A recent post by the New York Times got me thinking about “Minor Complications”, or rather the inverse. I will comment on the New York Times article shortly. First consider a list of items that are “Not a Minor Complication”.

“Not a Minor Complication”

Collateral Requirements of Three Countries “Not a Minor Complication” to Greek Bailout

The New York Times reports Request by Some for Collateral Is New Hurdle for Greek Bailout

Greece’s international bailout hit a new obstacle Thursday when three euro zone countries indicated they were likely to seek collateral in exchange for their loan. Finland earlier reached a similar deal with the debt-laden government in Athens.

Though the three countries — Austria, the Netherlands and Slovakia — are small or midsize economies, accounting for little more than 10 percent of the new bailout of 109 billion euros ($156 billion), their intervention presents a headache for policy makers.

“If this spreads as we fear it could, it is not a minor complication,” said one European official who spoke on condition of anonymity.

In the deal between Athens and Helsinki, Greece is offering Finland a deposit to back loans, and Finland has said that this cash plus interest would be comparable to its contribution to the rescue.

It is likely that Athens would struggle to find the capital for similar deals with other countries.

But political pressure is growing in creditor countries. In the Netherlands this week, Parliament debated the Dutch contribution to the second Greek rescue. Such debate has made it difficult for governments to explain why Finland is receiving preferential treatment.

The Austrian Finance Ministry said that it had made its position clear before and that its latest comments were in line with what euro zone leaders agreed to at the July 21 meeting. “If there is to be a model for collateral, Austria would also make a claim,” a spokesman, Harald Waiglein, said, according to Reuters.

I blasted the Finland deal on Tuesday in Amazingly Absurd Loan “Guarantee” Arrangement Between Finland and Greece

My blast above was fair, given the details as presented, notably the guarantee was “only a fraction of the money that Finland is contributing to the rescue package“.

Upfront cash collateral simply reduces the size of the loan, as I stated.

However, if Finland required other non-cash collateral, that changes the story. So does the fact that the Netherlands and Austria now want collateral for loans.

Why shouldn’t there be collateral for loans?

The fact that Greece does not have enough collateral does not change the picture. It only means more bailout loans should not be made, and Greece will head for full default, not this alleged “temporary” default swindle the EU is attempting to parade as realistic, hoping to get taxpayers of all the Eurozone nations to bail out Greece instead of boldholders taking bigger haircuts.

This is certainly “Not a Minor Complication” and I commend any European nation that insists on real collateral for otherwise bogus loans.

Mike “Mish” Shedlock

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