Minister drags Berlin into euro crisis collateral row

BERLIN Tue Aug 23, 2011 1:40pm EDT

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BERLIN (Reuters) - A minister in Angela Merkel's conservative party propelled Germany into a debate about guarantees on bailout payments to Greece, backing a demand from Finland for collateral, but Berlin distanced itself from her comments.

Labour Minister Ursula von der Leyen, also a deputy president of the chancellor's Christian Democrats (CDU), told German TV on Tuesday that future bailouts should only be made against guarantees.

"Several states are making big efforts to service their debt. This must be honored. But to keep up those efforts in the long term, collateral is needed," the minister was quoted as saying by public broadcaster ARD.

One official responded by saying her comments were not the German government's position and that the most important thing was to link aid under the European Financial Stability Facility to "strict conditions" regarding fiscal reforms.

Greece agreed last week to provide AAA-rated Finland with cash collateral for the loans in a plan that sparked requests for similar treatment from Austria, the Netherlands and Slovakia.

Until von der Leyen spoke, German government officials had only made off-the-record comments about Finland's requirement for Greece to put up collateral, saying they worried this could spark just such copy-cat requests from other countries.

Austria has been an outspoken critic of the bilateral deal and said on Tuesday it was one of "many" euro zone countries with concerns about unfair treatment.

The three latest countries to voice their demands and the Finns together account for around 11 percent of the euro zone contribution to the new 109 billion euro ($153.5 billion) Greek bailout.


"Many countries reject the solution that Finland negotiated for itself to the disadvantage of all others," Austria's Finance Minister Maria Fekter told reporters.

She said policymakers would have to work out a solution at the next meeting of European finance ministers in September.

Fekter said that there was broad consensus for expanding and extending the Greek aid package as agreed but that it had to be implemented in a fair fashion with all involved. Finnish Prime Minister Jyrki Katainen was quoted by Bloomberg news agency as saying he was open to changing the deal.

Von der Leyen has in the past been mentioned as a possible successor to Merkel, but was passed over by the chancellor in her selection of a candidate for president of Germany last year.

In her role as labor minister, von der Leyen has little direct say in euro zone policy, but she does sit on a new CDU committee that will debate euro zone policy ahead of the party's congress in November.

The CDU is hotly debating Merkel's leadership in the euro zone debt crisis, which has got poor reviews in recent opinion polls.

Some members of parliament from Merkel's center-right coalition, such as the conservatives' financial policy expert Klaus-Peter Flosbach, have also mentioned the option of Greece putting up gold reserves as collateral in media interviews.

Analysts say any new signs of discord in the euro zone could fuel market fears its political leaders are incapable of getting on top of the bloc's debt crisis.

Ratings agency Moody's said on Monday euro zone states seeking collateral for Greek aid should think again if they wanted to avoid driving the debt-mired state into default.

Moody's said it expected other euro area members to block the agreement with Finland, and Dutch Finance Minister Jan Kees de Jager said suggestions the bilateral deal was lawful were incorrect.

Greece, which clinched a new rescue package at a euro zone summit in July covering its borrowing needs up to mid-2014, is set to receive the next 8 billion euro tranche from its first bailout package in September.

Moody's said seeking collateral showed a lack of will in some euro zone countries and put more pressure on Germany and France to take stronger steps to support the euro project.

(Additional reporting by Michael Shields in Vienna and Annika Breidthardt in Berlin; writing by Stephen Brown; Editing by John Stonestreet)

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Comments (5)
As a Finn I’m shocked of reading how the Finnish government is desperately trying to find out what the official German policy is. In the midts of trying to work on a very bleak economical situation, the leading Finnish politicians have to rely on what media writes. It gives the impression that there is no policy and nobody is in control.

The absurd position of blocking the Finnish-Greek deal (which itself tells of the incompetence of Merkel et al — small member states have to work outside the dinosaur EU apparatus to achieve effective and quick measures) most likely leads to the fall of the current Finnish government. The new government will consist of hard-core Euro-skeptics who will with certainty block all Euro aid packages.

Aug 24, 2011 3:46am EDT  --  Report as abuse
breezinthru wrote:

In fact, there is no policy because the situation is beyond reprieve. I agree with your assessment of the situation as bleak.

There is no solution for the Eurozone problem because many insolvent banks and many insolvent countries have been propping each other up with loans and guarantees that collectively surpass the ability of the southern Europeans, the northern Europeans, the Chinese or anyone else to monetize.

This is not the only face of the travesty at hand. We must add the fact that many of Europe’s economies are in retrograde and it’s easy to see why the Germans and others are reluctant to guarantee such a ocean of red ink.

You are, of course, correct that the result of Germany’s action regarding the Finland/Greece deal will result in a Euroskeptic leadership in Finland, but as a Finn you should be grateful for that. Giving more money to the Greeks with or without collateral will not change the fact that they and the rest of the Eurozone is careening toward collapse.

I am astonished that most people are continuing to invest and conduct business as though nothing is awry.

Perhaps there are some scenarios that are simply to much for people to accept as possible until after the the possibility proves itself.

Aug 24, 2011 10:30pm EDT  --  Report as abuse
dbinternet wrote:
To fix Europe confidence crisis and stop the spill over to the rest of the world authorities should intervene in the CDS market instead of allowing the ECB to buy periphery government bonds. This would require less resources, stop the disagreement between countries on buying each other debt and defeat speculation.

David Brown
Infinity Capital Management

Aug 25, 2011 3:40pm EDT  --  Report as abuse
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