Finnish Official: No Deal Likely on Greek Collateral

Friday, 16 Sep 2011 12:40 AM

 

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Eurozone finance ministers resisted U.S. pressure to provide a decisive solution to the debt crisis on Friday, saying they would delay until October a decision on paying out more bailout loans to to Greece to prevent a disastrous government default.

The delay was yet another example of Europe's halting effort over almost two years to solve its difficulties over too much government debt in some countries. Markets have been extremely volatile in recent weeks on concerns about the crisis, but barely moved on news from the meeting as expectations were already low.

Despite the lack of big announcements, the mood among officials at the meeting in Wroclaw, Poland, was at times edgy, with Austria's finance minister criticizing U.S. Treasury Secretary Timothy Geithner for not listening to European ideas.

Maria Fekter said Geithner — the first U.S. finance chief to join such a eurozone meeting — in "very dramatic terms" urged the Europeans to get a grip on the crisis, but she faulted him for not being responsive to suggestions. She said he ruled out a tax on financial transactions, which some euro countries see as a way of funding expensive bailouts.

"I would have expected that, if he explains the world to us, that he would also listen to what we want to explain to the Americans," Fekter said.

Geithner had joined the meeting in a sign of how the U.S. is increasingly concerned over the global impact of the eurozone debt crisis.

But his presence seemed to yield little at the meeting, where European officials appeared unable to make much progress on any of several fronts.

The European finance chiefs ruled out providing more fiscal stimulus to get their lackluster economies growing again, saying high debts left no space for extra spending. Another sticking point in the aid for Greece, a Finnish demand for collateral for a second bailout now being put together, was not solved either.

The payout of the next 8 billion euros ($11 billion) installment of Greece's first bailout package depends on a review of the country's finances. The disbursement was originally scheduled for the end of September and the Greek government has said that without the new loan it will run out of money next month, forcing it to stop paying public-sector salaries and eventually default on its massive debts.

Officials from the eurozone and the International Monetary Fund have delayed their assessment until Greece has laid out a clear plan on how it will cut its deficits to targets agreed in its bailout program, said Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the regular meetings of eurozone finance ministers.

Juncker said officials welcomed "the renewed, firm commitment of Greece" to its austerity program and said they "would decide in October on the next tranche."

A delegation from the eurozone, the IMF and the European Central Bank unexpectedly left Athens on Sept. 2, delaying the much-awaited confirmation that Greece was meeting the terms of its 110 billion euros ($152 billion) bailout agreed in May, 2010.

The country's struggle to keep a lid on its spending and raise enough revenue has also increased uncertainty about a second 109 billion euro aid package agreed July 21, when it became clear that the first batch of money would not be enough.

Fears that Greece might not get more rescue money and default have made Greek bond prices plummet, weighed on the euro's exchange rate with the dollar and roiled stock markets. Rumors and speculation by public officials about Greece defaulting or leaving the euro have helped keep the sense of crisis going.

"Rumors, leaks and comments that bring into question the decisions of July 21 and Greece's actions regarding these decisions are harmful, not only for Greece but for the eurozone as a whole, and the international economy, said Greek Finance Minister Vangelos Venizelos, adding that this was what was stressed by Geithner.

Hopes for progress on finalizing the terms of Greece's second bailout were quickly thwarted when Finnish Finance Minister Jutta Urpilainen said there was still no solution to her country's demand for guarantees to back its contribution.

The small Nordic country's demand has triggered similar requests from several other states, including Austria and the Netherlands.

Fulfilling all the requests for collateral could shave off hundreds of millions of euros from the overall bailout sum, hurting Greece's prospects of recovery and angering other eurozone nations who would have to fund the guarantees.

"If collateral will be provided, this will be done at an appropriate price," Juncker said, without giving further details on where discussions were headed.

Friday's meeting comes after several turbulent weeks on global financial markets, triggered by fears over the impact of a potential Greek default as well as mounting evidence of a slowdown of the world economy. Some eurozone banks have been facing difficulties to obtain short-term funding in U.S. dollars as other lenders worry about their exposure of the debt of struggling countries like Greece, Spain or Italy.

Those funding issues pushed the European Central Bank, the U.S. Federal Reserve and three other major central banks to give banks easier access to dollars on Thursday, in the hope they can stop credit from seizing up like it did after the collapse of U.S. investment bank Lehman Brothers three years ago.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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