Finland Threatens Europe Debt Crisis Rescue Fix as Cabinet Split on Policy

Splits in the Finnish government may hamper a drive from euro-area governments to ease the approval process for bailouts of struggling nations, setting up a stumbling block on the path to fixing the debt crisis.

Finland balked at a call on Dec. 9 by the other 16 euro governments for an 85 percent supermajority vote in case an emergency bailout is needed by the European Stability Mechanism, the permanent fund slated to start next year. In the case of Finland, a change away from a unanimous vote must be approved by two thirds of its parliament, since it conflicts with the constitution of the northernmost euro member.

Finland has been a sticking point already once this year, when its demands on collateral for bailouts threatened to delay a second rescue package for Greece. Finance Minister Jutta Urpilainen, who heads the Social Democrats, says the country can’t join the ESM should it move to majority voting, while Prime Minister Jyrki Katainen, head of the National Coalition, says the nation must find a way to stay in the ESM.

“Since the spring, it has become apparent that Finland’s EU policy is changing,” Ville Pernaa, head of the Center for Parliamentary Studies at Turku University, west of Helsinki, said in an interview. “The bailouts are still causing the same tensions as they did during the spring election.”

The spat underscores the difficulties the parties had in forging the cabinet after April elections. They spent two months seeking consensus on the collateral demand pushed by Urpilainen to limit liabilities incurred by the AAA rated nation from rescuing indebted states.

‘Qualified Majority’

Euro area leaders last week agreed to bring forward the start of the 500 billion-euro ($661 billion) ESM to July, a year earlier than planned. Leaders unveiled the plans after meetings for a closer fiscal accord, also adding 200 billion euros to the International Monetary Fund’s bailout efforts.

“As we are strongly committed to unanimous decision- making, in practice that means we have two options,” Urpilainen said in Helsinki on Dec. 9. “Either we keep to the original agreement that decisions are taken unanimously on the permanent mechanism, or Finland doesn’t participate in the permanent mechanism.”

Can’t Accept

A fifth attempt by Europe’s leaders to draw a line under their debt woes ended in a fiscal accord that will bring tighter deficit rules, with many details still to be ironed out and the U.K. vetoing an agreement among all 27 EU members. Leaders have given themselves until March to complete the language for the new rulebook and plan to set up the permanent rescue fund. They also said they will aim to reassess the cap of the ESM.

“Finland wants to be a full-fledged euro country and bear the responsibility for creating stability in a way that respects the equality of member states,” Katainen told parliament in Helsinki today. The proposed emergency procedures for the ESM would only allow for majority decisions “if the financial and economic sustainability of the euro area is threatened,” which was a less broad interpretation than an earlier draft, he said.

Still, Finland won’t be forced to increase is liabilities at the ESM through majority decisions, Katainen said at a debate over a no-confidence vote called by the anti-euro “The Finns” party.

“Finland’s stance is clear: We can’t accept it,” he said.

Short of Two-Thirds

Katainen’s cabinet has 124 members in the legislature, short of the 133 needed for the two-thirds majority to pass the measure.

The Nordic country earlier this year threatened to delay an agreement on Greece’s second rescue package after insisting on collateral in exchange for support. Collateral was one of the main campaign platforms of Urpilainen’s Social Democrats, which Katainen agreed with to win her as a coalition partner.

Bailouts became the main campaign platform in the April 17 elections and “The Finns” party ran an anti-bailout campaign, gaining a fourfold boost in popularity to become parliament’s third-biggest group.

The Social Democrats “have a different view than the National Coalition and they make it known,” Pernaa said.

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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