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Portfolio > Economy & Markets

Moody's Nixes Greek Collateral Deal With Finland

By Marlene Y. Satter

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Greece may have worked out a deal with Finland to collateralize Helsinki’s share of its bailout, but Moody’s is not happy about the arrangement and says it will have a negative effect on Greece’s already low credit rating.

Moody’s declaration Monday was sure to bring further difficulty to an already-tough deal. As previously reported by AdvisorOne, Greece and Finland had worked out a deal separate from other euro zone contributors to Greece’s rescue package for Athens to provide collateral in exchange for Helsinki’s share of the funding. Once the deal became public, however, other nations began clamoring for securitized contributions—among them the Netherlands, Austria and Slovakia.

A spokesman for the European Commission (EC) said Friday that the agreement was being examined, and also on Friday Bloomberg reported that Finland said it was unlikely that any country would get collateral, and thus was having second thoughts about participating in the bailout package at all. Reijo Karhinen, OP-Pohjola Group CEO, was quoted in the report saying, “For the first time I’m concerned the euro system may fail.”

In a Reuters report, Moody’s criticized the desire of euro zone nations to secure their portions of the bailout with collateral. “The tentative Finnish-Greek collateral accord raises concerns about the willingness and ability of some euro area policymakers to implement measures that may prove necessary to preserve the stability of the European Monetary Union,” it said in a statement, and also issued the opinion that collateralized agreements could delay the next tranche of aid and thus threaten to cause a default.

In addition to expecting euro zone nations to refute the agreement, the ratings agency said, “A proliferation of collateral agreements would limit the availability of funds for future programs, as well as the value of the package that the bailout recipients actually receive.”

The Financial Times cited Moody’s saying that, although Finland’s share of the rescue is small, its overall importance as the initial collateralized agreement is out of proportion and could result in disproportionately large risk being held by nations that contribute to the bailout without collateral, compared to their colleagues. It added that a desire for such arrangements pointed to a conflict over whether to provide aid at all, not just how much should be offered.

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