Finland has finally secured the right to demand collateral in exchange for new loans to Greece but the highly arcane deal with other euro zone countries achieved little beyond political face saving, analysts said.
Finland’s months-long campaign for collateral, resolved by a deal late on Monday among euro area finance ministers, gains it nothing and may mean a loss of political capital within the euro zone, they said.
“I don’t believe this deal is beneficial for Finland or tax payers in any way,” said Timo Tyrvainen, chief economist at Aktia Bank.
“Finland clearly complicated Europe’s problems by creating this side track which required at least hundreds of person-hours around Europe. All that energy could have been used for the real rescue operation.”
The government’s push for guarantees stems from a demand by Finance Minister Jutta Urpilainen’s Social Democratic Party, the country’s second-biggest political group. It agreed to join the governing coalition on the condition that it stick by its demand for such security to new loans.
It was a rare stand by a country that takes pride in being a team player within the euro zone, and one that usually sides with Germany.
“We lost some political capital with this. We’ve gotten the reputation of a troublesome country,” said Sampo Pankki’s chief economist Pasi Kuoppamaki, adding he didn’t see the deal as beneficial for Finland.
Both analysts said the rise of the euroskeptic True Finns party made policymakers pander more to anti-euro sentiment.
Many Finns feel the countries being bailed out are getting an easy ride while they face austerity at home. Finland’s debt-to-GDP ratio, set to stand at 43 percent this year, is among the lowest in the euro zone.
NO OTHER TAKERS
Under the complicated collateral model, which found no other takers than Finland, Athens will lend Greek banks its own sovereign bonds which will be swapped into other Greek government bonds and transferred to an investment bank for sale.
The revenue from the sale will be put into an escrow account and invested in triple-A bonds, which are the collateral.
The collateral applies to 40 percent of Finland’s total share of the loans, 2.2 billion euros ($2,9 billion).
But in order to secure its guarantees, Finland must first pay its share of 1.4 billion euros into Europe’s permanent stability fund (ESM) in one tranche instead of five, meaning more interest costs.
It will also accept smaller profits from the temporary stability fund (EFSF), and in case of a default, the collateral will be frozen for 30 years.
It is as complicated as it sounds and was designed to make Finland’s demand so expensive that no other euro zone country would ask for the same. To that extent, it has worked.
The terms were set after months of negotiations among the region’s policymakers. An initial bilateral deal between Finland and Greece for cash collateral sparked criticism from several other member states who demanded the same treatment, raising concerns of a delay to the second Greek rescue package.
EU’s economy commissioner Olli Rehn on Monday joked that Klaus Regling, the head of EFSF, should be given the Nobel prize for economics or Nobel peace prize for preparing the complicated deal.
But for Finnish Prime Minister Jyrki Katainen, caught between pressure to help stem a regional debt crisis and conflicting political imperatives at home, the deal was no laughing matter.
He defended the outcome on Tuesday.
“We can borrow money from the markets and invest it (into ESM) without increasing our debt level in any significant way, but not all countries can necessarily do that,” he told reporters.
He also said Finland’s interest losses will be roughly compensated by the dividends it gets from the ESM.