Malta has had a last-minute change of heart in its request for collateral in exchange for its €400 million of guarantees going towards the EU’s rescue fund, after the stiff terms were unveiled yesterday.
The costs will be higher than the benefits
Finance ministers meeting in Brussels agreed the terms of collateral to be offered to all eurozone member states for their contribution to the fund, known as the European Financial Stability Facility (EFSF).
Under the terms, those eurozone countries choosing the collateral option to secure their guarantees in the EFSF would have to compensate the other member states through a series of measures.
They would have to pay their share of the EFSF’s post-2013 successor, the European Stability Mechanism (ESM), in one tranche during the first year rather than over five years. They would also have a reduced share of the EFSF profits.
In case of a default, the collateral would only be paid out after the EFSF loans mature in 20 to 30 years’ time, and finally, guaranteed returns on the loans written into the advance agreements would be set at no more than 30 per cent.
Should Malta have continued to pursue the collateral option, it would have had to pay its €50 million share of the post-2013 European Stability Mechanism at one go in 2013 rather than over a five-year period.
“We have decided that it is not in Malta’s interest to keep seeking collateral under the terms agreed. There is a high price to be paid for collateral and the costs will be higher than the benefits,” Finance Minister Tonio Fenech said yesterday after the meeting.
Malta was not the only member state that changed its position on collateral that was first requested by Finland. It was joined by Austria, The Netherlands and other countries.
Klaus Regling, the head of the EFSF, said the stiff terms made it unlikely for other member states to follow in Finland’s footsteps.
Following Finland’s insistence for collateral last August, Malta had declared its intention to ask for the same treatment if the eurozone agreed to give collateral to just one member state.
This had prompted other member states to follow suit. The agreed terms now make the collateral economically prohibitive, with Finland choosing this option only to placate internal political opposition.