Far from undermining the euro’s credibility, the debt crisis has underscored the currency’s durability, Finland’s Europe Minister Alexander Stubb said.
Policy makers have made the legal adjustments needed to help the euro survive the turmoil of the past three years and the currency bloc is now ready to absorb a further eight nations, he said.
“The euro is irreversible in the sense that it’s the most stable currency Europe has ever seen,” Stubb, 45, said in an interview at his office in Helsinki on May 3. “I don’t even contemplate the possibility of the euro breaking up in my lifetime. I see the euro including 24 to 25 member states within a few years.”
Since its birth in 1999, the euro has grown from its 11 founding nations to 17. Its newest member, Estonia, joined in the middle of the global financial crisis while Baltic neighbor Latvia is preparing for accession next year. Though its architects failed to create a legal framework that envisaged the stresses of the debt crisis, legislators have since done the necessary work to ensure the euro’s survival, Stubb said.
“In terms of legislation, we’re approaching the limit,” he said. “We’ve done what has been necessary: the two-pack, the six-pack, the fiscal compact, the banking union. We’ve done the European Stability Mechanism and before that the interim mechanism.”
The message to investors is that while laws may change, the political vision of a permanent euro region won’t, according to Stubb.
“At the end of the day, the European Union should be a pragmatic institution,” he said. “If you find a lacuna in the system, you need to repair it.”
His expression of Finnish commitment to the euro area follows the nation’s efforts to protect itself against losses stemming from bailouts. Finland was the only nation to demand collateral in exchange for its contribution to Greece’s second bailout and for aid to Spain. The northernmost euro member has also consistently argued against joint bond issuance in the bloc.
The road out of the crisis now depends on national governments delivering on budget promises and generating growth in their economies, Stubb said.
Europe’s crisis management “has been a question of survival,” he said. “The cost of going without these rescue packages would have been impossible.”
After three years of fiscal turmoil, Finland will be one of only four euro nations to comply with the bloc’s 60 percent debt rule this year, according European Commission estimates published May 3. Germany’s debt will reach 81.1 percent of gross domestic product, while the euro area’s average will swell to 95.5 percent of GDP. Five euro nations are relying on international bailouts to make their payments.
Finland is also the euro area’s sole remaining stable AAA credit at the three main ratings companies. Moody’s Investors Services gives Germany’s top rating a negative outlook. Fitch Ratings affirmed Finland’s credit grade and stable outlook on May 3, citing its strong governance and an “impeccable debt service record.”
What’s more, Finland has kept its budget within the EU’s 3 percent deficit limit throughout the debt crisis -- an act even Germany has been unable to pull off.
“If this crisis is, say, 100 steps, we’ve probably taken somewhere between 60 and 70 steps,” Stubb said. “We’re still in the process of building trust among each other.”
All EU members, except the U.K. and Denmark, are obligated by the Maastricht Treaty to take up the single currency.
“The euro is by far the most stable currency that any European country has seen throughout its history,” Stubb said. “The human mind has a tendency to forget, but look at the devaluations, revaluations, the peggings to the Gold Standard, the inflation rates and the monetary instability that we’ve had throughout European currency history.”