Greek collateral deals may delay bailout, warns Moody's

Greece clinched a new rescue package at a eurozone leaders' summit in July, covering its borrowing needs up to mid-2014.

In a bilateral deal, it then agreed to provide Finland with collateral in exchange for loans, sparking similar requests last week from Austria, the Netherlands and Slovakia.

But rating agency Moody's said on Monday a proliferation of such deals to furnish cash collateral would be credit-negative for Greece, which is currently rated Ca, just one notch above default, by the agency.

"The agreement between Greece and Finland, which is small by itself, assumes much greater significance. The pursuit of such agreements could delay the next tranche of financial support for Greece and so precipitate a payment default," it said.

Proliferation of collateral agreements

Austria, the Netherlands and Slovakia said on Friday they wanted collateral on their loans to Greece after Finland secured Athens' commitment to do so, but Greek officials have said they were not talking to countries other than Finland about such a plan.

Moody's said a proliferation of collateral agreements would also limit the availability of funds for future bailout programmes, and that for these reasons it expected other euro area members ultimately to reject the Finland-Greece deal.

Greece is set to receive the next €8 billion tranche from its first bailout package in September. Analysts said all eurozone states need to concur on aid disbursement for Greece, and any requests for collateral might cause delays as Athens faces fixed needs to redeem bonds and plug fiscal holes.

"One thing leads to another and then you can end up with difficulties in implementing the bailout deal. Perhaps it was wrong to have this agreement with Finland," said one Greek economist who declined to be named.

Greece, whose debt market activity is restricted to monthly short-term debt auctions, needs to roll over €4 billion of three- and six-month Treasury bills next month.

Moody's said seeking collateral showed a lack of will in some eurozone countries and put more pressure on Germany and France to take stronger steps to support the euro project.

"The deep fissures among the ostensibly united euro area nations evidenced by such demands, even in the context of new German and French proposals intended to strengthen European institutions, create additional concerns over the conditional and evolving nature of the current financial support mechanism," Moody's said.

It said a proliferation of collateral agreements would also limit the availability of funds for future bailout programmes. 

EurActiv with Reuters