Finland's Euro-Skeptics Poised to Form Government Following Election Upset

Finland’s euro-skeptic bloc is poised to enter a government with the pro-Europe National Coalition led by Finance Minister Jyrki Katainen after voters used yesterday’s election to protest against funding bailouts.

The True Finns, whose leader Timo Soini says taxpayers shouldn’t have helped rescue Greece or Ireland, surged almost 15 points to 19 percent, the Justice Ministry said. Katainen’s group won 20.4 percent to become Finland’s biggest party for the first time. Prime Minister Mari Kiviniemi’s Center Party got 15.8 percent and the Social Democrats, which also opposed bailouts for the two countries, won 19.1 percent. Kiviniemi will lead her party in opposition after its “huge defeat,” she told broadcaster YLE.

“They couldn’t leave the True Finns out of government after this landslide,” said Tuomo Martikainen, professor emeritus in political science at the University of Helsinki, by phone. “It would be making a mockery of democracy.”

The election results, which come 11 days after Portugal became the third euro member to seek a bailout, threaten to disrupt efforts to push through Europe’s crisis-handling measures. Should AAA rated Finland withdraw its support, Europe’s principle of solidarity “would have failed,” said Frank Engels, an economist at Barclays Capital, in an April 14 note. Any steps need the approval of all 17 euro members.

Losing Face

“Finland’s government will demand new negotiations over the package or block it,” Martikainen said. The True Finns and the Social Democrats “would lose face in Finland if they just approved the financial aid,” he said.

Katainen has said he’ll only work with parties that support the bloc’s rescue tools. “Finland has always been a responsible European Union country,” he told supporters. “I’m convinced the new government, whoever is in it, will want to continue this policy.” The True Finns will seek a majority that allows them to block the region’s bailout mechanism, Soini has said.

“Now we’ll renegotiate. Our money shouldn’t be thrown into mechanisms that don’t work,” Soini told YLE today. “We won’t dictate the terms for the whole of Europe, but we will insist on holding onto Finland’s decision-making powers and money. The Finnish cow should be milked in Finland and the milk shouldn’t be sent abroad in charity.”

The new parliament convenes on April 26. The legislature then selects a prime minister, traditionally the leader of the biggest party, who heads talks to form a government. Katainen told broadcaster YLE that a coalition with the True Finns and Social Democrats is “very possible.”

Market Anxiety

A new government is due to be appointed on May 19, according to a preliminary plan agreed by the parties’ parliamentary heads.

“If Finland doesn’t ratify the package, either Portugal won’t pay its debts or some other package must be drawn up,” said Pasi Kuoppamaeki, chief economist at Sampo Bank, a unit of Danske Bank A/S. “I’m afraid this will cause some anxiety in the financial markets.”

Portuguese government bonds fell today, pushing the 10-year yield as much as 28 basis points higher to 9.28 percent, the most since at least 1997. The yield was up 8 basis points at 9.07 percent as of 3:10 p.m. in London. The euro lost 1.2 percent against the dollar, declining for a second day.

Soini’s campaign to protect taxpayers from rules made in Brussels has won support from voters who endured their most recent recession without blowing the budget. The Social Democrats have argued Europe’s rescue measures don’t push enough of the cost onto investors.

Finnish Hardship

“The result is very strong,” Soini told YLE. “We’ve been heading in this direction for years.”

Many Finns remember how the country worked its way through its 1990s recession, triggered by a banking meltdown that coincided with an export slump as the Soviet Union collapsed. That downturn sent unemployment to 19.9 percent in May 1994, from 2.1 percent in 1990.

“People wonder why we should help,” said Tiina Helenius, Helsinki-based chief economist at Svenska Handelsbanken AB. “People feel we each must face our hardships and do the work needed to recover.”

Finland has since emerged as one of the euro region’s fastest-growing economies. Gross domestic product expanded an annual 5.2 percent in the fourth quarter and Finland kept its budget deficit within the bloc’s 3 percent threshold even as its economy contracted 8.2 percent in 2009. Its deficit will narrow to 1.6 percent of the economy this year, versus an EU average of 5.1 percent, the European Commission estimates.

Bailout Facility

Any decision on how to bring the 440 billion-euro ($634 billion) European Financial Stability Facility to its full capacity, which euro-area leaders want done by June, would require AAA rated countries such as Finland to shoulder an above-average burden.

“It’s hard to see that the National Coalition would be in a government that would block the bailout,” Kuoppamaeki at Sampo Bank said. “If the National Coalition forms the government, the bailouts will be approved.” The True Finns “have a moral right to participate in the talks to form the government, but other parties don’t need to give in on all of their demands,” he said.

Officials from the International Monetary Fund, European Commission and European Central Bank are in Lisbon to prepare an estimated 80 billion-euro rescue package. European officials said Portugal’s request for aid will mark the final chapter in the region’s debt crisis.

Portugal has announced it may raise as much as 5.5 billion euros issuing bills through June, including a planned April 20 sale of securities due July and November. The country had a 4.2 billion-euro fixed rate bond mature on April 15, and has a 4.9 billion-euro note coming due in June, according to the Portuguese Debt Agency.

“Portugal’s situation is getting very tough,” Kuoppamaeki said. “They have large loans maturing in June, so something has to be done.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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