Finland is
preparing for the break-up of the euro zone, the country’s foreign minister
warned today.
Erkki Tuomioja, Finland's foreign minister: "We have to
face openly the possibility of a euro-break up". By Ambrose Evans-Pritchard, in Helsinki
August 16, 2012
The Nordic state is battening down the hatches
for a full-blown currency crisis as tensions in the euro zone mount and has
said it will not tolerate further bail-out creep or fiscal union by stealth.
“We have to face openly the possibility of a
euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and
a member of the Social Democratic Party, one of six that make up the country’s
coalition government.
“It is not something that anybody ~ even the
True Finns [eurosceptic party] ~ is advocating in Finland, let alone the
government. But we have to be prepared,” he told The Daily Telegraph.
“Our officials like everybody else and like
every general staff have some sort of operational plan for any eventuality.”
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Mr. Tuomioja’s intervention is the bluntest
warning to date by a senior euro zone minister. As he discussed the crisis, the minister had a copy of the Economist on
his desk. It had a picture of Angela Merkel, the German Chancellor, reading a
fictitious report entitled “How to break up the euro”, with a caption:
“Tempted, Angela?”
“This is what people are thinking about
everywhere,” said Mr. Tuomioja. “But there is a consensus that a euro zone
break-up would cost more in the short-run or medium-run than managing the
crisis.
“But let me add that the break-up of the euro
does not mean the end of the European Union. It could make the EU function
better,” he said, describing the dash for monetary union in the 1990s as a
vaulting political leap in defiance of economic gravity. Finland has emerged as
the toughest member of the euro zone’s creditor bloc as it tries to hold
together a motley coalition. It has insisted on collateral from both Greece and
Spain in exchange for rescue loans.
The coalition government is on thin ice as
voters peel away to eurosceptic parties. The True Finns shattered the political
order in last year’s election with 19pc support. “Taxpayers here are extremely
angry,” said Timo Soini, the True Finn leader.
“There are no rules on how to leave the euro
but it is only a matter of time. Either the south or the north will break away
because this currency straitjacket is causing misery for millions and
destroying Europe’s future.
“It is a total catastrophe. We are going to
run out of money the way we are going. But nobody in Europe wants to be first
to get out of the euro and take all the blame,” he said.
Like other member states, Finland has a veto
that could be used to block any new bail-out measures. However, unlike some
states, its parliament would have to approve each future measure of the euro
zone rescue, including a full bail-out of Spain.
The issue of euro break-up may come to a head
in October as EU-IMF Troika inspectors report back on Greek bail-out
compliance. Pleas from Athens for two extra years to stretch out its austerity
regime have run into fierce resistance from creditor powers.
“It is up to Greeks whether they want to stay
in the euro,” said Mr. Tuomioja. “We cannot force Greece out. We can cut off
lending and that would lead to a default. Then we could speculate whether that
would entail getting out of the euro. Nobody knows if it could be contained,”
he said.
Mr. Tuomioja said Finland would block attempts
to strip the European Stability Mechanism (ESM) or bail-out fund of its senior
status at the top of the credit ladder, a move that could greatly complicate
efforts to lure investors back into Spanish and Italian bonds. “The ESM loans
have priority. That is a red line for us. We are very concerned that the rules
of the ESM seem to be changing.”
He voiced deep suspicion of plans by a “gang
of four” EU insiders ~ including the European Central Bank’s Mario Draghi ~ to
ensnare member states into some form of fiscal union. “I don’t trust these
people,” he said.
Mr. Draghi said two weeks ago that the issue
of seniority would be “addressed” as part of his twin-pronged plan for the ECB
and ESM to buy bonds in concert. A number of EU leaders and officials claimed
there had been a deal on the ESM’s seniority status at an EU summit in late
June. Finland, Holland, and Germany all deny this.
The warnings on the ESM were echoed by
Miapetra Kumpula-Natri, chairman of the Finnish parliament’s Grand Committee on
Europe, who said bail-out fatigue is nearing its limit.
“Our law passed this summer says the ESM has
the same priority as the IMF. There was a clear understanding on this. Any
change would require a new law passed by the whole parliament, and this would
be very difficult because the risks would be much higher.”
The issue of EU senior status has become an
extremely sensitive one for markets after the ECB and EU creditors refused to
share losses from Greece’s debt restructuring, in which pension funds,
insurers, and banks lost 75pc.
Critics say the Greek deal set a fatal
precedent, triggering further capital flight from Spain and Italy.
Mrs. Kumpula-Natri said Finland can be pushed
only so far. “There is a feeling on the street that there has to be a limit. I
can’t say whether it is 10pc of GDP, or what. It’s not written. But it is
obvious that a small country can’t help big countries eternally.”
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