Merkel against collateral call despite minister’s stance

German Chancellor Angela Merkel rejected demands that Greece provide collateral for emergency loans as splits emerged in her Cabinet, reflecting euro-area divisions on the issue.

Merkel told lawmakers from her Christian Democratic bloc that a call by Labor Minister Ursula von der Leyen for countries to put up gold as security for bailouts is ?not the right way,? Ulrich Scharlack, a spokesman for the parliamentary group, said on Tuesday in Berlin after they were briefed by Merkel on the region?s debt crisis.

The disagreement at the top of Europe?s biggest economy underscores risks over a second Greek aid package after the Finnish government said Aug. 16 that it secured a collateral arrangement to ensure its contribution would be repaid. Austria and the Netherlands, which both share Finland?s AAA rating, called for similar deals, as did Slovakia and Slovenia.

?We expect other euro-area members to ultimately reject the Finland-Greece deal,? Moody?s Investors Service said. ?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 the Berlin meeting late on Tuesday, Merkel was told lawmakers from her bloc will provide a majority to approve the July 21 overhaul of the euro bailout fund, the European Financial Stability Facility, the caucus leader, Volker Kauder, told reporters.

Money from the rescue fund should only be made available if the recipient provides collateral, Von der Leyen, deputy chairwoman of the Christian Democrats, said earlier in the day on ARD television.

?Several countries are making huge efforts to service their debt,? Von der Leyen said, according to a transcript of her comments. ?This should be acknowledged. But in order for these efforts to be pursued over the long term, collateral is needed.? Her ministry confirmed the comments.

Kauder also dismissed the suggestion. ?The discussion started by the Finns is not one we should continue,? Kauder told reporters when asked about Von der Leyen?s comments.

Finland is open to adjusting its collateral arrangement with Greece after several euro members criticized the Nordic country for securing a bilateral deal to protect its commitment, Prime Minister Jyrki Katainen said Aug. 22.

?It?s a well-functioning technical solution, but if this particular model isn?t possible, then we have to try to find another model,? Katainen said in an interview in Helsinki.

Merkel emphasized the need to impose strict conditions on bailout recipients. She suggested the Court of Justice of the European Union could be given jurisdiction over violations of the treaty that sets limits on debt and deficits, according to Scharlack.