The bilateral agreement between Greece and Finland regarding the provision of cash collateral by Athens to Helsinki to guarantee its share of EFSF loans sets a dangerously disruptive precedent for the future coherence of the eurozone?s rescue mechanism. Cutting deals between Helsinki and Athens not only imperils the implementation of the complex second bailout package for Greece, it opens the door for beggar-thy-neighbor arrangements which other countries party to the package will want to agree with Athens. This may provoke a rush for competitive bilateral deals that undermine the principles of the agreement arrived at during the July 21 EU summit. Already, the siren songs from Germany, the Netherlands and Austria can be heard, suggesting that government policymakers in Berlin, The Hague and Vienna want to be in on similar back-room deals.
It is also instructive to highlight the fact that for all intents and purposes, it was a member of the eurozone?s wealthy northern periphery that first engaged in such deal-making with its debt-laden southern peer. Already the queue is forming, with Slovenia and Slovakia calling for similar cash collateral clauses with Athens. It is only a matter of time before others such as Cyprus, Estonia or Belgium join the queue and seek to emulate the Finnish approach.
In the runup toward a second Greek rescue package, Germany and France invested far too much political capital on private sector involvement, i.e. burden-sharing from banks, insurance companies and pension funds. By contrast, smaller member states such as Finland introduced a new twist to the debate over further financial assistance for Athens. Helsinki raised the issue of how commitments and preconditions should not depend only on the goodwill of erratic Greek policymakers. Finland demanded the provision of manifest guarantees, i.e. cash collateral in return for new loan programs.
This new element in the architecture of Greek bailout packages was officially sanctioned during the recent EU summit. Despite the emerging wave of criticism, the Finnish demand for collateral is only a technical tail end of a two-year Greek tragedy that highlights the thin ice on which any notions of and appeals for European solidarity are skating. The damage to Greece?s reputation is already evident. Damage-limitation mode will quickly become the order of the day in Brussels as a comprehensive and credible solution for the eurozone is yet again in the process of unravelling.
* Jens Bastian is a German citizen currently working as a visiting fellow for the political economy of Southeast Europe at St Antony?s College, Oxford, UK. He is also senior economic research fellow at the Hellenic Foundation for European and Foreign Policy (ELIAMEP), an Athens-based think tank.