Finland is losing patience with a Franco-German bid to erode rules protecting national sovereignty and warns more policy gyrations designed to prevent a euro-area default will alienate citizens across the union.
“We have a political crisis in Europe,” Jutta Urpilainen, Finland’s 36-year-old finance minister, said in an interview in Helsinki. “If we make significant decisions using the crisis as an excuse, for example reducing national sovereignty, that carries the risk of weakening the EU’s legitimacy. The risk is that people feel things are moving too fast.”
Urpilainen has railed against German and French plans to do away with unanimous voting in the 17-nation euro region and says it’s wrong to repay Finland’s fiscal responsibility with a loss of sovereignty. The northernmost euro member is one of only four sovereigns in Europe’s currency bloc that still carries a top credit grade at the three major ratings companies. Standard & Poor’s on Jan. 13 removed France and Austria from the euro area’s AAA club.
The Finnish finance minister will meet with her euro-area counterparts on Jan. 23 in Brussels to argue the Nordic country’s corner.
“Unanimous decision-making matters from the point of view of national sovereignty and democracy,” Urpilainen said.
Finland didn’t survive S&P’s downgrade entirely unscathed. The country’s outlook was cut to negative, after being placed on credit watch negative on Dec. 5. S&P cited the fallout of the euro area’s crisis for the cut. A negative outlook signals there’s “at least” a one-in-three chance the rating will be cut this year or next, S&P said.
Finland’s 10-year bonds yield 33 basis points more than benchmark German debt, the smallest spread of the 17 euro countries after the Netherlands. France, by contrast, yields 133 basis points more than the German debt. A basis point is 0.01 percentage point.
Finland is ready to withdraw its support from Europe’s permanent rescue fund, due to become effective in July, if the currency bloc abandons unanimous voting, Urpilainen said Dec. 9. Germany and France pushed for the change to expedite decision making on bailouts.
Finnish withdrawal from the European Stability Mechanism would put in question the collateral deal the country struck in exchange for future contributions to a second Greek bailout.
Though Prime Minister Jyrki Katainen on Jan. 12 signaled his government is willing to look for a compromise on unanimity in an effort to maintain influence in the euro region, Urpilainen, who heads the second-biggest group in Finland’s six-party coalition, has shown less willingness to give in.
Urpilainen today reiterated her unwillingness to give up national sovereignty on the issue of voting rights. At the same time, the finance minister warned that the permanent rescue fund still faces “several” hurdles before it wins backing from all 17 members inside the single currency bloc.
Unanimous voting is “not the only open issue,” she told reporters in Helsinki today. A decision on the ESM will be reached by March, Urpilainen said.
Katainen said today in Helsinki that a deal on the permanent mechanism can be done “next week or later,” adding that what is important is that the program goes into effect in July as planned. “So far there have been no insurmountable difficulties in the discussions, but the situation is live.”
Katainen’s government holds 124 seats in the 200-member legislature and both opposition parties have indicated they will reject the elimination of unanimity. Katainen would need at least 133 votes to achieve the two-thirds majority.
Finland’s objections to the abolition of unanimous voting have prompted European leaders to redraft the original proposal in an effort to allow Katainen to back the bill with a simple majority, or more than half Finland’s lawmakers.
“Finland will compromise,” said Timo Tyrvaeinen, chief economist at Helsinki-based bank Aktia Oyj. He said the likely outcome will be that “decisions on increasing countries’ liabilities must be taken unanimously, whereas decisions on using the fund cannot be unanimous to prevent countries like Finland from stopping its effective use when required.”
Inside Urpilainen’s Social Democrats, there are other dissenters. Foreign Minister Erkki Tuomioja wrote in his blog that Finland should refuse to adopt the so-called fiscal compact agreed on Dec. 9, arguing the agreement is “at best unnecessary and at worst harmful,” according to a Jan. 15 entry. He railed against the accord, which targets tighter economic controls inside the euro region, as being “hurriedly pushed through, bypassing national parliaments.” Katainen yesterday told broadcaster YLE he doesn’t share Tuomioja’s views.
Finnish politicians are struggling to appease voters disgruntled at having their taxes used in bailouts that are sent to governments that overspent. The April elections saw the anti-euro “The Finns” party jump fourfold to become parliament’s third-largest group. The party’s leader, Timo Soini, has argued that Greece should be left to default and doesn’t want to be in a currency bloc with nations incapable of complying with Europe’s fiscal rules.
Finland will post a 0.7 percent budget deficit of gross domestic product this year, the European Commission said in November. The country’s public finances have remained within the European Union’s 3 percent deficit threshold throughout the crisis and were in surplus in 2007 and 2008. Finland met Europe’s budget rules even as its economy shrank 8.2 percent in 2009.
The euro area will post an average budget shortfall of 3.4 percent this year and has breached the bloc’s 3 percent rule from 2009, the commission said Nov. 10.
Urpilainen, an ex-teacher with a Masters degree in education who can be heard singing on a 2002 album of Finnish Christmas carols, persuaded voters to back her last year on an anti-bailout platform. The reality of politics inside government means she has had to temper her opposition to the pro-bailout stance of Katainen’s National Coalition party.
Becoming finance minister “was like jumping into a speeding train,” she said.
Urpilainen, after becoming the first female to lead Finland’s Social Democrats, is also the country’s first woman to serve as finance minister. Her husband, Juha Mustonen, is an official at the Foreign Ministry. The couple has no children.
“I feel I’m a pioneer,” Urpilainen said. During the early days of her job in government, she often made use of her skills as a teacher, she said.
“I had made a colorful handout to illustrate the state of the Finnish economy and our future goals,” Urpilainen said of her first meeting with her European counterparts. “Maybe that’s my background as a teacher coming through.”
For those trying to guess how much Urpilainen will compromise in negotiating Finland’s role in Europe’s crisis management, she warns not to expect too much.
“It’s important to me to be able to look at myself in the mirror in the morning and respect what I see and to stand behind the decisions I make,” Urpilainen said. “I’ve never lost sleep over work. It’s in my nature to push through obstacles.”