World Clock

Saturday, 16 April 2011

Finland's Costly Election....For the European Union - Potentially

Tomorrow will not only be a vital day in Finish politics, but also in the recent economic history of the European Union. Finland historically has proven to be a solid a dependable member of the Eurozone, however as a consequence of the recent Eurozone sovereign debt crisis, the political climate in Finland has shifted towards a more eurosceptic stance.

The eurosceptics in Finland have recently seen an extraordinary rise in popularity led by the True Fins under the leadership of Timo Soini. Soini's, political sound bits regarding "helping impoverished Fins, instead of bailing out profligate Greeks or handing cash to immigrants" have struck a cord, according to reports by The Economist. Just four years ago the True Fins took a meagre 4.1% of the vote, in stark comparison to recent polls indicating they are virtually level with the more established main parties.

Finland's electoral districts.
The rise of euroscepticism in Finland has started to alarm Brussels, especially after Finland in March this year halted plans to expand the size of the Eurozone bailout fund. Frustration with the European Union has grown in recent days as Portugal has become the latest country to line up for a potential bailout after the countries PM resigned earlier this year after he was defeated on a crucial austerity bill. The True Fins are staunchly against against any financial aid for Portugal, which has become a major source of contention in the dying days of the election campaign.

Although the True Fins could be in position to form a coalition government with the three other main parties should results go their way, this could be politically difficult given their stance on Europe. The three other main parties (see chart above) are pro-Europeans, whereas the True Fins remain eurosceptics, Soini said it would prove difficult to form a coalition with the other parties. 

However he said that should his party win an outright majority he would seek to hold a referendum on the future of Europe within the country. 

The problem for Brussels at this point is that eventhough it is unlikely that the True Fins will win outright the antipathy towards Europe appears to be gaining ground, now that they have party that can support and air their views on a national level.


Although the rise of the Eurosceptics in Finland is likely to course agitation in Brussels, it is unlikely to affect a potential Portuguese bailout. According to a poll which was seen by Reuters the True Fins were slipping in the polls the and remained in fourth place.

The Europhiles led by the National Coalition a right of centre group under Jyrki Katainen topped the latest poll, this should it transpire in the election on Sunday will allow him to lead negotiations in Europe on behalf of his country.

Although it is likely that the pro-Europeans would hold onto power in the Finish parliament, chief economist at Danske Bank said that any disruption to the financial aid package would scare the financial markets and costs for the most indebted countries would rise as a result. This Pasi Kouppamaki of Danske Bank said referring to the prospect of the True Fins gaining a place in parliament.

Source: (Finish Parliament)

The latest polls also make uneasy reading for Eurozone leaders, especially the PIG + S (Portugal, Ireland, Greece + Spain) as 48% of Fins are dead against aid to Portugal and also against any increase in the bailout fund compared to 52%. Clearly demonstrating the divisions within the country as a whole. Essentially 48% of the Fins are saying "it is wrong to help Portugal, and it was wrong to help Greece".

Analysts argue that there is an outside chance that the True Fins could secure a place in a coalition government on Sunday and disrupt or worse block a financial bailout package to Portugal. However the bond markets have remained calm about the Finish election since Greece now appears to moving towards debt restructuring and Portugal wants to move straight to a restructuring program and skip a bailout altogether.

Slovakia was in the same position last year when after elections were held, the newly elected government temporarily blocked aid to Greece, however after euro-wide pressure the government eventually capitulated and allowed the bailout to go ahead. Analysts and commentators expect the same of Finland.

Both Finlands PM Mari Kiviniemi and the leader of the Centre right party Mr Katainen are playing the fear card, saying that blocking the financial bailout package would heighten the financial crisis in the Eurozone and inevitably hurt Finland's economy in the process. 

The reason why the Finish elections have taken a higher profile in Brussels is because Finland is the only country among the 17 Eurozone countries that requires a parliamentary vote to approve the EFSF, the other 16 requires the government to decide. Thus the True Fins could potentially punch above their weight in parliament as their votes could prove decisive should the EFSF need additional funding.

If as a consequence of the election, Finland votes against a bailout for Portugal, estimated at 80bn euros, this could then galvanise the opposition against the bailout in Germany, which has been gaining momentum of late. 

A Finnish finance ministry advisor Martti Salmi said "we might see the financial stability of the eurozone as whole in danger in some way".

Even if Finland did not participate in the bailout fund, Finlands contribution to the EFSF standing at $2.3bn could be distributed among other eurozone countries. However Finland's decision to pull out of the EFSF could prove a catalyst for other countries to stand in opposition to the bailout fund on principle. The knock effect could prove to catastrophic for the future of the eurozone, especially if Spain succumbs to pressure from the bond markets.

As an afterthought Mr Salmi said that if there were a referendum on joining the eurozone today, Finland would probably vote no". 

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