Euro zone states seeking collateral for aid to Greece should think again if they want its bailout to stay on track, a rating agency said, as one of them said it would only press for such guarantees as a last resort.
Greece agreed last week to provide AAA-rated Finland with cash collateral for its loans to Athens, in a bilateral agreement that sparked requests for similar treatment from Austria, the Netherlands and Slovakia.
Continue Reading Below
As finance ministry experts said Greece faced a deeper than expected recession, Moody's warned on Monday that by trying to secure collateral, its euro zone peers risked delaying the debt-mired state's next bailout payment and driving it into default.
The rating agency also said it expected other euro area members to block the agreement with Finland, and Dutch Finance Minister Jan Kees de Jager said suggestions the bilateral deal was lawful were incorrect.
He added that the idea of collateral for the loans was not desirable, but that the Netherlands would pursue its claim if forced to do so to get equal treatment with other donor states.
Greece, which clinched a new rescue package at a euro zone leaders summit in July covering its borrowing needs up to mid-2014, is set to receive the next 8 billion euro tranche from its first bailout package in September.
Moody's became the first rating agency to warn that the row over collateral could scupper payouts to Greece, saying a proliferation of such deals would be credit-negative for a nation it currently rates at Ca, just one notch above default.
"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.
Greek Finance Minister Evangelos Venizelos, who on Sunday urged the EU and the ECB to find a solution an issue he deemed "political" , said September's tranche would be paid regardless.
"September's borrowing requirements will be covered either way, it has been so decided," he said on Monday, adding that any collateral deal that did emerge should not create uncertainty for markets.
"The statement by Moody's carries weight," he told a press conference. "I want to find a solution that makes it easier for Finland to approve the aid, but what's major is not to disturb the euro zone's relation with markets."
Some analysts, however, agreed requests for collateral might indeed cause bailout payment delays as Athens faced 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 a Greek economist who declined to be named.
Greece, whose debt market activity is restricted to monthly short-term debt auctions, needs to roll over 4.0 billion euros of three- and six-month T-bills next month.
Moody's said seeking collateral showed a lack of will in some euro zone 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.
The Dutch on Monday also turned down a separate proposal by Austria, for more collateral to be made available to countries whose banks and insurers are less exposed to Greece.
Venizelos, whose country is in its third year of austerity-fuelled recession, said his ministry's experts cut their growth forecasts for this year to a range of -4.5 to -5.3 percent from a previous estimate for a 3.9-percent contraction.
Current debt rollover talks with banks and insurers to assume part of Greece's bailout costs were at an advanced stage and were going well, Venizelos added.