EconoMonitor

Nouriel Roubini's Global EconoMonitor

Fix it or Fixit – Could Finland Be Next?

Talk of Finland leaving the EZ sooner rather than later has increased, with many in influential positions now reconsidering the costs and benefits of EZ membership and coming to the conclusion that a “Fixit” may be the country’s best option.

Consider the following factors. First, the other Nordic countries are outside the EZ and/or the EU and are doing fine economically and otherwise. Norway and Iceland have never joined the EU: The former has remained a success story as a resource-based economy; the latter suffered a severe financial crisis driven by the popping of a massive real estate bubble, but so did members of the EZ such as Ireland and Spain. Denmark opted out of EZ membership and is semi-pegging its currency—the Danish krona—to the euro. Sweden was supposed to join the EZ, but it never did and isn’t likely to join any time soon. Since none of the other Nordic economies are part of EMU, what are the benefits of Finland remaining a member?

Second, if Finland were to exit the EZ it might also be forced to exit the EU; however, it could keep most of the benefits of EZ and EU membership without any of the costs. Like Denmark, it could semi-peg its own new national currency to the euro (or to the deutschemark if the EZ were to eventually fall apart completely), thus benefiting from low exchange rate volatility, while keeping open the option of moving its currency up or down, if needed. It could even keep most of the benefits of free trade with the EU by establishing a free-trade agreement with the EU and/or with Germany, while not being subject to many of the other legislative and regulatory constraints that EU membership entails (even if access to EU markets requires being subject to many regulatory constraints). Or, it could try to negotiate remaining a member of the EU while quitting the EZ, as the EZ is now considering allowing member states to leave the EZ without surrendering their EU membership.

Third, by exiting, Finland could avoid the losses and costs that continued membership of the EZ would entail:

a)       Finland would no longer need to contribute to the European Financial Stability Mechanism (EFSF) and European Stability Mechanism (ESM); after all, EU members that are not EZ members do not contribute to the two EZ rescue programs;

b)       In the event of exit, Finland would also avoid potential losses deriving from the build-up of Target 2 balances in the core of the EZ, including Finland. Indeed, Finland’s Target 2 balances would be phased out upon exit;

c)       Trade losses in the event of an EZ break up and the core sticking with the euro (which would sharply appreciate relative to the new currencies of exiting periphery countries) could also be reduced;

d)       Since the EZ’s survival requires the core to take on even greater credit risk—via debt mutualization (i.e. Eurobonds), via a fiscal union (that may in part be a transfer union to poorer EZ members) and via an EZ-wide deposit insurance scheme—Finland could avoid these additional implicit liabilities by exiting before such risks are undertaken or materialize;

e)       Finland’s potential GDP losses in the event of the EZ breaking up could also be lowered via the extra degree of currency and monetary policy flexibility implied by a return to a national currency; and

f)        Some private unofficial estimates put the potential losses of Finland with continued EZ membership at between 10 and 15% of Finnish GDP.

Fourth, many social, business and political forces in Finland are skeptical of the euro and/or supportive of an exit. The most fervent euro-skeptic group is The Finns Party (formerly the “True Finns”). But even the broadly pro-euro National Coalition, the party of the current prime minister, contains opponents to the common currency, one of which is Finland’s President, Sauli Niinistö, who bemoans the fact that Finland bails out richer EZ members, yet is still pro-euro. Another party leader, Ben Zyskowicz, last week pointed out the EZ’s fundamental design flaws. For the time being, the forces formally supporting a “Fixit” are in the minority, but there is now significant internal debate on the pros and cons of membership. If Greece moves closer to exit and Italy and Spain end up on the verge of losing market access and requiring even more risky financial support from the EZ core, Finland may decide that the additional credit risk is not worth the benefit. Indeed, the country has already been the most vocal so far—in debates about the EFSF, the ESM and other aspects of the periphery bailouts—in requesting formal collateral or seniority for its contributions to the EZ periphery rescues.

For now, the ruling coalition is still firmly in support of EZ membership, but there are plenty in favor of an exit in the political opposition; even within the coalition, many are grumbling in private about the costs of EZ membership. A trigger to increase the chances of Fixit would be a decision by the EZ to increase the potential losses and credit risk of the core members—including Finland’s—via a fiscal and transfer union, debt mutualization and EZ-wide deposit insurance. At that point, the forces pushing for Fixit may get the upper hand.

63 Responses to “Fix it or Fixit – Could Finland Be Next?”

Valdis KrastinsJuly 6th, 2012 at 6:14 pm

Having lived in Finland for several years I can only confirm that Finns will take a completely pragmatic view on anything, that concerns their statehood and economic wellbeing. They are not idealistically minded, they have fought for their country alone and so are used to go their own way.

TomJuly 6th, 2012 at 7:04 pm

Interesting piece. I doubt any country will leave the EZ but I agree Finland is the best candidate. I don’t understand though why leaving the EZ would cause losses on Target2 claims on the ECB, which are simply Finland’s central banks holdings of euros and would become its FX reserves, if Finland’s CB decided to buy them back from Finnish banks by exchanging them for new Finnish money. Otherwise they would just remain on the balance sheets of Finnish banks, and the Finnish CB’s Target2 claims would net to zero against its euro deposit facility liabilities to Finnish banks, as it does now.

