3:36PM BST 19 Aug 2012 Once Finns break the taboo, it would be easier for Germany to extricate itself from an escalating national disaster without inviting opprobrium from across Europe, or so goes the argument. “We can’t start this off, but the Finns can,” said Hans-Olaf Henkel, former head of Germany’s industry federation. Berlin’s policy elites are constrained by their honourable - if misdirected - feelings of moral duty towards the euro. They cannot bring themselves to plunge the dagger. Or as ex-Bundesbanker Thilo Sarrazin puts it, they are driven by “the very German reflex that the Holocaust and Second World War will only be atoned for finally when all our interests, including our money, are in Europe's hands". Finnish exit - or FIXIT, as they say in Helsinki - is certainly a plausible hypothesis. The Finns have no ensnaring duty to a mystical “Europe“. They did not join the EU until 1995, and only then with widespread dissent. “Sweden and Denmark both held referendums on the euro, and both said no. We were never allowed to vote,” said Timo Soini, leader of the True Finns party. That was a mistake. The nation is not locked into ritual assent. Finns obeyed the rules of EU membership with scrupulous care, while others gamed the system. “Our Lutheran morality, if you will,” said foreign minister Erkki Tuomioja. They alone faced the fiscal implications of EMU for small economies out of cyclical alignment. Finland’s budget surplus was 5.3pc of GDP at the top of the boom in 2007. Greece’s was 6.5pc in deficit. There lies the full horror of what has happened. “In Finland, a handshake is final. We thought we had a deal that every country would look after its own finances, only to find the deal was broken,” said Alexander Stubb, Finland’s Europe minister. The Finns survived their own gruelling depression without foreign help in the early 1990s when the Soviet Union collapsed and exposed the fragility of the Finnish banking system. The economy shrank by 13pc. “We had the IMF knocking at our back-door. Unemployment was at 18pc. We said 'never again’ and yet here we are in a fresh crisis because of somebody else’s fault,” said Mr Stubb. For the True Finns - with 19pc of the vote in the last election - it is an outrage. “We bailed out our own banks, and now after all the lying, dishonesty and malfeasance in Europe, we are being asked to bail out their banks. This is the last straw,” said Mr Soini. There is no doubt that Finland could go it alone. It is the last unsullied AAA state in the Euroland, with a public debt of just 51pc of GDP. The reason why Moody’s did not place the country on negative watch last month along with Germany and Holland is a lack of banking exposure to Club Med debt and “relative insulation from the euro area” in trade. More than two-thirds of Finnish exports go outside the euro bloc, chiefly to Russia, Sweden and the US. In other words, Finland lives in a different economic universe from core-EMU, and is deemed better for it by rating agencies. You could not find a more likely candidate for euro exit. Yet looming over everything else is Vladimir Putin’s Russia, a “19th Century power” - to borrow Robert Kagan’s term - that has overturned the post-war borders of Europe once already by attacking Georgia in 2008 and annexing South Ossetia. Russian armed forces chief Nikolai Makarov played on the theme in June, attacking Finnish “revanchists” and describing Finland’s military manoeuvres in its own eastern region as akin to those of Georgia in South Ossetia before the war - ie a casus belli. The Russians are playing hardball over Finnish overtures to NATO. Looming too are memories of the Winter War of 1940 - when they lost the Hanseatic city of Viipuri - and the bitter struggle against Stalin until 1944, and indeed the compromised sovereignty and media self-censorship that lasted for another half century. “Membership of the EU and the euro is all about getting as far away as possible from Moscow. That has affected how we think for the past 20 years,” said Professor Tapio Raunio from Tampere University. The strategic imperative is to enmesh Finland as deeply as possible into every part of the Western system. True Finn leader Mr Soini says the euro remains the “state religion” upheld by Finland’s elites. Their governing credibility is inextricably linked to EMU project. Most will die in a ditch to defend it. Yet the tensions are palpable in the Finnish parliament. “Our liabilities keep rising and the mood is becoming critical,” said the foreign minister. Each escalation in EU rescue demands - whether to strip the bail-out fund (ESM) of its preferred creditor status, or to recapitalise Spanish banks directly, or to buy Spanish and Italian debt, and on what terms - requires a fresh vote by the Eduskunta. The Social Democrats - leaking working class votes to the True Finns - are visibly wobbling. Their ministers fire off cannonades against EU rescues almost weekly to shore up their base. The finance minister Jutta Urpilained said Finland would not “hold onto the euro” at any cost, and then seem surprised when the world took note. Nobody knows where the snapping point lies. Miapetra Kumpula-Natri, chair of the Grand Committee on Europe, said Finland’s political limit on bail-outs is “unwritten”, yet dropped the hint of 10pc of GDP. So we watch the numbers. Does the gun cock once Finland’s guarantees reach €19bn? Are we there already? My own guess is that Spain and Italy - separately or acting in concert - will win the North-South race to revulsion and trigger the final denouement. Tightening fiscal policy by 3pc of GDP each year as unemployment rockets is not compatible with democracy, nor with economic science for that matter. Yet Finland is a long-neglected part of this complex jigsaw puzzle. Global investors will have to add the Helsingin Sanomat to their morning read, along with Greece‘s Kathimerini, just in case. Get our free report on why we think house prices will fall further !Russian Bear stops Finland leaving euro
German eurosceptics quietly hope that Finland will become the first creditor state to storm out of monetary union in disgust, opening the way for others to break free.
House Prices to Crash?
Tuesday, 21 August 2012
Posts
