Finland’s election has rekindled speculation that the nation may threaten new bailouts as Greece’s fate in the single currency bloc once again hangs in the balance.
The Finns party, whose leader Timo Soini has said Greece doesn’t belong in the euro, will be the second-largest group in Finland’s parliament after Sunday’s election. Juha Sipila, the millionaire-leader of the winning opposition Center Party, has said he trusts Soini and sees no reason why The Finns shouldn’t be part of a ruling coalition.
Finland has a history of impeding euro-zone rescue efforts. It threatened to stall talks on Greece’s second bailout in 2011, insisting on collateral in exchange for its contribution. But the fine print of Europe’s permanent rescue mechanism shows Finland no longer wields enough clout to block future bailout deals. That includes fresh funds for Greece, if it completes the second program and requires a third.
Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki, says Europe’s 2012 agreement to allow deals without full unanimity among euro members is key. “A crisis would have to threaten the full euro area to invoke the rule,” he said. Though doing so would be an extreme step to take, a potential third bailout for Greece “could probably be portrayed as such an emergency,” he said.
The ability of individual governments to delay aid efforts was limited when the European Stability Mechanism was created three years ago. The permanent rescue fund, which exists to provide conditional loans for countries shut out of financial markets, doesn’t require unanimous agreement among member states when aid disbursements are made, unlike its temporary predecessor, the European Financial Stability Facility.
Its rules include an emergency procedure, meaning a qualified majority of only 85 percent of the votes cast is needed if the European Commission and the European Central Bank see a threat to the region’s economic and financial sustainability. Unanimity is needed when funds are paid into the ESM and Finland made its 1.44 billion-euro ($1.6 billion) contribution three years ago.
The big question now is how crucial Greece’s continued membership is to the health and survival of the euro zone. At the height of Europe’s debt crisis almost half a decade ago, a Greek exit was perceived as a potential end-game. Now, analysts are less sure its departure would be as cataclysmic.
Von Gerich says the ESM’s clause on invoking an emergency rule may be one of the reasons The Finns party toned down its attacks against Greece, which in the 2011 election were more pronounced.
“If the Center Party or The Finns party had a strong wish to prevent a third loan for Greece, they would have had the incentive to say it outright before the elections,” he said. “Those comments would likely have brought them more votes.”
Germany, France and Italy are the only nations that can single-handedly block aid, with voting shares of 27 percent, 20.2 percent and 17.8 percent, respectively. Finland’s share is about 1.8 percent.
Euro-area finance ministers meet on Friday in Riga, as they attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. About 12.7 billion euros of the second bailout, provided through the EFSF, has yet to be disbursed.
Unlike the EFSF, the ESM gives sovereign lenders preferred-creditor status, removing the need to demand collateral. The bailout for Cyprus in 2013 was paid from the ESM and Finland didn’t seek special guarantees back then. Its collateral agreements were struck under the EFSF.
What’s more, Finland’s 200-seat legislature is no longer the stumbling block it once was for approving euro-zone rescue packages. Since the creation of the ESM, bailouts are discussed in parliament’s Grand Committee, which is made up of a much smaller group of lawmakers who are able to conduct talks behind closed doors.
The most Finland can do to hamper future rescues is to make vocal protests that generate headlines and may result in more stringent aid terms.
“Finland can always demand harsh terms,” von Gerich said. But “Greece III is going to be unavoidable unless talks fail before that and Greece drifts to another solution.”