Now if Germany quit the EZ, either its commercial banks would face losses on their euro reserves, or the Bundesbank would if it bought them back from the commercial banks, because the euro would sharply devalued without Germany backing it. Finland doesn’t face much of such an obstacle, it’s too small.

Off the top of my head I don’t know if Finland has Target2 claims. Actually there is also another item on NCB balance sheets to do with banknotes issued vs quota, which has to be added to Target2 to get the country’s total euro claims on or liabilities to the ECB. There’s no reason those would disappear unless the EZ and the ECB disappeared, or if there was some agreement to forgive.

Cornelius HöcherJuly 6th, 2012 at 7:22 pm

I dont think that one nation of the northern states can leave and the rest of the Euro-zone will remain unchanged.

The market reactions of these rumors today were tremendous. The yields of spanish and italian bonds exploded immediately.

So if this scenario would really happening, the last credibility of the currency union would disappear. Italy and Spain then couldn't refinance themselves on the capital market.

So, in this scenario Germany would have to go "All in" directly (Eurobonds, banking union…) or the currency union will collapse.

Dont forget the public pressure on the governments in the Netherlands or Austria, Slovakia and Estonia.

So if just one country will leave, I suppose it will be over.

A finnJuly 7th, 2012 at 11:42 am

Three notes:
1. Finland never had a referendum on joining the euro.
2. The euro (that we could have voted for or against in beginning of 2000) is a completely different system today. We should talk about euro system 2000 and euro system 2010. They are not the same thing anymore after the contracts have been breached.
3. The latest parliamentary elections in Finland (2011) created a stark contrast between the MPs and the voters. Before the elections 70% MPs opposed bailouts, but after the elections only 24% opposed bailouts.

One could conclude that the parliament has no moral mandate to continue the euro-project: we weren't asked about it in the first place and secondly the MPs acted against the people's will in the most recent parliamentary election.

I think the people of Finland should be allowed to give a binding opinion on this matter. After all, we are living in a democracy. Aren't we…?

AnttiJJuly 7th, 2012 at 12:11 pm

Professor Roubini,

Why do you go through only the benefits of a Fixit for Finland? Is it because costs (as well as benefits) are impossible to estimate? There is no one who can make the calculations, it is just too complicated in the absence of an exit mechanism. Assuming that Finland could keep all the benefits of the open market / EU membership is just speculation, and it is fully possible that there would be a huge backlash from the remaining countries (e.g. trade war), not to mention the possibility of establishing long-lasting reputation as "The country who broke the euro system".

So far 2012 has showed us that this is not anymore a technical or a financial matter – it is a matter of politics. Anything can happen, as there are no definitive rules in this game.

A SwedeJuly 7th, 2012 at 1:07 pm

They are our neighbours. They are like somebody said pragmatics. When sweden got rid of its defence, they kept theirs. A realistic people. I like finland a lot.

AnttiJJuly 7th, 2012 at 1:08 pm

"You must truely be joking."

You don't agree that there is a chance that a Fixit would make things even more chaotic in the EZ (if you haven't seen, it's already a chaos out there) and start an unraveling of the system?

If you believe that tipping points exist, this could very well be one, and would be remembered like the "Lehman moment", only with even bigger consequences.

You might very well be right if you say that it was inevitable, and Finland did the right thing, but history has shown that people always need to find someone to blame. A "Fixit" would be easy to point at – a selfish, solo act.

Whatever is the truth, we should understand that this is a very, very dire situation and there are no easy answers. A Fixit would be a leap of faith, just like any leap towards a transfer union.

As a Finn myself, my understanding is that Finland will not actively seek any euro exit. Finland will limit the liabilities to the current ones (Finland ALWAYS keeps its promises, and you usually can take anything a Finn says at face value), just like Germany does, and will remain strict about loan seniority and collateral (which, as it was cash with Greek, is nothing but a small reduction of the Finnish share of the bailout). Finland might find itself in a tough situation, but will seek support for its actions from the Netherlands, Austria and Germany.

Finland will keep its head cool. No Fixit without Nexit, Axit, Grexit, Ixit or some other exit.

A finnJuly 7th, 2012 at 4:04 pm

The euro has already been destroyed. It has slowly eroded over its entire 10 years of existence. There is no single action anyone can do to repair it or to destroy it anymore. It has been destroyed. We have seen that it simply doesn't work. An economic "do not try this at home"-theory proven through practice.

In the long run, the only sustainable solution is for each country (or groups of similar countries) to have its own currency, which reflects the country's economic performance. Any other solution will be semi-optimal and create inefficiencies, which in turn translates into money loss. Europe can't sustain such inefficiencies of capital allocation in the long run compared to the rest of the world (US, China, etc.).

It's like giving a free lunch to your competitor. The only way to compete in a global market is to minimize inefficiencies and we are staring one right in the eye. We can either accept the costs or try to improve. I vote for improve.

JonasJuly 7th, 2012 at 5:24 pm

I think there is a huge prestige journey to let countries of any reason to exit EZ. Thats like making the biggest plan ever gone to dead. So I doublt they can by free will exit EZ, even if they want. I don´t like EZ, and im living in Sweden.

