BRUSSELS — A program crafted only a month ago aimed at keeping Greece from defaulting on its bond payments is threatening to unravel because of a demand that the government post hundreds of millions of dollars in collateral for new emergency loans.
That demand has come from Finland, one of the European countries whose leaders proposed a rescue program for Greece, and has set off a series of similar requests from other euro-zone capitals that could jeopardize efforts to calm world markets.
The collateral issue is one of several stumbling blocks facing the program, announced by European leaders at a July 21 summit. Their agreement was designed to halt a nearly two-year-old crisis over government debt and financial stability in the 17-nation euro currency zone.
Since then the new Greek rescue program, which would be worth about $150 billion to the Athens government, has been under political attack in northern European countries where “bailout fatigue” is fast setting in. Efforts to include private investors in the rescue are struggling as well. While major banks agreed to accept a reduced value for their holdings of Greek bonds, the Greek finance ministry this week said it would scrap the program altogether if more private investors did not sign on.
The measures agreed to by national leaders in July must still win legislative approval in each of the individual member countries. In places such as Germany and Finland, that is not guaranteed. German Chancellor Angela Merkel this week canceled a high-profile trip to Russia to shepherd the Greek package through the German Parliament, and some members of her governing coalition have said they plan to try to defeat it.
In Finland, the nationalist True Finn party surged in spring elections on a platform opposing a Greek bailout program approved last year. When it became apparent this summer that Greece would need more help, Finnish negotiators at the July summit insisted that the politics of their country had become too polarized over the issue for them to participate — unless they received extra protection for the money Finland would contribute.
At Finland’s urging, an obliquely worded clause was inserted into the agreement, saying that “where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area member states” from their participation in the regional financial rescue fund.
Finnish negotiators promptly began talks with Greece and reached a deal that required the posting of cash collateral in return for Finland’s share of a loan. That, in effect, meant Finland would turn over money to Greece with one hand and take it back with the other to protect it against any loan losses — little help to a government struggling to stay solvent.
When this deal became public, countries such as Austria said the same terms should be available to all. Germany also opposed the one-on-one nature of the arrangement. Talks have been underway among euro-area finance ministry officials to resolve the issue, for instance by having Greece post government-owned property, gold or other non-cash assets as collateral.
In the meantime, the issue has further clouded prospects for a program that was complex to begin with.
“The environment of the discussion has been deteriorating,” said Amadeu Altafaj-Tardio, spokesman for the European Commission’s Economic and Monetary Affairs committee. For officials in the region, “it is hard to confront a parliament and explain why the Finns get a 100 percent guarantee.”
If Finland failed to get collateral, the country could withdraw from the program. This could prompt others such as the Netherlands, Slovakia, Slovenia and Austria to reconsider their commitments, “prompting the rescue package to collapse,” according to analysts from Capital Economics.
European leaders have taken profound steps to address the continent’s crisis, but the way these measures are developed and enacted have made it difficult to restore confidence in a region hobbled by high public debt and low growth.
The euro zone’s administrative machinery, which is spread among several pan-European institutions as well as individual national governments, is unwieldy and often seems to lurch from one action to another, responding to myriad financial and political considerations.
“For the past 11 / 2 years it has been back and forth, zigzag,” said Thomas Oppermann, a member of the German Parliament from the opposition Social Democratic Party. “The markets will not buy that story. They look for a stable, comprehensive concept.”