July 17, 2012 / 3:06 PM / in 5 years

Finland, Spain agree on bailout collateral

HELSINKI (Reuters) - Finland has secured a deal with Spain to receive collateral in exchange for helping bail out Spanish banks, an agreement modeled on an earlier deal with debt-burdened Greece, Finnish Finance Minister Jutta Urpilainen said on Tuesday.

Finland, one of the euro zone’s four AAA-rated countries, has demanded collateral in exchange for loans to debt-burdened countries in the euro zone.

The collateral will be worth up to 770 million euros ($942 million), covering 40 percent of Finland’s total share of the loans. It is due to be paid in cash and invested in the bonds of the top five countries in the euro zone, Urpilainen said.

Finland’s parliament is due to discuss the Spanish bailout program on Thursday and vote on it on Friday, Urpilainen told reporters after the government signed a deal with a fund owned by Spanish banks.

“The seriousness of the situation requires that decisions are made swiftly,” Urpilainen said. “I hope that the Finnish parliament will approve this as our main condition was to get collateral and now we have reached a good collateral deal.”

In order to secure the guarantees, Finland agreed to pay its share of loans into Europe’s permanent stability fund (ESM) in one tranche instead of five.

Urpilainen said no other country had sought a similar deal, most likely due to the higher cost of a single, upfront payment.

Finland must also forgo its share of any interest margin profits from the recapitalization program.

The government’s push for collateral stems from a demand by Urpilainen’s Social Democratic Party, the country’s second-biggest party, to attach strings to loans.

Many Finns feel bailout recipients are getting an easy ride while they face austerity at home. Some members of the leading National Coalition party, however, have criticized collateral deals as too arcane and not beneficial for Finland. ($1 = 0.8170 euros)

Reporting by Terhi Kinnunen and Ritsuko Ando; editing by Stephen Nisbet

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