Finland secures 770 mn euro collateral deal in Spain bailout
By Sarah Collins | Wednesday 18 July 2012
Finland has been granted a €770 million cash payment to secure its contribution to the Spanish bailout. The Finnish Finance Ministry announced, on 17 July, that the payment would come from the Spanish bank deposit guarantee fund - which is financed by the country’s banks - placed in trust for the one-and-a-half year duration of the bailout. The money will then be reinvested in “highly-rated euro area” sovereign bonds, as the collateral is only equal to 40% of Finland’s share in the Spanish loan.
Spain was granted a €100 billion bailout from the eurozone government-guaranteed European Financial Stability Facility (EFSF), on 9 June - a deal which is to be formally signed off on 20 July. This is the second time an arrangement has been put in place to placate Finnish authorities that their money will be returned. The deal, says the Finnish Finance Ministry, mirrors that agreed last year for the Greek bailout, though this one has been made public because the money is coming from Spain’s bank guarantee fund. Finland has not asked for collateral from Ireland or Portugal as its contributions to those bailouts are lower.
The collateral will be paid into the trust (or escrow) account in installments each time a tranche of the bailout is drawn down by Spain. The first €30 billion payment - which will be made in the form of EFSF bonds - is due to be paid over to Spain this month. The first installment will be €231 million, payable before the EFSF hands over any bonds to Spain. In return for the agreement, Finland has said it will forgo any profits made on EFSF loans to Spain and agree to pay in its share of the capital base of the future European Stability Mechanism in one go.