What is Finland’s approach to the euro crisis?
Finland sets the prospect of a European crisis against its own experiences two decades ago. A domestic bubble burst and Soviet trade collapsed. The country was met with a banking crisis, production collapsed, and unemployment rose to unprecedented levels. The crisis was overcome with a basket of policies combining fiscal stringency, bank industry rehabilitation, and by taking on some debt. This path was politically popular, and generally Finland sees this as the path others should take now.
Finland’s economy is in modestly good shape. Banks are solid and direct exposure to the crisis countries is limited. The national debt-to-GDP ratio is only now reaching 50 percent of GDP. As the population is quickly growing older, there is little will to increase debt, especially to finance countries seen as unwilling to take the pills Finland took to fight its crisis. Finland does not support eurobonds. National central banks should be the lenders of last resort. Giving that role officially to the European Central Bank would run against traditional Finnish anti-federalist attitudes.
Finland’s economy is in modestly good shape. Banks are solid and direct exposure to the crisis countries is limited. The national debt-to-GDP ratio is only now reaching 50 percent of GDP. As the population is quickly growing older, there is little will to increase debt, especially to finance countries seen as unwilling to take the pills Finland took to fight its crisis. Finland does not support eurobonds. National central banks should be the lenders of last resort. Giving that role officially to the European Central Bank would run against traditional Finnish anti-federalist attitudes.
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Finland was, for domestic political reasons, the only country demanding guarantees for financing Greece. Leading center-right politicians have now called for a greater role in European policymaking for the European AAA rated countries like Germany, France, and Finland itself. Others would become second-class EU members, and might wish to exit the eurozone if not the Union. This may indicate a shift in Finnish opinion in favor of a smaller, more Northern-based euro area. The eventual stronger Northern euro would create havoc in Finnish industries mostly dependent on exports outside the eurozone. If last-minute attempts to save the status quo fail, this may still be the preferred alternative. A return to sovereign currency has very little support among the population or decision makers.
