THE DEAL Finland reached with Greece last week was seen by the Nordic country as a key condition of its agreement to the terms of the July 21st summit deal, which will widen the powers of the bloc’s bailout fund, the European Financial Stability Facility (EFSF).

It involves Greece depositing cash in a state account that Finland will invest in AAA-rated bonds. The interest generated will raise the amount to match the Finnish part of the loan that Greece gets from EFSF.

Announcing the terms of the collateral deal last week, Finnish finance minister Jutta Urpilainen said Finland would return the money, plus interest, once the bailout loan was repaid.

A day after it was disclosed, Austria said it, too, would be asking Greece for collateral in exchange for new emergency loans.

“It always was our position in the council that if there is a collateral set-up, Austria will participate,” said Harald Waiglein, a spokesman for Austria’s finance ministry.

The deal also provoked a backlash from authorities in the Netherlands, Slovenia and Slovakia, which said they, too, would seek similar arrangements if the Finns were allowed to do so.

Greek finance minister Evangelos Venizelos reacted by saying the bilateral agreement required approval by euro area ministers and a spokesman for the European Union came out against a proliferation of collateral arrangements.

Finland has responded by saying it is open to adjusting its collateral arrangement. Its view is that the arrangement is in line with its demands that were included in the July 21st agreement.

Yesterday’s intervention by Germany’s labour minister Ursula Von Leyen, a deputy leader of the ruling Christian Democrats, only raises the temperature of the debate and comes at a distinctly inopportune time for German chancellor Angela Merkel. – (Reuters)