The Corner

The Euroquake (Continued)

Yes, it’s a shameless quake headline (as predicted by Kathryn!), but the euro’s tremors persist. Specifically, the aftershocks of Finland’s requirement that its bail-out contributions should be adequately collateralized continue to resonate. Reuters reports: 

Aug 23 (Reuters) – German Labour Minister Ursula von der Leyen — who is also a deputy president of Chancellor Angela Merkel’s Christian Democrats (CDU) — said on Tuesday that future euro zone bailout payments should be covered by collateral such as gold reserves or stakes in state industry. Von der Leyen, wading into the debate about Finland seeking collateral from Greece for the Finnish contribution to existing bailout payments, told German public broadcaster ARD that future bailouts should only be made against collateral, according to a news release from ARD.

“Several states are making big efforts to service their debt. This must be honoured. But to keep up those efforts in the long term, collateral is needed,” the minister was quoted as saying by the television channel.

Business Insider’s Simone Foxman explains that this would only apply to bailouts arranged after Greece’s July 21 deal, but von der Leyen’s remarks only underline just how fragile the Eurozone’s new stability mechanisms really are. As the EU Observer notes, Moody’s would seem to agree:

Ratings agency Moody’s has warned the EU’s new bailout package for Greece could unravel over demands for loan collaterals. EU anti-crisis measures are also facing fresh political risks in Germany and Italy. The US-based ratings agency in a note on Monday (22 August) predicted other eurozone countries will reject a deal between Finland and Greece for Athens to put around €600 million in an escrow account in case it is unable to pay back Helsinki’s part of its second bailout. Moody’s added that the escalating dispute over collateral poses questions about the eurozone’s broader ability to handle the crisis.

“A proliferation of collateral agreements would … imply that the some euro-area countries would bear disproportionately large shares of the risk associated with the provision of financial support ,” it said. “We expect other euro-area members to ultimately reject the Finland-Greece deal … but the message sent by the calls for such agreements confirms that Europe is conflicted over the very decision to provide financial support to its members, not just the amount of support.”

Finnish Prime Minister Jyrki Katainen has warned that if the collateral deal is thrown out, Finland will not sign up to the second Greek bailout.

And if the Finns don’t, all may well unravel…

Blogging for the London Spectator, David Blackburn underlines the return of democratic politics to the Eurozone’s crumbling technocracy:

A senior diplomat recently told me that the markets are clear that they will only be satisfied by closer union. Northern states are not necessarily opposed to integration, but reckon that their electorates will reject what appears to be a debt union funded by their taxes. It might be standard European practice to ignore the People, but thirty years of democratic deficits have dispelled apathy; the Eurocracy wouldn’t get away with it this time, or so the thinking goes. For example, Angela Merkel’s current struggle over the second bailout in the Bundestag arose because many German politicians calculate that the European issue will turn the forthcoming election,Unable to forge an obviously closer union in this political climate, Merkel can only offer the markets a steady drip of half-measures. (The latest seems to be ”greater commitment from the rest of the EU.) As Moody’s have intimated, it may not be enough.

Tick tock.

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