The cause of the Greek debt crisis: During the early part of the decade, the Greek economy enjoyed a period of sustained growth, allowing the government to run a high deficit, in which it borrowed more than it earned. However, when economic growth slowed following the global recession of 2008, the debt—and its servicing—became unsustainable. The Greek government debt crisis reached a head in 2009, when creditors expressed concerns about the government’s ability to pay its debts.

The situation led to a crisis of confidence that caused the cost of borrowing to escalate (a signal that lenders were not confident the government could pay its debts). Analysts and ratings agencies downgraded Greek government bonds to junk status early in 2010, triggering alarm in financial markets and making it impossible for the heavily indebted state to borrow on open markets to finance its ongoing operations. As a result, Greece turned to its European counterparts for a bailout loan.

The European Union Bailout: In May 2010, the IMF and EU and eurozone members agreed on a 110 billion euro bailout for Greece on the condition that it implement a number of structural reforms. Later, in October 2011 a second rescue package of 130 billion euros was agreed, conditioned on another austerity programme. This time the rescue package included the restructuring of debt owed to private creditors, aimed at reducing the debt burden for the Greek government. 

The second bailout loan for Greece was granted from the European Union’s temporary rescue fund, the European Financial Stability Facility, the EFSF. According to Finnish government officials, the technically demanding collateral negotiations in the Greek case served as the basis for the recently-agreed collateral deal with Spain.

The Finnish bailout contribution: Finland’s share of the second 130 billion euro bailout package was 2.2 billion euros.

Finland’s collateral deal: The Finnish government was bound by its policy line to request collateral in the event that the EU’s temporary bailout fund, the European Financial Stability Facility (EFSF) was used to provide financial support for the Greek government.

As with the subsequent collateral deal negotiated with Spain, the collateral guarantee from Greece covered 40 percent of the Finnish contribution—in this case, some 880 million euros. The sum represents the potential loss that Finland might suffer if Greece proved unable to pay back the loan.

The Finnish collateral request: Finland’s collateral request totaled some 880 million euros—40 percent of its bailout contribution of 2.2 billion euros.

What Finland surrendered: In exchange for receiving collateral against its share of the rescue package, Finland gave up all rights to any interest earned on the bailout loans granted to Greece. It also agreed to an upfront payment of its 1.4 billion euro contribution to the permanent bailout fund, the European Stability Mechanism or ESM, rather than installments.

How the collateral will be paid: In the Greek drama, the collateral came in the form of cash and triple-A rated securities.

Epilogue: Greek drama plays on

Hopes for a speedy and smooth implementation of the austerity programme attached to the second bailout loan dimmed following an inconclusive general election in Greece in May 2012 amid strong anti-austerity sentiment. Speculation was rife that an austerity-shy administration could win the second round of the election, precipitating a Greek exit from the euro—a concept that later became known as "Grexit."

However following the second round election on June 17, a conservative-led pro-euro government coalition was formed, allowing the beleaguered country to roll out the austerity measures agreed to by the previous administration. Furthermore the new government successfully negotiated concessions with the EU and IMF that would defer some of the more painful restructuring measures, specifically sweeping cuts to social spending.

In spite of the concessions, the fledgling government has not been able to reach agreement on the slate of unpopular cuts and savings measures to be implemented from 2013–2014.

The so-called "troika" or powerful trio—the EU, the IMF and the European Central Bank ECB—will spend some time in Greece to ensure that the package of restructuring plans is finalized by the end of August. Without a final austerity plan Greece will not receive its next loan drawdown of 3.2 billion euros and will not be able to pay civil service salaries or honour its debts.