Finnish F. M. Jutta Urpilainen, demands collateral from Greece

Finland's finance minister said she doesn't expect the eurozone to resolve a dispute over her country's demand for collateral for loans to Greece at a meeting Friday — adding to concerns over the currency union's ability to stamp out its crippling debt crisis.

U.S. Treasury Secretary Timothy Geithner joined the meeting in Wroclaw, Poland — the first time that a U.S. finance chief has attended such a gathering — in a sign of how the U.S. is getting increasingly concerned over the global impact of the eurozone debt crisis.

Geithner has been pushing his European counterparts to finally find a lasting solution to its debt troubles, which have dragged on for almost two years.

But hopes for some tangible progress were quickly thwarted, when Finnish Finance Minister Jutta Urpilainen said that there was still no solution to her country's demand for guarantees to back its contribution to a second, euro109 billion rescue package for Greece.

The small Nordic country's demand has triggered similar requests from several other states, including Austria and the Netherlands.

If the requests were fulfilled, providing the collateral could shave off hundreds of millions of euros from the overall bailout sum.

"Unfortunately I don't see that we can find a solution tonight," Urpilainen said as she arrived for a meeting with her eurozone counterparts in Wroclaw, Poland.

The dispute has unsettled markets, as it is another sign of divisions between the 17 countries that use the euro over whether they can actually save Greece, which has been relying on emergency loans from other eurozone countries and the International Monetary Fund for more than a year.

The rescue faces several other challenges. Greece's international debt inspectors interrupted their most recent review mission two weeks ago after they discovered that Athens was set to miss its budget targets. Since then, Greece has announced a special property tax, which the government says should cover the revenue shortfall.

Meeting strict budget, privatization and reform targets set out in Greece's deal for a first euro110 billion rescue package is a prerequisite for receiving the next aid installment, which is due by the end of the month.

Without the euro8 billion ($11 billion) tranche, the country would run out of money by mid-October and potentially defaulting on its debts.

However, Austria's Finance Minister Maria Fekter, traditionally a hard-liner when it comes to sticking to the bailout conditions, said she was "very optimistic that the next tranche can be paid out to Greece."

She warned against a Greek default, which she said would be "very costly."

However, she did not rule it out as a possibility in the future.

"Should a situation arise, where this way (of providing rescue loans) suddenly becomes more expensive than the alternative, we will have to think about the alternative," Fekter said. "But at the moment this is not yet the case."

Referring to the debate about collateral, Fekter said she had proposed a model where guarantees would be available for everyone that wants them.

Friday's meeting comes after several turbulent weeks on global financial markets, triggered by fears over the impact of a potential Greek default as well as mounting evidence of a slowdown of the world economy. Some eurozone banks have been facing difficulties to obtain short-term funding in U.S. dollars as other lenders worry about their exposure of the debt of struggling countries like Greece, Spain or Italy.

Those funding issues pushed the European Central Bank, the U.S. Federal Reserve and three other major central banks to give banks easier access to dollars on Thursday, in the hope they can stop credit from seizing up like it did after the collapse of U.S. investment bank Lehman Brothers three years ago.

Greek Finance Minister Evangelos Venizelos, meanwhile, defended his country's efforts, and called on the other eurozone states to clear up the remaining issues that have delayed the new bailout and quickly implement changes to the region's bailout fund that were also agreed at the July summit.

"We are on track to implement the (bailout) program," Venizelos said. "And we believe that the implementation of the decision of the 21 July is the unique way to go ahead. Not only for Greece but for the eurozone as a whole."

The Rift in Euro Zone opens wide Juergen Stark resigned

Juergen Stark resigned from the European Central Bank’s Executive Board after protesting the bank’s bond purchases on a conference call earlier this week, said a euro-area central bank official familiar with the meeting.

During the Sept. 4 call, Stark, 63, expressed his strong opposition to the program, which was expanded last month when the ECB started buying Italian and Spanish bonds, said the official, who spoke on condition of anonymity because the discussions are confidential. Stark was supported by the central banks of Austria and the Netherlands, the person said. The resignation of Stark, the ECB’s chief economist, is a blow to the bank, the official said, noting he is the second German ECB member after Axel Weber to leave over the bond program.

Stark’s resignation, less than two months before President Jean-Claude Trichet’s term ends, suggests policy makers are increasingly split over the best way to fight Europe’s debt crisis. The ECB’s bond purchases have also been opposed by Bundesbank President Jens Weidmann and his predecessor Weber, who earlier this year pulled out of the running to succeed Trichet.

“There is quite a severe row going on,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “It seems that it went too far.”

‘Personal Reasons’

The euro extended its decline after news of Stark’s possible resignation was first published. It traded at $1.3662 at 5:37 p.m. in Frankfurt, down 1.6 percent on the day.

Stark today informed Trichet that, “for personal reasons, he will resign from his position,” the Frankfurt-based ECB said in a statement. “Stark will stay on in his current position until a successor is appointed, which, according to the appointment procedure, will be by the end of this year.”

The German government will nominate Deputy Finance Minister Joerg Asmussen to replace Stark on the ECB’s six-member board, Germany’s N-TV reported, without saying where it got the information.

The ECB, which started its bond program in May last year when Greece’s fiscal crisis began to spread to other euro-area countries, has so far spent 129 billion euros ($176 billion) on the bonds of distressed governments in an attempt to lower their yields. While the ECB says it is trying to ensure the transmission of its interest rates, Stark told Bloomberg News on Aug. 18 that the purchases blur the line between monetary and fiscal policy.

No ‘Glowing Advocate’

“It’s generally known that I’m not a glowing advocate of these purchases,” Stark said. “I see the rationale. Our accommodative monetary policy isn’t being transmitted in certain regions. So it’s justifiable from a policy point of view. But there’s an important point -- we are also reducing interest rates for the sovereign. That’s where the problem is.”

Stark’s eight-year term was due to end on May 31, 2014. When he and Trichet depart, half of the ECB’s board will be new. Belgium’s Peter Praet joined in June. Bank of Italy Governor Mario Draghi will take the ECB’s helm on Nov. 1.

Trichet yesterday said the central bank has cut its growth forecasts for this year and next and reduced its assessment of inflation risks, opening the door for further stimulus measures. Stark is one of the ECB’s most ardent inflation fighters.

“Things do not look too good from outside, with a second German leaving the Governing Council to openly criticize the ECB after Weber,” said Laurent Bilke, a former ECB economist now working at Nomura International in London. “Good luck to Mario Draghi.”