PalantirJuly 7th, 2012 at 5:43 pm

The current Finnish prime minister, Jyrki Katainen, is willing to sign any and all bailout packages, there's just no doubt about that. Finnish taxpayers don't like it as much, and because of that, there's been lots of bold statements and posturing by Finnish EU negotiators. All of that is for domestic political purposes, the Finnish political elite is still fully committed to the euro project. Most EZ members see through the posturing, hence the lack of respect e.g. towards the Finnish attempts to get collaterals for the loans.

In per capita figures, Finland is probably the biggest loser of the bailout packages – especially considering Finnish banks have no sizable risks in Greece, Spain etc. In a fully democratic country with a functional watchdog media this would pose a huge problem. In case of Finland, however, this is of litte consequence. In absence of a late awakening, the Finnish leadership will go all the way with their euro project.

KimmoJuly 7th, 2012 at 6:44 pm

Is it obvious, that a reputation as "The country who broke the euro system" is a bad thing? Does Ronald Reagan have a bad reputation as a leader "who broke the Soviet Union"? Couldn't it be a positive thing, if "fixit" is a beginning for a development that will have a chance to cure the european economics?

By now we should already know that euro won't do it. What we need now is for some country to say it out loud and act like they mean it. I hope we finns will do it. I don't mind being one of the heros of free and rational Europe :)

TheloniousaJuly 7th, 2012 at 7:19 pm

Nouriel, ma dai! Scandinavian countries should reconsider Kalmar Union in terms of having a single Northern European currency instead of local currencies/euro. :p

Another FinnJuly 7th, 2012 at 7:27 pm

I really hate this situation and I would really like some neutral discussion about this. I can't think this as a neutral one as someone said this only lists positive things and assumes too much. I really don't know what Finland should to and I don't really have the information. Like the decision about ESM was only told that are the risks of joining, but no what are the risks of not joining, was that something possible? Only thing seemed to matter that Jyrki got that German Economy award, for what I might ask? We did join, our politicians said stuff and now it seems it has already gone totally different what they said, their planning direct support to banks etc.

OskarJuly 7th, 2012 at 8:55 pm

Interesting article, I must say. The debate in Finland has not centred on economic issues, as in how much do we have to pay, I think we are on the plus-side anyways. The debate has been about creating a functioning system, I think they keep books in Greece. We've been debating a lot on the different federal structures they are putting in place and whether this is the answer to the problems and do we really want to see decision making taken even further away from the citizen. But, the euro is an aswer to many of the problems we had, when we had a weak national currency. We joined the euro, and not leaving, so Europe better settle with that. Besides, who would like to miss out years of fun (or boredom if you're not the least interested)?

AnteroJuly 7th, 2012 at 9:53 pm

One thing I can say is that as a reservist of the Finnish Defence Forces, I consider that the oath I swore in the military requires me to prevent my country from entering a federal union. Any movement towards a federal union is a hostile act against me and my country. I consider Finnish people who take us towards a federal union traitors who need to be impeached and tried for treason.

Max BoudineJuly 7th, 2012 at 10:32 pm

A lot worse than to be the country that broke the euro system is to be the country that implemented one single currency within in something that turned out to be The Arch of Noah instead of a Dog Kennel.

The Euro was doomed from start (Jacques Delors)

OskarJuly 7th, 2012 at 10:36 pm

Well, pragmatism is becoming out of fashion. There's two characters to the story, the sly greek Venizelos, who is after every tax-payer's money and the blonde Urpilainen, who isn't giving any. That's drama, my friend. You don't know what you are missing in Sweden and the Anglo-Saxon countries. Seriously, there was a saying in Finland, that every sensible economic decisin takes months, because every politician likes to be in the spotlight, on the European level, well, it takes years.

A swedeJuly 7th, 2012 at 11:03 pm

I think eu& euro was a wrong construction from the beginning. Problem now is that it all can, very fast and very easily, get out of hand. Like the cat passing the domino we built and starts the process. I dont think the politicians are on top of this one.

OskarJuly 8th, 2012 at 12:17 am

Drama, perhaps? In this discussion every one seems to forget that euro is a currency union, meaning off-the-balance economies and disintegrated decision-making. What used to be export/import is nowadays flows of different things, capital and workers inside the union, for instance. It would be foolish for the Greeks to liberalise the economy and not look after their best interests, for instance workers' rights, when there are people out there who don't give a damn for social welfare. You have to take into consideration, that EU has political capabilities that rival US, these people are not stupid. What we are going to see is a match between EU-officials and the market forces, get your popcorn out! It would be interesting to hear how whole this thing is viewed across the bay, it seems the small ones are always the one to get teased (first).

One more FinnJuly 8th, 2012 at 6:00 am

Interesting article. Each day passing with eurocrisis, it is becoming more obvious that staying in euro is also becoming expensive for us.

Too expensive to have our own currency back and too expensive to stay in euro. That is the paradox we are facing. Finland is going to take a severe financial blow, no matter what we do.

