Exclusive - Collateral fees may end Greek row - Austrian finmin

ALPBACH, Austria Wed Aug 31, 2011 3:32pm BST

Austrian Finance Minister Maria Fekter listens to a journalist's question as she attends the weekly cabinet meeting (Ministerrat) in the Chancellor's office in Vienna August 30, 2011. REUTERS/Herwig Prammer

Austrian Finance Minister Maria Fekter listens to a journalist's question as she attends the weekly cabinet meeting (Ministerrat) in the Chancellor's office in Vienna August 30, 2011.

Credit: Reuters/Herwig Prammer

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ALPBACH, Austria (Reuters) - Euro zone countries are discussing ways to charge fees on any collateral Greece would use to back bailout loans, an approach that could resolve a nasty row over a second rescue package, Austrian Finance Minister Maria Fekter told Reuters.

Finland reached a bilateral deal with Greece earlier this month on collateral in exchange for loans, sparking requests from some other euro zone countries for a similar arrangement.

Austria criticized the deal, saying all countries should be treated in the same way.

"I believe we will get a solution that is acceptable," she said in an interview at the Alpbach economic forum on Wednesday.

"If collateral is linked to fees -- if they cost something just as a bank guarantee costs something -- then everyone's desire for it will immediately be limited. These kinds of market-conforming models are under discussion now," she said.

She reiterated Austria's demand for equal treatment if Finland gets its wish for cash collateral to back loans to Greece under a new 109 billion euro (96 billion pounds) rescue package.

"Just to say we (Finland) get 20 percent in cash and the others should pay for it, as the Finns negotiated with Greece to the detriment of the community of nations, that doesn't pass muster," she said.

Fekter said the euro zone collateral discussion was going on at a technical expert level but she liked the idea of adopting fees as long as they were not "illusionary costs."

A political decision would have to follow once the idea had ripened and shown it could win consensus.

"If there is no agreement and the second programme does not come than we will pay out (loans to Greece) under the first programme. But all the countries have an interest in getting away from bilateral loans and having the EFSF manage this as with Portugal and Ireland," she said, referring to the euro zone European Financial Stability Facility bailout fund.

She said she expected no political hurdles to adopting revisions to the EFSF agreed by euro zone leaders in July. These could pass the Austrian parliament as early as September 23.

She was also optimistic she could persuade the opposition Greens party to back the permanent European Stability Mechanism due to replace the EFSF in 2013.

The ESM requires a two-thirds majority vote in Austria because it involves amending an EU Treaty. Far-right parties here oppose in principle bailing out fellow euro zone states.

LESS RED INK

Austria had targeted a 2011 budget deficit of 3.9 percent of gross domestic product but has been using spending discipline and higher-than-expected tax revenue amid an export-driven economic boom to whittle that down.

"The 2012 target was 3.3 percent and I expect us to reach that this year," Fekter said.

"If we can do that a year ahead of plan...than we could already conform with Maastricht in 2012 and then move towards a balanced budget as long as no crisis scenarios emerge and things progress continuously."

She said this could be accomplished without any special levies on the wealthy as her conservative People's Party's coalition partners, the Social Democrats, have suggested.

LAGARDE BACKING

Officials have generally reacted coolly to International Monetary Fund head Christine Lagarde's comments that European banks needed a "mandatory substantial capitalisation" to prevent renewed world recession.

But Fekter, a fiscal hard liner who became Austria's first woman finance minister in April, was more conciliatory.

"Madame Lagarde of course was addressing the overall situation and if very large banks would get into trouble that could have a domino effect that would escalate the problematic situation. She is right to look at this in a cautious way."

Fekter noted Austrian banks had generally done well in this year's stress test, which Oesterreichische Volksbanken AG (OVAG) failed despite launching measures to boost its balance sheet.

She said banks that barely scraped by the test "have to consider how they can improve their capital situation."

Fekter said she was not worried that the ECB or national central banks in the euro zone needed to recapitalise given purchases of debt from ailing euro zone members.

"I believe the ECB and the (member states') national banks have been rather careful with the risk they have taken on, so I don't see any need to act now," she said, but added no one knew what form future crises could take.

Volksbanken (OTVVp.VI) said last week it is unlikely to pay a 2011 dividend, raising prospects it could be the third Austrian bank to be nationalised.

Austria pumped 1 billion euros of non-voting capital into Volksbanken during the financial crisis and can convert state aid into equity if the bank fails to pay a 2011 dividend.

But Fekter said Volksbanken along with its regional bank owners needed to find its own way to survive -- perhaps with a partner, more asset sales, or a new business model.

"Now that I already have two banks that are nationalised my interest in making OVAG another state bank is limited."

(Reporting by Michael Shields and Angelika Gruber; editing by Noah Barkin)

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