Exclusive: Finland wants Luxembourg agency to hold Greek assets (Reuters)

BRUSSELS (Reuters) – Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held as security for new loans to Athens, according to an internal document obtained by Reuters.

The proposal, drafted in June, remains a central plank of Finnish demands for collateral in return for providing more aid to Greece. Senior euro zone officials held another conference call on Monday to try to resolve the collateral issue.

If Finland does not get its way, it may pull out of the Greek bailout, unleashing renewed trouble in financial markets.

Although small at around 1.4 billion euros, Finland's share of the new support for Greece is important because its triple-A credit rating adds weight to the 109 billion euro rescue agreed on July 21, the second bailout package Athens has received.

Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone's attempt to save Athens from default.

In the document, Finnish officials set out how the Greek government and its privatization agency would authorize the transfer of assets to a holding company based in Luxembourg that would be used as security for states providing assistance.

The privatization agency would own all the shares in the asset holding company, although the shares would be held in custody by a third party. Since the holding company would be based in Luxembourg, it would operate under Luxembourg law.

Such a move would prove controversial in Greece, where the government has strongly rejected suggestions of offering land or company shares as collateral for future loans. It would in effect mean Greece, which plans to raise 50 billion euros from privatization by 2015, losing sovereignty over its assets.

"The Privatisation Agency is managing the AHC (Asset Holding Company) and can use AHC in a flexible way as one vehicle to securitize, manage, develop and privatize assets," reads the Finnish plan, dated June 23 and obtained exclusively by Reuters.

Greece, which passed a law in June to set up a privatization agency to handle the sale of state-owned companies, has so far taken few steps to implement the law, meaning it may miss a target agreed with the EU and IMF of raising 1.7 billion euros from privatizations by the end of September.

MULTIPLE USE ASSETS

As well as acting as a warehouse for Greek property, such a stake in a national phone company or port, the Luxembourg vehicle would ringfence assets so they are not used for other borrowing but instead kept as security for countries offering aid. The Finnish document explains:

"If the market value of the assets of AHC does not meet the collateral requirements or the Hellenic Republic defaults on its loan obligations to the EFSF, the ownership of the shares in custody immediately transfers to the relevant member states," it says, referring to the European Financial Stability Facility, the 440 billion euro bailout fund drawn up last year.

The Finnish plan also flags a possible securitization of the assets held in Luxembourg, using cash flow generated from an airport, for example, as security for loans.

"The asset securitization would make both the valuation and the liquidation of the assets much easier," write the authors of the confidential document, which has been circulated to euro zone finance ministries in the form of a "non-paper."

The proposal is among those being discussed by euro zone officials in conference calls in recent days to try to reach agreement on how collateral can be provided to Finland, and potentially other member states, in exchange for new loans.

Earlier this year, ECB board member Juergen Stark put a value on the country's assets, which include stakes in Athens' airport, a bank, two ports, and the country's main telephone company, of 300 billion euros ($423 billion).

Tapping this wealth will be difficult politically. Talk of selling state companies prompted protests by workers worried they could lose their jobs in any privatization. Militant union members at the country's main electricity producer have warned the government not to pursue a sale.

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US: Pakistan must show it wants Afghan peace (AP)

KABUL, Afghanistan – Washington's special envoy to Afghanistan said Monday that Pakistan must prove it wants an end to the war by preventing militants from hiding out on its soil and enabling those who launch attacks on the Afghan side of the border.

Marc Grossman, U.S. special representative to Afghanistan and Pakistan, said in Kabul that discussions among Afghanistan, Pakistan and the United States being held this week in the Afghan capital are important to coordinate efforts to find a political resolution to the nearly decade-long war.

He said they also are an opportunity to clearly convey to Pakistani officials that part of their responsibility for bringing peace is to stop supporting insurgent safe havens and those who attack Afghans and international forces in Afghanistan.

"We've been pretty clear that going forward here, we want the government of Pakistan to participate positively in the reconciliation process," Grossman said at a news conference. "Pakistan now has important choices to make."

Grossman and representatives from more than 40 nations are attending a meeting of the International Contact Group. The group's 11th meeting comes after President Barack Obama announced last week he was ordering 10,000 U.S. troops home by year's end; as many as 23,000 more are to leave by September 2012. That would leave 68,000 U.S. troops in Afghanistan.

The 33,000 total to be withdrawn is the number Obama sent as reinforcements in December 2009 as part of an effort to reverse the Taliban's momentum and hasten an eventual political settlement of the conflict. The U.S. and its allies plan a full combat withdrawal by the end of 2014.

Michael Steiner, German representative for Afghanistan and Pakistan, said at the news conference that the international community's engagement will not end in 2014, when Afghan security forces are to have the lead responsibility for security across the nation, a process he said is on track.

"I think we have a strategy which is working despite the difficulties we have," Steiner said. "I am not painting here any illusions. We will have problems ahead. But I think we have a realistic strategy."

Separately, the U.N. World Food Program announced Monday it will cut food assistance to more than 3 million Afghans in about half the country's 34 provinces because of a shortage of money from donor nations.

The U.N. agency said it had planned to help feed more than 7 million people in Afghanistan this year, but a shortage of donor funds means only 3.8 million people will be helped through meals provided at schools and training and work programs. It said it needed an additional $220 million to continue its work in Afghanistan at the level originally planned.

The program will focus food assistance on helping the most needy Afghans, especially women and children, said Bradley Guerrant, the agency's deputy country director.

"We are working hard to raise the funds needed to restart these activities as soon as we can," he said.

Also, two roadside bomb blasts killed seven civilians Monday in Ghazni province in eastern Afghanistan, the Interior Ministry said. A vehicle struck one of the bombs in Qarabagh district, killing four civilians, including two children, the ministry said. Another vehicle hit a roadside bomb in Ghazni city, killing three civilians.

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