I would not say that ruling coalition is necessarily firmly behind euro anymore. Several ministers, including our euroloving Prime Minister has lately given statements and interviews where they criticise the way crisis has been dealt with. (Prime Minister said he does not see it very good strategy that no matter when meetings start, they always end 5 o'clock in the morning). Our Europe Minister, another eurolover, said already earlier that currently we are behind euro, but we also examine the options. Very similar things that Urpilainen said.

Also some ministers have given statements that "we aint gonna pay the bills, if the South aint doing it themselves". But I don't know if that is just populism.

Populism. This is election year(municipal elections) and populism is everywhere. The Finns party is already big in Parliament, and nobody in ruling coalition wants them to become big in municipals too. So they will tell people what people want to hear.

On the other hand, if you watch live interviews, our leaders are increasingly uncomfortable about EZ crisis. How do you explain to your voters that we must raise retirement age and cut social benefits so that people in Mediterrenean countries can retire ten years earlier than we do, pay lower(if any) taxes and be richer than we are?

And more importantly: WHY should you explain that to your voters?

AnttiJJuly 8th, 2012 at 7:18 am

@Kimmo, @A Finn,

I can't say that I fully disagree with you. Currently I see that the system will start unraveling pretty soon, without a Fixit, and it gives a better change for Finland to exit with others if Finland decides so. I'm definitely against throwing more good money after bad, and support the government's stance that ESM money should not be used to buy bonds on the secondary market (ECB did it for 200 billion+, didn't help), when the money would come with no strings attached.

We are all going to take a severe blow, that's for sure. That is a consequence of living beyond one's means, and it is true for Finns as well. Finnish state finances might be the "cleanest dirty shirt" (thanks, Bill Gross), but we still have been living beyond our means the last decade or so.

Like I said, Finland will limit its liabilities to the current promises to ESM. Finland will also insist on seniority of the loans and oppose any second market operations, as well as direct bank bailouts. If no more commitments (let's say, taking ESM to 1 trillion) means exit, then the Fixit might come. But I don't see the Netherlands, or even Germany, going for extra commitments either

If Spain and Italy can't finance themselves, then the system probably collapses and exits follow. The same is true if the bank runs intensify in the periphery, pushing the countries to adopt capital controls. So we might see some exits without any free political choice, through the electorate and the investors "voting" with their money.

Of course, between my scenarios and the present situation stands one party that might have something to say: the ECB. But even the ECB is tied to the political will in the member countries and doesn't have the weapons to block a bank run, especially if it's caused by exchange rate risk, not just bank solvency risk.

Especially in June the whole thing has taken leaps towards a somewhat violent end. Politicians are more and more in disagreement. The Austrian Finance Minister says Italy might end up needing help, Monti gets pissed. The Finnish government says no secondary market operations, Monti gets pissed. Eurobonds seem to be the only way to preserve the system, and that will not happen, not with all the 17 countries at least.

In the end, it all comes to the one decisive question: Are the peoples of Europe European enough? I would say they are not, and they are less European by the day. That being the case, it seems that Spain will default, and probably Italy as well. The private creditors will pay, the taxpayers will pay – we all are going to pay.

BjörnJuly 8th, 2012 at 8:07 am

This week in the headlines about the Fixit:

1) Vesa Puttonen, Professor
2) Pasi Holm, CEO

akenathonJuly 8th, 2012 at 9:41 am

If I am not mistaken 60% of Finaland's commercial partners are within the EU (notably Germany and Holland) – If they get out unilaterally (without German support as they already have Dutch support) they will commit suicide as entry rules (eventually a new VAT will be created for goods that are non European) in the "new" economy will be for sure changed.

Rassegna web: il quadro macro favorisce o no il QE III? Focus su Finlandia, petrolio, Ansaldo Sts « Trading WarriorsJuly 8th, 2012 at 10:05 am

[...] Lunedì scorso è stata diffusa la notizia secondo cui Olanda e Finlandia avrebbero espresso l’intenzione di bloccare parte delle misure concordate sullo scudo anti-spread approvate di recente a Bruxelles, impedendo l’uso dei fondi salvastati per acquistare titoli del debito pubblico. Ieri da Helsinki sono arrivate parole di fuoco: piuttosto che sobbarcarsi i debiti pubblici dei paesi fannulloni, la Finlandia sarebbe pronta a lasciare la moneta unica. Queste le minacce della ministra delle Finanze Jutta Urpilainen: «il nostro paese non resterà legato all’euro a qualsiasi costo e ci prepariamo a tutti gli scenari possibili». A questo punto la Merkel diventa una colomba. (vai all’articolo sul sole24ore). Sullo stesso tema segnaliamo l’intervento di Nouriel Roubini apparso su economonitor.com. [...]

TomJuly 8th, 2012 at 4:24 pm

Well yes, it would be difficult legally to quit the EZ. I think even if Finland wanted to leave the EU, which EU treaties specifically allow, it would still have to negotiate its way out – a country can't just unilaterally cancel the commitments it has made to EU institutions. Obviously this obstacle would be less for a country like Greece that if it were exiting the EZ would be doing so amid a default on its debts to the rest of the EZ and therefore wouldn't mind defaulting on other commitments. But Greece won't quit.

