Remember the first guy in line at that beautiful ol’ Bailey Building and Loan? The guy who wants every last penny of his account out, so he can put it under his mattress?
Well, George Bailey is Greece and that guy is Finland.
The Finns, as a condition of a loaning Greece more money, wants hard collateral, and the Greeks were perfectly willing to cut this side-deal, to the chagrin of the Dutch, the Austrians, and a host of other lending countries who are now expecting the same treatment.
The other Euro-lenders need to approve any Finnish collateral, and they don’t seem in a mood to do so, which the Finnish government surely had to have known when it struck the deal. There’s at least some evidence that it was reached more for internal Finnish political consumption than anything else.
Now, it’s not entirely clear what form the collateral can take. More Greek debt is probably not going to cut it, so whether it’s buildings or islands or the new Ferrari or ticket revenue at the Parthenon or on option on the Elgin Marbles upon their prospective return, we don’t really know what the Finns thought they were getting as collateral. If it turns out to be some dedicated revenue stream, they’ve turned themselves into tax farmers for the Finns, and made the Finns the senior debtholders.
That’s what the rest of the European lenders are worried about. They’re worried that once the Finns get paid off, there won’t be enough to go around for the rest of them, so some of the other countries are refusing to sign off on that deal unless they also get, ah, assurances.
With the added doubt about Europe being able to arrive at a deal, Greek-German spreads have jumped up today. But as with the US debt ceiling debate, the liquidity problem pales in comparison to the solvency problem. The fact that the Dutch, Austrians, Germans, and Slovians (Slovakia and Slovenia) are all against it isn’t just a signal that they don’t want Finland rocking the boat. Isn’t it also an indication that they money isn’t there? Not just today, but for the duration of the restructure?
At this point, the complaints seem to be more along the lines of fairness rather than structural soundness of the loan. The one exception is the Austrians, who proposed an inverse relationship between loan and collateral. But even then, reassuring the small countries that they’ll get theirs, while the large countries recognize implicitly that they’re not any better off with guarantees, isn’t exactly reassuring.
Nevertheless, the reaction is telling. Right now, George Bailey is asking that nice old lady how much she can get along with, and praying that she doesn’t just name her account balance.
