High price to be paid by Finland for collateral for Greek loan guarantees

[Jezter]

Prime Minister praises arrangement


The agreement for collateral provided in return for Finland’s participation in the financial bailout of Greece is expected to considerably increase Finnish public debt.
Under a plan announced on Tuesday by the Ministry of Finance, Finland will guarantee EUR 2.22 billion worth of loans granted to Greece between 2011 and 2014.
As Greece takes out the loan, the money will be marked down as Finnish public debt, according to European statistical practice.
This public debt is referred to as EMU debt. Under the European Growth and Stability Pact, countries that use the common European currency, the euro, must not allow the debt to exceed 60 per cent of GDP.

According to Statistics Finland, this country’s EMU debt stood at EUR 84.8 billion in late June.

The Ministry of Finance predicted last year that Finland’s EMU debt this year would amount to 51 per cent of GDP.

The Greek loans are granted through the European Financial Stability Facility (EFSF).

So far, the bilateral credits extended by Finland to Greece have directly increased Finland’s state debt because Finland’s state finances have been in deficit since 2009.
If the upcoming sixth instalment of emergency funding for Greece is included in the calculations, Finland will soon have lent Greece more than EUR 6 billion.

The financing granted to Greece is at a much higher level than the Finnish commitments to two other overextended eurozone countries – Ireland and Portugal.
Finland has agreed to guarantee EUR 333 million in EFSF loans to Ireland and EUR 600 million in loans to Portugal.

Finland is to receive collateral for the loan guarantees to Greece, that is worth EUR 880 million at the initial stage. This is expected to increase to EUR 2.2 billion over the next 30 years. The collateral is part of a complicated exchange agreement of Greek state bonds, involving the participation of Greek commercial banks. Greek banks are to grant bonds to an investment bank, and the sale of those bonds is supposed to yield EUR 880 million in capital.
This money would be invested in the bonds of other states with the best possible credit rating.

A condition of the collateral is that Finland must pay its EUR 1.44 billion share into the permanent European Stability Mechanism in a single payment next year.
If the ESM generates a profit, Finland would be entitled to a relatively larger share of the dividend than the other eurozone countries.

Because of the one-off payment, Finland’s share of the initial capital of the European Stability Mechanism will be temporarily larger than that of the other eurozone countries, which are to make five separate payments between 2013 and 2017.
Finland has also agreed to a 40 per cent reduction in its possible profits from the ESM; the profits would be invested in the Greek commercial banks that take part in the collateral arrangements.

Finnish Prime Minister Jyrki Katainen (Nat. Coalition Party) praised the arrangement as beneficial for Finland.

“The solution meets all of the Finnish and European criteria, it is open to all, and is acceptable to all. On the one hand, the model gives us insurance against a possible risk of losses that are included in these loan guarantee decisions.”
Katainen also sees no problem in a one-off capital payment to the European Stability Mechanism, which is something that he proposed already when he was Minister of Finance.

Prime Minister Katainen observed that Finland is one of the least indebted countries with a triple-A credit rating.

“We can borrow money from the market and invest it without a significant increase in the debt burden. Not all countries can necessarily do the same.”
While the one-off payment will add to Finnish interest payments, Katainen expects that this will be cancelled out by dividends from the ESM.

[Acid Trip]

Good luck getting your money back!

[Jezter]

Good luck getting your money back!

Thanks! We are going to need it!

I just don't understand what fuck for we fought so hard for these gurantees that only end up costing more for us..no wonder other Euro countries are a bit amused...

[Muddy]

Fuck dude... What the shit did you guys take on that for?

[Jezter]

Fuck dude... What the shit did you guys take on that for?

To save the EU?

[Acid Trip]

To save the EU?

But is the EU worth saving? What tangible benefits has Finland gotten by being a part of the EU?

[Muddy]

To save the EU?

There is no hope for Greece..

[Teh One Who Knocks]

There is no hope for Greece..

I've got $50 in cash on the counter, I wonder if I should just buy Greece with it

[Acid Trip]

I've got $50 in cash on the counter, I wonder if I should just buy Greece with it

You could, but what would you do with the other $40?

[FBD]

But is the EU worth saving? What tangible benefits has Finland gotten by being a part of the EU?

aside from a bloated and empty sense of unity?


oh, and massive debt from the freeloaders

[Teh One Who Knocks]

You could, but what would you do with the other $40?

Beer

[Muddy]

Yes!

[Deepsepia]

But is the EU worth saving? What tangible benefits has Finland gotten by being a part of the EU?

A lot of benefits, as do the other northern European countries.

Being a AAA credit with your own currency isn't a good thing if you're an export economy, as are Finland and Germany.

Were Finns still exporting with costs denominated in Markaa, or Germans exporting in D-Marks, they'd have huge competitiveness problems (see Switzerland).

The Euro makes more sense for the Germans and the Finns than for the Greeks.

The Greeks should do what over-indebted countries have always done -- default and devalue. This works well for a country whose terms of trade "just don't work", you can see the examples of many nations, like Argentina and Russia, that followed this path successfully. But being in the Euro, Greece can't do that.

In short, the Euro is much worse for the Greeks than it is for the Finns.

[Arkady Renko]

A lot of benefits, as do the other northern European countries.

Being a AAA credit with your own currency isn't a good thing if you're an export economy, as are Finland and Germany.

Were Finns still exporting with costs denominated in Markaa, or Germans exporting in D-Marks, they'd have huge competitiveness problems (see Switzerland).

The Euro makes more sense for the Germans and the Finns than for the Greeks.

The Greeks should do what over-indebted countries have always done -- default and devalue. This works well for a country whose terms of trade "just don't work", you can see the examples of many nations, like Argentina and Russia, that followed this path successfully. But being in the Euro, Greece can't do that.

In short, the Euro is much worse for the Greeks than it is for the Finns.

to this day, I haven't figured out why Greece was so keen to join the common currency in the first place. Did they calculate with the possibility of a future bankruptcy and bailout from the get-go?

[Deepsepia]

to this day, I haven't figured out why Greece was so keen to join the common currency in the first place. Did they calculate with the possibility of a future bankruptcy and bailout from the get-go?

The benefits were front loaded, the costs all on the back end.

The "deal" in joining the Euro is essentially having the wealthy countries of the North "open a tab" for you, plus all kinds of other benefits (like free movement of workers, though Schengen is a somewhat different thing, its all still part of the idea "you're European" as opposed to "you're Greek"). The benefits of being in Europe for Greeks: a lot more folks driving Mercedes than could afford them

The hard question is now for the Germans, not really for the Greeks. The Greeks can't pay, that much is clear. So what do their creditors want?

You can't liquidate a country.

It seems to me that Germany is missing an opportunity to, at very small cost, be the dominant player in Europe. It may be that Germans just don't want that role, but you look at the national accounts and its plain: Europe either has a German driver, or it has no driver at all . . .