Esa TiusanenJuly 8th, 2012 at 6:06 pm

Being Finnish and having lived here all my life, I can state that to be total baloney. As in other countries, some people are idealistic and others pragmatic. And some are idealistic regarding pragmatism while others may be pragmatic regarding idealism or idealistic regarding idealism. Mostly, though, Finnish idealism tends to be found in the current opposition and their views of an idealistic Finland as a national (and etnic) identity, while the pragmatic common wisdom does, indeed, seem to be shifting to some extent. So I would agree that there is a chance Finland will leave the Euro, but not that it is due solely to a pragmatic "national ethos". Personally I am frustrated if it does happen, because while I agree that leaving the Euro would be in Finlands interests, I don't think it would be in the interest of Europe as a whole, or the world for that matter.

P.S.
Roubini's assessment of the situation is quite well thought out except for one assumption that may yet be put to the test: if Finland leaves, would the EU and/or Euro-zone grand it free-trade privileges? Would it not see leaving as "mutiny" and make Finland pay, severely, for leaving and adding to the Euro-Zones woes? This is something that can severely limit Finland's willingness to leave.

Jukka NurmiJuly 8th, 2012 at 7:28 pm

Another pragmatic vision: Finland could just quit the euro-membership, but keep euro as it's currency. No need to print own money and no problems with trade.

There are other countries that use euro even they are not in the euro-area: Montenegro, Kosovo, Andorra, Monaco, San Marino, Vatican.

PalantirJuly 8th, 2012 at 8:27 pm

Could somebody please explain, what is so bad with national currencies? Don't the Swedish, Norwegian and Danish Kronas serve their purposes? Was the freely floating Finnish Markka a bad currency? If yes, in which way?

Please no talk about "evil speculators destabilizing markka". We heard enough of that scaremongering during the period '89-'92 when our elected and non-elected leaders proceeded to destroy the economy with their policy of a "strong currency". And again the same type of scaremongering when they took us to the eurozone – without a referendum of course.

To me it seems that the real reason Finnish politicians hated the freely floating Markka, was that it forced them to adhere to a tight economic discipline. The Greek took the things to an extreme, but similar kind of phenomena (in somewhat milder form) have taken place in Finland as well.

Finland goes the way of Nokia. And the reason is the same in both cases: bad management.

GregJuly 9th, 2012 at 6:20 am

I don't like the word Fixit, Finis sounds better. It means that something is over and Fin is in Finland. Maybe the Acronym Police should be informed of this.

Another FinnJuly 9th, 2012 at 9:03 am

"Finland never had a referendum on joining the euro."

You're right. Leaders chosen from among one of the most educated people always say things are too complicated to be decided by the people. Maybe thats a good hint to avoid those too complicated actions (such as euro)? The other Nordic countries followed the will of the people, and prevailed. Coincidence?

Jyrki Katainen screwed up the economy due to his stubborness and gullibility. Not to forget whooping to be a "great" leader. This guy falsified documents by his friends to get a position in lead of his party (which in turn tells he had not sufficient support in the party). As a minister same guy lied he did not get money from certain businessmen, but actually he truly undoubtedly got. Maybe minor things in the big world but I predict and hope no more than one year for his government.

AbrahamJuly 9th, 2012 at 11:46 am

Even for a very technical blog, where you’d expect some kind of level in the comments, you still have to go through to a series of prejudgments while reading the comments, which is sad.

Fins are “not idealistic but pragmatic, realistic people, you usually can take anything a Finn says at face value”, and yet, here they’re caught in this EU mess. Well, some others would call them frustrated and suicidal and would analyse the Fixit as a suicidal attempt, who cares … let’s just add up any generalisation that suits our argument. I guess that generalisations make sense from an evolutionary point of view (we save the energy of analysing all details) but they demonstrated through history to be a dangerous weapon on politicians hands.

DiranMJuly 9th, 2012 at 3:00 pm

What you say is admirable. Consider how cowardly are the Greeks and where they have gone because of their corrupt and pusilanimous political elite. No guts to stand on their own two feet with their own currency and to earn their keep. Total Eurozone dependence preferring to live like dogs, begging the Germans and Troika to keep them on life support with a plate of food.

Pretty sad end to a once proud nation, who stood up in 1940 to Fascism and Axis invasion. The Greek political elite ought to be hung and shot as a disgrace and shame to the nation for their Euro fetish.

PrescientJuly 10th, 2012 at 9:29 am

Perfect! It was the Finns "what dunnit" – not the bankers or the politicians. Finland would be a wonderful scapegoat and you are a harbinger of the spin that will be applied.

Aegean1972July 10th, 2012 at 9:41 am

For now, i doubt Finland seriously considers an exit. But that doesnt mean that it will stay this way. The euro-puzzle is too complicated to make any predictions.
One thing is only "sure". If one domino falls (one member exits) then the beginning of the collapse will start. In what form it will collapse, thats not easy to predict. It could be a predictable collapse (Greece, then Spain, then Portugal, then Italy) and then the core northern countries (including finland) stay together with a more "manageable" euro. But it could also materialize that while the PIIGS start exiting one by one, the markets loose trust in the euro, the whole thing blows apart and instead of waiting to see what happens next, core countries like Finland (or even Germany) make an exit themselves to save their butt. Who wants to stay aboard a sinking ship?

