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Deciplined Finland takes it on the chin

Friday, July 27 07:35:43

After dutifully abiding by EU fiscal rules, Finland's tiny population remains surprisingly phlegmatic about bailing out less disciplined euro zone members, and is mostly clinging on to its faith in the single currency project. That faith has been tested as a succession of struggling nations make ever greater demands on the sounder economies in the currency bloc, but it is not yet at breaking point. "We had to sort out our own problems ourselves in the past. That's why people are asking, do we have to help others?" said Maija Siirala, a freelance dressmaker and alterations specialist. Finland, one of only four euro zone countries still boasting a triple-A credit rating, recovered from a financial crisis in the early 1990s without outside help, and the years of harsh austerity and debt repayments are part of the collective memory for many.

Now Finland must cough up 12.6 billion euros ($15.3 billion), which is equivalent to about 6 percent of GDP, for the European Stability Mechanism, the zone's permanent bailout fund. "But I think yes, we still have to help others," Siirala adds without hesitation. That is at least in part a recognition that Finland has benefited from membership of the euro zone. Jussi Huotari, a man in his 30's working for a technology startup, criticised European officials for letting the crisis get out of hand, but said the euro had been "great for Finland" so far, and he had not been put off the idea of a currency union. "The crisis has been mismanaged in an expensive way," he said. "But if Finland leaves the euro zone, I'd like to see another common currency with more similar economies. Something like a Deutsche euro, a euro for the 'North-of-the-Alps' countries or even a Scandinavian krona."

While Finland demands collateral for its participation in European bailouts, economist Nouriel Roubini has said its best option is to exit the euro altogether, an idea he calls "Fixit". Finland's recent history makes that unpalatable to most. It adopted the euro as it was emerging from the shadow of the former Soviet Union, which dictated the country's foreign policy for decades after World War II. The Soviet Union's collapse triggered a spike in unemployment and inflation, as well as a wave of currency speculation that caused a spike in interest rates.

"The way I see it, a small country like Finland is always going to be controlled from the outside to some extent," said Timo Korkeamaki, professor of finance at the Hanken School of Economics. "If you're in the euro, at least you have more control than if you're just a small country with a small currency." Another major advantage for Finnish businesses has been the lower cost of raising debt from financial markets now than when it had its own currency, the markka. "It may not be such a big issue for large, international firms, but mid-sized and smaller firms now have better access to the global market compared to what they had in the markka-era," Korkeamaki said ( C) Reuters