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Greece to Feed its Lenders with Cash Collaterals

Greece enters new financial adventures as the loan agreement with Finland created a huge appetite to other EU member countries forced to help out Greece but in fact – and deep in their heart – unwilling raise a single euro for the Hellenes. The Greek-Finish agreement that needs to be approved by the other state-members of the euro zone provides that Athens will deposit a cash guarantee to the bank account of Helsinki. According to initial calculations the Finnish loan would be 1.4 billion euros, and Greece’s guarantees should be 40 percent of the total sum.  The Finnish loan agreement is in the context of the second bailout for Greece and needs the approval of the other states-members of the euro zone. Should the  Greeks proved unable to pay back the loan, the Finns could run to the bank and confiscate the Greek cash collateral.  As expected, the deal triggered appetite to the other EU-lenders and Austria opened the way of loan guarantees saying that “the guarantee model must be open to all eurozone states”.

So the question is: if Greece has the money to deposit the cash guarantees, why does it need a bailout? Assuming that the second bailout would be 109 billion euros – interest rates excluded – and Athens needs to deposit cash guarantees of 40%, that is approximately 43 billion euro. Where will this money come from? From IMF laon-injections? From Greeks’ pockets?

Finnish media wrote about the deal: 

According to initial calculations, Finland will guarantee Greek loans to the tune of at least EUR 1.4 billion.

Under the deal between Finland and Greece, the cash guarantee that Greece gives to Finland should, with interest, eventually cover the sum that Finland initially lent. Nordea’s Jan von Gerich says that the Greek guarantees could be about 40 per cent of the total sum. If the portion of the loan guaranteed by Finland is EUR 1.4 billion, Greece would be expected to put up cash guarantees of over half a billion euros.  Finland would then invest this half billion in low-risk state bonds, which would earn back the whole EUR 1.4 billion in about 30 years.    (source: Helsninkin Sanomat)

Austria also plans to demand loan guarantees from Greece, if the Finnish-Greek agreement on the issue is approved, reports Helsingin Sanomat on Thursday. The newspaper says it received the information from the Austrian Finance Ministry on Wednesday. Austria considers the collateral plan agreed by Helsinki and Athens on Tuesday to be unfair. It must be approved by all eurozone states. Austria says it will not allow special privileges for Finland.

“The guarantee model must be open to all eurozone states. We intend to find out whether this is so,” said Finance Ministry spokesperson Harald Waiglein.

Waiglein notes that Austria is not the only eurozone country that wants guarantees if Finland is allowed them. Vienna is to seek a compromise whereby certain countries would be allowed larger guarantees than others.  (source: YLE.fi)

From what I heard on Greek Television, also the Netherlands raises similar demands like Austria. The celebrations and Greek solution priases of the EUrozone Summit on July 21st are definitely over, I’m afraid…

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2 comments

  1. Looks like this is the start of the end of the EU. Every small country is making deals left and right with Greece. Only not to have to say “No” to Germany and France? Can’t see any other reason. And can’t see any reason why Venizelos went along with that Finnish deal. For it has no advantage for Greece what-so-ever… Or do I have an awfully ‘blond’ moment???

    • keeptalkinggreece

      I’m afraid we all have our collateral blond moment for the time being. Couldn’t he foresee the impact and that others will take sit at waiting room? I wrote a short: Grabbing the Donkey’s tail today