But i dont think Germany and brussels will let the euro-problem inflate to that extent. All they gotta do is print 5-6 trillions for now, stimulate growth in the peripheral ecomomies (especially Greece and Spain) and buy time to kick the can a bit further and manage the political and economical unification. As for inflation (due to printing)…it will be the least of their concerns…(for now). Until they start becoming "America"

Not a finnJuly 10th, 2012 at 1:11 pm

I don't follow the logic of your note 3 – from what you wrote, it appears that finns just democratically elected a lot of pro-bailout MPs. How does that create the "stark contrast" you mention. Presumably finns had the choice to vote for anti-bailout parties and chose not to?? There must be an error here.

E WulfJuly 10th, 2012 at 1:26 pm

The chances of a two speed Euro Zone, is becoming increasingly likely. The Euro in its current stage mean the risk of a long economic recesion for weaker (debtor) countries, with Europe facing the prospect of its own "lost decade", just like the one Latin Amerioca had in the eighties.
As time goes by, and nothing different from usual comes out, the options available considering benefit – cost analysis, shall include leaving the euro.However, the key question is : Will Germany let this to happen?. Perhaps, history will not judge harder those countries which might broke the euro ,as it will with those which could avoid it..-

BumJuly 10th, 2012 at 11:16 pm

Those parties and MPs who, before the elections, claimed to be anti-bailout , changed their minds and became pro-bailout after joining the six-party coalition government.

JereJuly 11th, 2012 at 9:36 am

Why Finnsih should pay for countries(banks) who act irrsponsible? Creece, Spain and italy, where is more corruption and inequality? Politicians and bankers takes all, citizen are poor.
Now politicians and bankers are angry because others dont pay they bill.

Finland has always paid the bill. We dont need to pay monkey business.

...July 11th, 2012 at 9:56 am

No, it really does not. Your oath is to protect the country.

That being said, it's a stupid oath anyway since it's given by Finnish people with the threat of a jail sentence if you don't.

Reviewer JudgeJuly 11th, 2012 at 9:58 am

and here is the oath

I, (name), promise and affirm before the almighty and all-knowing God (in affirmation: by my honour and by my conscience) that I am a trustworthy and faithful citizen of the realm of Finland. I want to serve my country honestly and, to my best ability, seek and pursue her edification and advantage. I want everywhere and in every situation, during the peace and during the war, defend the inviolability of my fatherland, her legal system of government and the legal authority of the realm. If I perceive or gain knowledge of activity to overthrow the legal authority or to subvert the system of government of the country, I want to report it to the authorities without delay. The troop to which I belong and my place in it I will not desert in any situation, but so long as I have strength in me, I will completely fulfill the task I have received. I promise to act properly and uprightly, obey my superiors, comply with the laws and decrees and keep the service secrets trusted in me. I want to be forthright and helpful to my fellow servicemen. Never will I due to kinship, friendship, envy, hatred or fear nor because of gifts or any other reason act contrary to my duty in service. If I be given a position of superiority, I want to be rightful to my subordinates, to take care of their wellbeing, acquire information on their wishes, to be their councillor and guide and, for my own self, set them a good and encouraging example. All this I want to fulfil according to my honour and my conscience

If the government chooses to legally enter into a federal union, which part of the oath is broken?

JarkkoJuly 11th, 2012 at 12:53 pm

I could summarize some points why current situation in euro zone cause so much irritation in Finland.

First Finnish banks and financial institutions were giving only very small loans to Euro zone countries than now need bail out compared to other Euro countries or countries that are coming outside euro zone. Now countries like UK and USA who gave bail out countries billions of loans pressure Finland to pay those problematic loans and save UK and USA banks. Both USA and UK provide only skeleton amount of funds to bail out mechanism compared to how much problematic loans they gave to bail out countries. Finland on the other hand is largest net payer in the world of bail out mechanism compared to how much problematic loans Finnish financial institutions have in Spain, Italy, Ireland, Portugal or Greece.

Another point that causes irritation in Finland is that Finnish citizens pay much higher partition of their incomes taxes than citizens in USA, UK, Spain, Portugal, Ireland or Greece. Many countries citizens that Finnish taxpayers need to bail out pay much lower partition of their incomes as taxes than Finnish citizens. So Finland is demanded to bail out countries whose citizens pay less tax than us and whose citizens on average own more net property than Finnish citizens on the average.

Third point that irritates Finns is the fact that Finland is one of the only Euro countries in Euro zone along with Luxemburg who being faithful for Stability and Growth Pact with two most important points are:
An annual budget deficit no higher than 3% of GDP (this includes the sum of all public budgets, including municipalities, regions, etc.)
A national debt lower than 60% of GDP or approaching that value.

All other euro zone countries have signed Stability and Growth Pact and broken it many times. Some countries like Greece have got caught even forging economic statistics to make things look better than they really are.

PayerJuly 11th, 2012 at 12:57 pm

Dear Nouriel Roubini,
Sounds quite clear, that you have pretty big shareholder's briefcase, I'm wrong? Otherwise it is a bit hard to understand your points.

