Some Finns restive in eurozone

Article by: KASPER VIITA , Bloomberg News
Updated: August 20, 2012 - 8:59 PM

But exiting the currency bloc could trigger economic calamity in Finland.

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Finland’s Foreign Minister, Erkki Tuomioja, warned last week that eurozone members should be ready for a collapse of the currency.

Photo: Martti Kainulainen, Associated Press

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HELSINKI - As a growing number of Finnish voters say they regret joining the euro 13 years ago, business leaders in the country warn that exiting the currency bloc would devastate Finland's economy.

"Before the euro, we had to use the markka, the ruble and the dollar," said Veli Vento, the manager of Well Finland Oy, a food company based northeast of Helsinki that sells to the Russian market. "We constantly bumped into unfavorable exchange rates, whether we were buying or selling. Whenever we tried to speculate on the rates, we'd always take a loss."

Finland's resistance to backing more eurozone bailouts and the ascent of the euro-skeptic "The Finns" to become parliament's third-biggest party in 2011 elections has prompted economists such as Nouriel Roubini to suggest the nation may one day quit the currency bloc. About a quarter of voters want to restore the Finnish markka amid growing taxpayer disgruntlement with Europe's crisis response, according to a July poll commissioned by newspaper Kaleva.

Yet those figures don't tell the whole story. Finland, one of the 11 founding euro nations, exports about 40 percent of its output, a third of which goes to the euro area. Trade would suffer if the country restored its own currency, said Prime Minister Jyrki Katainen.

"The euro helps companies function in the European markets as well as global ones," Katainen said in July. "Euro membership brings stability."

Scars of economic hardship

Finland still bears scars of the economic hardship it endured following speculative attacks against the markka two decades ago, according to Markku Kuisma, professor of history at the University of Helsinki.

"Finland is committed to the euro at its core and wants to develop the economic and monetary union in a constructive spirit," European Affairs Minister Alexander Stubb said Monday in Helsinki. "The euro is an irreversible choice for Finland."

In the late 1980s, money flowed into Finland in a so-called carry trade that was made attractive because of the country's higher interest rates. The Bank of Finland's base rate reached 8.5 percent in 1991, compared with 2.75 percent at the Frankfurt-based Bundesbank at the beginning of that year.

"The abundance of money created both a real estate bubble and a stock exchange bubble," Kuisma said.

When those bubbles burst, it triggered a wave of bankruptcies that killed jobs. Finland started hemorrhaging capital.

"Foreign investors began speculating on the collapse of the markka while export companies hedged their positions," Kuisma said.

Playing by the fiscal rules

Finland is one of the few euro members to have complied with the bloc's fiscal rules. It is the only Aaa rated euro member with a stable outlook at Moody's Investors Service. Finland's ability to comply with the EU's budget rules while countries such as Greece continue to negotiate more lax bailout terms has enraged some voters and weakened support for euro membership.

Twenty-three percent of Finns want the markka back, according to the poll commissioned by newspaper Kaleva and five other regional papers at the end of July. About 65 percent support staying in the union, down from 74 percent two years ago, the poll shows.

"For us Finns, the issue with the euro crisis is based on emotion," Vento at Well Finland said. "It's based on fears of how much we need to spend on bailouts and how much of our money will disappear into southern Europe."