21st Oct 2016

Ratings agency says EU bailout deal at risk

  • Finnish fans celebrate hockey win. Politicians in Helsinki fear the country's collateral demands will make it unpopular in Brussels (Photo: ZeroOne)

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

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.

Katainen's position, which has already seen Austria, the Netherlands and Slovakia explore possibilities for their own collateral arrangements with Greece, attracted criticism from Dutch finance minister Jan Kees de Jager on Monday.

"The Netherlands is no supporter of this proposal ... It is not compatible with the principle of equal treatment of all euro countries," de Jager said in an open letter to the Dutch parliament.

The potential proliferation of collateral requests is not the only emerging risk to the EU's self-imposed deadline to get the new bailout arrangements ratified by all 17 eurozone countries by the end of September.

The German central bank in its latest monthly report indicated that the eurozone deal, which also involves provisions for the EU bailout fund, the EFSF, to buy bonds from struggling euro economies, might breach German law by marking a new surrender of sovereign fiscal powers to Brussels.

"Far-reaching extra risks will be shifted to those countries providing help and to their taxpayers, and entail a large step towards a pooling of risks from particular EMU [European Monetary Union] states with unsound public finances," the Bundesbank said.

"Unless there is a fundamental change of regime involving a far-reaching surrender of national fiscal sovereignty, it is imperative that the 'no bail-out' rule – still enshrined in the treaties - should be strengthened by market discipline, rather than fatally weakened."

The bank's statement lends weight to a legal challenge to the bailout deal filed in Germany's constitutional court ahead of the judge's verdict, due in the coming weeks.

For their part, regional authorities in the Hessen lande have threatened to invoke a special mediation mechanism between the German parliament and the regional assembly, the Bundesrat, to examine the implications of the EU bailout deal in a move which could delay German ratification.

"I am not going to support a mechanism today that binds the hands of generations of politicians," Hesse's jutsice minister, Joerg-Uwe Hahn, said in a letter to MPs.

In Italy a fresh political rift between Prime Minister Silvio Berlusconi and his coalition partner, Umberto Bossi, the head of the nationalist Northern League party, has also cast doubt on parliamentary approval of Rome's proposed new €45 billion austerity package.

Bossi's party on Monday drafted changes to the proposed cuts one day before the Italian senate is due to hold initial talks on the deal, calling to scrap a planned increase in Value Added Tax and in Italy's retirement age.

Bossi also angered Berlusconi by predicting that Italy is destined to split into two, with the rich industrialised north leaving the south to its own problems.

"I am sorry, this time, to not agree with my friend Umberto Bossi. I am deeply convinced that Italy will always exist," the Berlusconi said in a rare public disagreement with the Northern League chief.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

News in Brief

  1. Brexit could lead to 'some civil unrest' in Northern Ireland
  2. ECB holds rates and continues quantitive easing programme
  3. Support for Danish People's Party drops, poll
  4. Spain's highest court overturns Catalan ban on bullfighting
  5. Tusk: 'Concrete' migration proposals in December summit
  6. Commuters seek compensation for Swedish ID checks
  7. EU needs 'firmness and dialogue' with Russia
  8. Moment of truth is coming on Ceta, says Belgian PM

Stakeholders' Highlights

  1. UNICEFCalls on European Council to Address Plight of Refugee and Migrant Children
  2. ECTAJoin us on 9-10 November in Brussels and Discover the new EU Digital Landscape
  3. Access NowCan you Hear me now? Verizon’s Opportunity to Stand for Global Users
  4. Belgrade Security ForumMeaningful Dialogue Missing Not Only in the Balkans, but Throughout Europe
  5. EASPDJoin the Trip! 20 Years on the Road. Conference & Photo Exhibition on 19-21 October
  6. EuropecheEU Fishing Sector Celebrates Sustainably Sourced Seafood in EU Parliament
  7. World VisionWomen and Girls Urge EU Leadership to Help end Gender-based Violence
  8. Dialogue PlatformIs Jihadism Blind Spot of Western Intellectuals ? Wednesday 26 October
  9. Belgrade Security ForumGet the Latest News and Updates on the Belgrade Security Forum @BelSecForum
  10. Crowdsourcing Week EuropeMaster Crowdsourcing, Crowdfunding and Innovation! Conference 21 November - 10% Discount Code CSWEU16
  11. EJCEU Parliament's Roadmap for Relations with Iran a Massive Missed Opportunity
  12. Nordic Council of MinistersFish Skin on Bare Skin: Turning Fish Waste into Sustainable Fashion

Latest News

  1. Malta, Latvia, and Hungary top EU obesity charts
  2. British PM asserts her role in EU 'nest of doves'
  3. Italy shields Russia from EU sanctions threat
  4. EU and Wallonia still stuck on Canada accord
  5. Dieselgate isn't my fault, says German transport minister
  6. Scotland plans independence vote before Brexit
  7. EU threatens Russia over Syria 'atrocities'
  8. EU buries migration dispute for now