State economy|Finland’s Greek collateral has not grown nearly as fast as expected.
Finland the collusion of the guarantee arrangement between the government and Greek commercial banks continues.
The collateral has not grown nearly as fast as the Ministry of Finance estimated 13 years ago.
The value of the collateral was initially EUR 925 million in 2012. At the end of September, the value was EUR 948 million.
Since 2012, the investment return has been a total of 2.2 percent, if the 2.3 million euros in fees from the international bank managing the capital are taken into account.
Treasury estimated in 2012 that the value of the capital in the escrow account will increase to 2.2 billion euros within 30 years, assuming a three percent annual interest rate.
“The interest rate was very low for a long time and the investments have been made in short-term bonds with the best credit rating, the yield of which has been modest. However, recently the yield has started to increase,” says the Finance Director of the State Treasury Anu Sammallahti.
Finland the government and Greek commercial banks entered into a yield swap agreement, which in Finland is called a collateral arrangement.
Its starting point was that, over time, the guarantee would cover Finland’s 2.2 billion euros of liabilities from the emergency financing granted to Greece by the European Financial Stability Facility.
Finland was the only euro state that demanded such “collateral arrangements” as a condition for participating in Greece’s second emergency financing. The equivalent was also available to other euro states, but none of them considered it necessary.
Greece will repay its loans to the European Financial Stability Facility in several installments between 2023 and 2070.
Over-indebted In 2012, Greece was on the verge of insolvency. Therefore, it had to rely on emergency financing provided by other euro countries and the International Monetary Fund (IMF).
In the yield swap agreement, Greek commercial banks receive Finland’s share of the potential profits of the emergency loans granted to the Greek government by the European Stability Mechanism (ESM).
In return, Finland can receive the capital invested by Greek banks in an escrow account if Greece defaults on its loans to the European Financial Stability Facility (EFS).
An escrow account means a bank account, the funds of which may only be used if the conditions agreed in advance by the parties are met. The funds in the account in the collateral arrangement are invested in bonds with the best credit rating. The funds are managed by an international bank.
Capital will only be transferred to Finland if Greece violates the agreement with the European Financial Stability Facility. If Greece does not default on its loans, the capital in the escrow account will be transferred to Greek commercial banks.
The European Financial Stability Facility is a financial company of euro states, whose mission was to provide emergency financing to euro states if necessary. It obtained a loan from the market with the help of guarantees granted by the euro countries.
Currently, the European Stability Mechanism grants emergency loans to euro states in financial difficulties.
About emergency funding despite this, according to Eurostat, the statistical authority of the European Union, the Greek economy collapsed by 27 percent between 2007 and 2013, and the unemployment rate increased to a maximum of almost 28 percent. The debt of the public finances in relation to the gross national product grew to a good 180 percent.
One significant reason for the collapse of the economy was the severe cuts in public finances and tightening of taxation, which were required as a condition for emergency funding.
Since then, the Greek economy has started to recover, unemployment has decreased significantly and the debt ratio has shrunk to 150 percent.