish part of the new loan package for Greece, estimated at between 40 and 60 billion euros from euro zone countries, would probably not exceed 1 billion euros, according to euro zone officials who asked not to be named.

But Greek leaders, fresh from facing down riots in the streets to win parliamentary approval for reforms, are unlikely to be ready to provide any such collateral for Finland, the officials said.

Yet Finland's approval is necessary if Greece is to get new financing from the European Financial Stability Facility (EFSF), whose rules say decisions on new lending must be unanimous.

European Union leaders said last month there would be a second financing programme for Greece to top up the first, agreed last year with the euro zone and the International Monetary Fund.

While the first package was provided through bilateral loans from euro zone countries to Greece, the second one is to be through the EFSF, because this way the euro zone provides only guarantees, not actually cash.

This means that either Finland's demands have to be accommodated for Greece to get help, or that European Union lawyers have to find a way to allow Finland not to vote in the EFSF in the case of the second Greek package.

This will be difficult because the EFSF rules say clearly that a euro zone country can only ask to suspend its role as a guarantor of EFSF loans if it "experiences severe financial difficulties and requests a stability support loan or benefits from financial support under a similar programme."

Euro zone officials, speaking on condition of anonymity, also note that if Finland manages to opt out from the second Greek package, it would send a dangerous political signal to other euro zone countries, some of which might want to follow the Finnish example.

"We have a political solution and we will find a technical solution in due course," said a euro zone source involved in the talks on Greece.

(Reporting by Jan Strupczewski; Editing by Ruth Pitchford)

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