Leading members of the Finnish government will reconsider its collateral arrangement with Greece today after German Chancellor Angela Merkel rejected the deal, according to Finnish newspaper Helsingin Sanomat.
Merkel spoke out against the deal Finland cut with Greece last week, saying, “It can’t be that one country gets extra collateral,” according to WSJ.
Unless the meeting results in a retraction of collateral demands (politically unlikely), its outcome will be negative: either Finland will recuse itself from the collateral deal or declare its resolve in keeping the deal.
Both of these two situations would aggravate suspicions that the eurozone is not as unified as it should be, and call into question the success of the second Greek bailout. This puts Greece at risk of a full-blown — not controlled — default and could be disastrous for markets.
While Finnish leaders have said they would consider a reworking of the deal, they have emphasised that collateral is still a make-or-break component of their participation.
In an address directed at members of her own Christian Democratic Party, Merkel also rejected a call by the party’s managing director to secure collateral in future bailouts.
Collateral agreements — at least bilateral ones — threaten to jeopardize bailout efforts, because they take time to negotiate and leave some countries’ participation up in the air. The euro group will have to approve any bilateral bailout agreements.
Moody’s released a statement Monday warning that squabbling over bailouts has a larger significance:
“The deep fissures among the ostensibly united euro area nations evidenced by such demands, even in the context of new German and French proposals intended to strengthen European institutions, create additional concerns over the conditional and evolving nature of the current financial support mechanism.”
UPDATE: Today’s meeting produced no tangible changes to the current agreement, though Helsinki said it was open to a “creative solution,” according to Greek newspaper Kathmerini.
Alexander Stubb, the Minister for European Affairs and Foreign Trade told AFP, “We will not damage the European Union, the euro, or the interests of any member state,” but waxed ambiguous about whether Finland would withdraw from the bailout if it could not secure any collateral agreement.