How many times the banks has offered more money for you, when you have been unable to pay your bills? Or when big company has lost their ideology and are not able made any invoice anymore (like Nokia), are the banks the first one offering money for the company to pay their taxes.

May I ask from you, how this is different when banks have problems? Why countries A, B and C needs to pay money for shareholders so that country D is saved? Why don't you ask the risk management from the shareholders?

Did you heard from Creeks financial minister, when he told, if Creeks pay their taxes, they do not have such a problems. Why you have bypass that?

Have you heard how much money Italy has took EU money, you still think someone needs to give free money for Italy?

If Spain fix the illegal immigrant problem and let own citizens do the same work they have less employees etc…

Why Finland (payer) must be quite? Why problematic countries cannot handle criticism?

And worst question….. what about if Finland, Dutch and German are correct? As we have seen, Creek have still problems even they have received huge amount of money.

Markku PörhönenJuly 11th, 2012 at 3:12 pm

I agree with most Finnish writers here. We are fed up with this endless series of bailout plans. I see 5 reasons why the bailouts have reletively much support in Central Europe, like in Germany (despite Merkel) and France.

1.
Failure of Euro would be a big failure to those politicians who initially created it. Politics and saving the egos of big politicians is one major reason.

2.
Transfer from Euro to national currencies or Nordeuro and Sudeuro would cost money.

3.
The Mediterranean countries are important buyers for consumer products from Germany and France, so they want to keep those economies rolling.

4.
German and French banks have big outstanding loans to banks in the South (as do banks outside the Euro Zone)

5.
I consider it a possibility that the some of the decision makers in Central Europe are biased on a personal level. For example if you or your family member own a great deal of stocks of say a German bank and that bank would be in trouble because of loans that it has given, that could have some influence on the decisions that an average politician (politicians known not to be saints exactly, just mortals) would make.

So there are some reasons for a French or German politician or even a taxpayer to consider. For a Finnish politician or taxpayer only reason number 2. applies. So why should we cling to Euro and to the enormous costs of the bail out plans? Finns would benefit from them least from all.

It is totally wrong to blame Finland if Euro falls. The Failure is created by the reckless economy of above all Greece but also Spain, Portugal, Italy, Ireland… If they cannot get refinancing from the private sector, it is the duty of these countries themselves to make economic decisions that win the confidence of the borrowers. To collect the necessary taxes, to cut the budget deficit etc. It is doable, many countries have done it (including Finland during 1990-1993). Though it happens through contracting in the economy, the economy will recover in a couple of years when confidence is restored and a new balance is found in the economy (salaries and prices of products, services, properties etc.). Spain has shown good initiative by making some decisions, it just recently decided to increase the VAT (VAT is in many countries the most important source of state income) from 18 to 21 percent and cancel the practice of 13th month salary for cicil servants (temporarily). In comparison, VAT in Finland is 23 percent, 13th month salary for civil servants is unheard of.

So we are sick of all these bail-out mess. We are sick about everything we have heard of Greece (tax evasion, pensions paid for dead people, the country sneaking into Euro Zone by falsified statistics etc etc.). No referendum was done about joining the Euro, it could have been very close to 50/50 (if done now, it could be 20/80 against Euro). Anyhow, we believed that we would enter a league of decent, honest nations, that contracts would be honoured (like Maastricht contract). Not so.

Our confidence has been betrayed, destroyed completely (or maybe a new kind of confidence has rosen, I am confident for example that Greece does not keep its promises, so I have some sort of confidence after all …). After all that, how could there be any solidarity left, willingness to pay other's debts, willingness to Euro Bonds, willingness to a closer Union. No way.

It is a pity that the Finns Party didn't collect enough votes in the last parlamentary elections, they were not awfully far from being the biggest party (with a chance of start negotiations about the government). Now they are in the opposition. Their problem is among others that they don't have the same networks, same political experience (except the party leader), same level in experience and education of candidates as the other parties, some of the MP:s have somewhat extreme views etc. But the party seems to be the only force to oppose the ongoing process of tighter envolvement and integration.

AleksiusJuly 11th, 2012 at 3:42 pm

Finland will be the responsible adult and turn of the lights in the eurozone. (everyone else will leave before)

SeppoJuly 11th, 2012 at 6:35 pm

Really what happened here is that Merkel and Sarcozy realised that their own banks are in deep trouble if PIIGS countries don't pay their debts. So they deviced this bailout plan to get others pay for their own banking sector bailouts, that way they could a) save money and b) blame others, not their own banking supervision. And finnish politicians, of course, said yes, because they were in awe of these two great european leaders.

See here is a pattern here: when small european country, like ireland, goes into trouble with its banks it has to pay the bill itself. But when powerful nations are in similar predicament, they find others to pay bills for them.

So Finland has been taken for a ride. It saddens me greaty. In this crisis EU shows its true face. It's not a friend of small nations, but works for the powerful, large ones.

We would be better off outside this kind of EU.

