BERLIN (Reuters) - Euro zone governments are moving toward a compromise in a row over a bilateral deal between Finland and Greece that gives the Nordic country collateral in return for loans to Athens that other members of the currency bloc do not get.
Ireland's Finance Minister Michael Noonan said that the initial deal between Finland and the Netherlands, which prompted some other euro zone countries to demand similar treatment, had been axed and that a new compromise was being hammered out.
"(The collateral deal between) Finland and Greece, I understand that is off the table now. There are other arrangements being made to compensate," Noonan told a financial parliamentary committee.
The wrangle has further undermined confidence among investors in the euro bloc's ability to resolve its debt crisis and prompted rating agency Moody's to warn that Greece's bailout payments could be delayed.
Dutch Finance Minister Jan Kees de Jager, speaking in the Hague, said a solution to the row was not far off.
"I expect a solution (for collateral demands by Finland) in the not very long term," De Jager said. "I see possibilities that an equal treatment of creditors is possible where you do not have the disadvantages from the draft agreement between Finland and Greece."
Greece agreed last month to provide cash collateral for AAA-rated Finland's loans in a bilateral deal that sparked criticism across the currency bloc and demands for similar treatment from Austria, the Netherlands and Slovakia.
The agreement has prompted criticism not just from member states but also from analysts.
Katinka Barysch of the Center for European Reform in London said the Finnish attitude was harmful for Europe.
"That is an attitude that if it materialized in Germany would be very dangerous," Barysch said. "The only good solution I can imagine is to get rid of this. If the Greeks were able to give collateral for all the bonds they issue or for the money we lend them, they wouldn't need us anyway."
A German government official said that the finance ministers of the Netherlands, Finland and Germany would meet in Berlin on Tuesday to discuss this but later added that the collateral issue was not formally up for talks.
"The meeting is a broad exchange of views on the euro zone debt crisis between countries that have similar views," the official added.
De Jager said the three countries would meet in Berlin on Tuesday to discuss euro zone issues.
Finland had said it could drop out of the Greek aid program if its demands were rejected. Although Finland's share of the package is tiny, it punches above its weight because of its top-notch credit rating -- which it shares with Austria and the Netherlands -- and the fact that its parliament is empowered to vote on funding issues.
(Reporting by Annika Breidthardt in Berlin, Gilbert Kreijger in The Hague, Carmel Crimmins in Dublin; Writing by Annika Breidthardt; Editing by Hugh Lawson)