The battle over Greek collateral for additional loans to Greece has heated up on multiple fronts in five countries. Let’s start with a look at a warning from Moody’s.

FX Street notes Moody’s warns that Greek bailout might be delayed

Moody’s rating agency warned on Monday that EU countries which demand collateral agreements with Greece might delay the payment of the next 8 billion euro tranche of the rescue fund for Athens, push it into default and hamper the fight against the crisis in the Eurozone.

Last week Finland negotiated a bilateral deal with Greece; soon Austria, the Netherlands and Slovakia demanded similar guarantees. Greek Finance Minister Evangelos Venizelos asked the European Commission, the ECB and the IMF for help with solving possible further disputes with countries demanding collateral agreements.

Moody’s considers the Greek-Finnish agreement a sign that some Eurozone countries and politicians are not capable of implementing measures necessary to maintain stability in the region. It adds additional pressure on France and Germany to take an even stronger position and present a clearer plan than the one agreed on last week. Germany has already expressed its objection towards the pact with Finland, pointing out that such agreements should be consulted with and approved by all of the Eurozone members.

Angela Merkel and Nicolas Sarkozy held a meeting last week and announced a battery of new measures to have a new, powerful and “true European economic government”. Both leaders rejected the idea of euro bonds, which disappointed investors. They proposed to establish a common economic government for EU for 2½ years that would help strengthen national fiscal solvency and asked that the 17 euro zone countries must have a public debt ceiling rule in their constitutions. They suggested a tax on financial transactions in September and more powers to the European Commission.

Merkel Madness

Pray tell what “new, powerful and true European economic government” is on the horizon without common fiscal policy of common bonds?

Is this Merkel Madness or is she playing the Jean-Claude Juncker card “You have to lie when it gets serious”?

Regardless, it is Finland who has the cards given the stance of Finnish Prime Minister Finnish Prime Minister Jyrki Katainen.

Finland will Not Sign Second Greek Bailout Without Collateral

The Euro Observer reports Finland puts Greek bailout package under pressure

The US-based ratings agency in a note on Monday (22 August) predicted other eurozone countries will reject a deal between Finland and Greece for Athens to put around €600 million in an escrow account in case it is unable to pay back Helsinki’s part of its second bailout.

“A proliferation of collateral agreements would … imply that the some euro-area countries would bear disproportionately large shares of the risk associated with the provision of financial support ,” it said. “We expect other euro-area members to ultimately reject the Finland-Greece deal … but the message sent by the calls for such agreements confirms that Europe is conflicted over the very decision to provide financial support to its members, not just the amount of support.”

Finnish Prime Minister Jyrki Katainen has warned that if the collateral deal is thrown out, Finland will not sign up to the second Greek bailout.

Katainen’s position, which has already seen Austria, the Netherlands and Slovakia explore possibilities for their own collateral arrangements with Greece, attracted criticism from Dutch finance minister Jan Kees de Jager on Monday.

“The Netherlands is no supporter of this proposal … It is not compatible with the principle of equal treatment of all euro countries,” de Jager said in an open letter to the Dutch parliament.

The potential proliferation of collateral requests is not the only emerging risk to the EU’s self-imposed deadline to get the new bailout arrangements ratified by all 17 eurozone countries by the end of September.

The German central bank in its latest monthly report indicated that the eurozone deal, which also involves provisions for the EU bailout fund, the EFSF, to buy bonds from struggling euro economies, might breach German law by marking a new surrender of sovereign fiscal powers to Brussels.

“Far-reaching extra risks will be shifted to those countries providing help and to their taxpayers, and entail a large step towards a pooling of risks from particular EMU [European Monetary Union] states with unsound public finances,” the Bundesbank said.

“Unless there is a fundamental change of regime involving a far-reaching surrender of national fiscal sovereignty, it is imperative that the ‘no bail-out’ rule – still enshrined in the treaties – should be strengthened by market discipline, rather than fatally weakened.”

The bank’s statement lends weight to a legal challenge to the bailout deal filed in Germany’s constitutional court ahead of the judge’s verdict, due in the coming weeks.

So not only might Finland, Austria, Slovakia, and the Netherlands tell the EU, the ECB, and the IMF to “go to hell”, a correct constitutional ruling in Germany might end the discussion once and for all.

Mike “Mish” Shedlock

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