As the Nordic nation rejected any form of joint regional liability such as selling common euro bonds, Finland reached an agreement with Greece for receiving collateral to cover its bailout contribution.
Finance Minister Jutta Urpilainen said yesterday at a press conference in Helsinki, that next weeks are very decisive in that we will see how other countries will respond to this collateral arrangement, she also added that Finland has been critical of joint euro bonds and our stance is that every country is liable for its own debts.
Urpilainen said steps toward joint liability, such as euro bonds, would undermine the founding principles of the common currency and risk creating a transfer union.
Finland and Greece's agreement will allow the southern European nation to deposit cash in a state account that Finland will invest in AAA rated bonds, and the interest generated will raise the amount to match the required collateral. Once the bailout loan is repaid, Finland will return the money, plus interest, Urpilainen said.
Finland's agreement with Greece also allows the Nordic country to recycle other euro members' money to use as collateral as the funds Greece deposits must come from the bailout loans, chief economist at OP-Pohjola Group in Helsinki, Reijo Heiskanen, said by phone. Finland is a free-rider, letting others bear the risk. This isn't a course available for all euro countries.
Lawmakers in the Nordic country will discuss Finland's contribution to the European Financial Stability Facility as the first item after parliament convenes on Sept. 6, she said. Finland opposes any enlargement of the EFSF, she said.