Finland’s tough stance shaping responses to euro-zone debt crisis


Finland's Finance Minister Jutta Urpilainen briefs the media as she arrives at an eurozone finance ministers meeting at the EU Council in Brussels on July 9, 2012. (FRANCOIS LENOIR/REUTERS)
July 12, 2012

The surge in anti-European sentiment before the election in Finland last year may have quieted down, but promises to limit the country’s exposure to weaker economies are continuing to have a big impact on how the euro zone tackles its sovereign debt crisis.

Finland rattled the bond markets last week after it threatened to block an agreement to use Europe’s $609 billion permanent rescue fund to start buying Italian and Spanish bonds in the secondary markets.

Helsinki’s tough line is swayed by the Social Democrat party in Finland, led by Finance Minister Jutta Urpilainen, which took a more demanding position on the crisis in 2011 to win back its working-class supporters from the populist, anti-European True Finns party.

“The finance minister made promises that are now hard to take back,” said Kimmo Gronlund, a political scientist at Abo Akademi University in Turku, Finland. “This is the biggest reason why Finland has been such a dissenting voice in Europe lately.”

Finland, which also caused disquiet last year when it demanded collateral in return for contributing to the second bailout package of Greece, is now in the process of negotiating collateral in return for participating in the Spanish bank bailout.

That could include Finland receiving Spanish bank shares, Urpilainen said in an interview on Finnish television this week, although she added that “there are several different alternatives, and it’s still impossible to say what the concrete model for collateral will be.”

The government broke with mainstream European opinion again recently, proposing that Spain and Italy should start issuing covered bonds backed by state assets. “This is what Finland did in a difficult economic situation in the 1990s, and it is standard practice for banks today,” said Jyrki Katainen, the center-right prime minister.

Such stern words can be partly explained by Finland’s tricky internal political situation, with the more pro-European Katainen having little room to maneuver because of his need to hold together an unprecedentedly diverse six-party coalition.

“To keep the coalition working, there is having to be a high degree of compromise between the more anti-European factions and the pro-European mainstream, with policy settling around a pro-European stance but with conditions,” said Lauri Karvonen, a politics professor at Abo Akademi.

Relations between the prime minister and finance minister have improved markedly since their first months in office, people close to them say, but Katainen has remained frustrated; as Urpilainen’s predecessor in the finance minister’s job, he frequently played a central role in crafting euro-zone compromises. Now, he has become the obstacle.

“Lately, it’s been: No, no, no,” said one close political ally of Katainen.

Also, constraining policy options is the still tough-minded attitude of the Finnish public. According to a recent opinion poll for EVA, a Helsinki think tank, while the fervent anti-Europeanism seen last year has died down, 54 percent of Finns still think that Finland is too lenient toward more troubled euro-zone countries. Only 9 percent think that the country is too harsh in its demands.

Policymakers such as Alexander Stubb, the minister for European affairs, argue that the Finns’ dissenting voice does not stem from anti-Europeanism, as many assume. Indeed, the latest polling shows that 55 percent of Finns now feel positive about E.U. membership, up from just 37 percent at the same time last year.

Stubb says the dissent is more a reflection of a long-held national belief that handouts are a bad idea and that everyone in Europe should follow the same rules. “For me, following rules is pro-European, and I refuse to take the blame for following rules,” he said. “For us it is an issue of fairness.”

Political scientists debate the root cause of Finland’s austere attitude, which is shared by many in Germany and the Netherlands. Most argue that it stems in part from the legacy of its banking crisis in the early 1990s, which caused considerable hardship and sharp public spending cuts, but was navigated successfully.

“The Finns feel they sorted out their own banking mess through hard work and austerity, not handouts,” said Ilkka Haavisto, a researcher at EVA. “This has led to a feeling that being too lenient with bailouts and other measures is not just a bad idea from them but somehow morally wrong.”

— Financial Times

Peter Spiegel in Brussels contributed to this report.

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