Following Finland’s cash collateral deal with Greece — an issuer comment from Moody’s on Monday:
If generalized, these bilateral agreements would be credit negative for Greece and other countries now receiving or potentially in line for bailouts, since it illustrates continued differences among euro area states over the provision of support to their fellow members. The pursuit of such agreements could delay the next tranche of financial support for Greece and so precipitate a payment default.
Finland’s contribution to the overall support package for Greece is only about 2% of the total, although the other countries now likely to seek their own collateral agreements with Greece have a larger share in the program. 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. It would also imply that the some euro area countries would bear disproportionately large shares of the risk associated with the provision of financial support to other members. Therefore, the agreement between Greece and Finland, which is small by itself, assumes much greater significance…
We expect other euro-area members to ultimately reject the Finland-Greece deal because of the above considerations, 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.
In this context, 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.
Speaking of generalised — hitting the wires at pixel time:
(Shouldn’t they try and find out?) Greece for its part has said that it has not made any agreement beyond Finland’s, but that’s the problem — Finland has been precedent enough.
No Moody’s comment, we would note, on any credit implications for Greece’s English-law bonds. These typically contain negative pledge clauses that might require Greece to secure them with collateral on equal terms to the Finland deal, on pain of a possible default. It’s a technical, and legally opaque, question. But then we’re no nearer to finding out the fate of the bilateral collateral question either.
More on the Greek collateral grab – FT Alphaville