SeppoJuly 11th, 2012 at 7:01 pm

Finland deficit reduction 1990-1993 killed the economy and send unemployment to 20%. It was worst policy that we have ever had and it did not even recude the deficit as tax revenues collapsed. Debts still grew, and all that hardship was for nothing. :(

PayerJuly 11th, 2012 at 7:53 pm

Dear Nouriel Roubini,

Are you real blogger and protect your text, or are you just normal Blog Yelling.

regards
Payer

Markku PörhönenJuly 11th, 2012 at 8:20 pm

Finnish economy was killed by the collapse of the Soviet trade that happened at the same time with a world-wide recession (America was not hit awfully hard, not China either). Finland is a very export dependent country. High domestic interest rates, heavy losses due to dollar amounted foreign loans that companies had taken before the strong devaluation of the Finnish markka took companies to bankrupty. High interest rates, bursting of the housing bubble whith collapsing of apartment prices, unemployment punished many private citizens.

The government of Finland took quite a lot of new foreign loan, even though they also tried to reduce the budget deficit. Sweden took a different way, they took more foreign loan than Finland and their economy didn't suffer nearly as badly. But Sweden had not been hit as hard, for example Sweden was not at all dependent on Soviet trade, it had more reserve capital in its companies, its industry was more many-sided, its credibility in the eyes of lenders was certainly better. The recession was long, but the recovery for both Finland and Sweden was rapid around 1994 and neither country had problems with paying back their debt.

Yes, possibly Finland could have taken somewhat more loan and cut the deficit a little bit less. But had that ruined our credibility in the eyes of lenders (like the situation of Italy, Spain)? Maybe, maybe not. Anyhow, the amount of foreign government debt at the beginning of the crisis period 1990 was quite low (out of Stetson, say 15 % of gross domestic product), so taking loan under those circumstances was quite sensible, the classical Keynesian trick. But when talking about the situation in Spain and Italy right now, of debt levels of 120 % of GDP, taking more loan is not the answer. The loan becomes unpayable. Of course, one can make EU to pay the loans. But that is not the way we think in Finland, Martin Luther told us that that is not the right way to go.

PalantirJuly 12th, 2012 at 12:46 pm

In case Finland were ousted out of the EU for not wanting to act as a ATM for southern slackers, why not re-join EFTA?

Norway, Switzerland, Iceland and Liechtenstein are members, so she would be in good company. EFTA countries have full access to the EU markets. One wonders where is the value in EU membership, when one can get all the good stuff through EFTA, without the expensive and humiliating circus in Brussels?

The curse of Finland since the breakup of the Soviet Union is Finnish lack of courage. There is a long-standing security problem (Russia), but Finnish politicians did not have the guts to join NATO. Instead they sought to address the problem indirectly by getting not just into the EU, but aspiring into the innermost core of the Union. This has led into unwise decisions, such as joining the EZ as the only Nordic country, even though the Finnish financial history, the structure of foreign trade etc. warranted serious caution.

An immediate Fixit would be the best option, but unfortunately it won't happen (for the two already mentioned reasons that are not very accessible for foreign analysts).

Riigikohus tegi ESM-i kohta ainsa võimaliku otsuse aga see oli vale « Virgo Kruve veebikodu ja blogiJuly 12th, 2012 at 5:07 pm

[...] Riigikohus otsustas täna, et Eesti riik upub koos teiste võlgades olevate Euroopa perifeeria riikidega. Vaadake kaardile ja näete, et Kreeka ja Küpros on Euroopa Liidu kaugunurk, Portugal ja Hispaania edelas ning Iirimaa loodes. Soome ja Eesti oleksid kirdes. Näiteks Nouriel Roubini kirjutas juba oma blogis, et Soome on järgmine abi küsiv riik eurotsoonis. [...]

SeppoJuly 13th, 2012 at 4:15 pm

It is true that Finland was hit by many things in the early 90's. But only one reason can explain why the depression was worst in history of the developed countries since the 30's depression: finnish money supply (amount of loans) contracted by 25%. Banks were told to rein in lending, companies and individuals were encouraged to pay down their debts. At the same time, finnish government tried to achieve budget balance as well.

Please look at the following documentary about money and you will understand why economy will collapse if all sectors in the economy try to reduce their debt burden at the same time: http://www.youtube.com/playlist?list=PLD085413689…

If government is not ready to accomodate savings desires in the private sector with it's own deficit spending, the economy will just contract so much that the public deficits will widen to the point that corresponds to private sector saving desires. That is the bad way to get deficits: economy will contract and government will not save any money anyway. That is what happened in finland with all those saving iniatives.

princess1960July 20th, 2012 at 4:53 pm

VERY GOOD ARTICLE i have to say i am agree with FINNLAND..BUT ihave to say too EUZ did not find solution jet for the bank crisis..so for me is the same and I AM NOT CONCERNE WHY?
THANK YOU

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alexJune 26th, 2013 at 8:39 am

Ale nie myślę, że Niemcy i Bruksela pozwoli euro-Problem nadmuchać w tym zakresie. Wszystko, co musisz zrobić, to wydrukować 5-6 bilionów teraz, stymulować wzrost w peryferyjnych ecomomies (szczególnie Grecja i Hiszpania) i kupić czas na odpoczynek może nieco dalej i zarządzania politycznego i gospodarczego obligacje korporacyjne zjednoczenia. Co do inflacji (ze względu na druku) … będzie to co najmniej z ich obaw … (na razie). Aż zaczną coraz "Ameryka" – Zobacz więcej na:

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