Finland is preparing for the break-up of the eurozone, the country’s foreign   minister warned today

 

By , in Helsinki

9:00PM BST 16 Aug 2012

The Nordic state is battening down the hatches for a full-blown currency   crisis as tensions in the eurozone mount and has said it will not tolerate   further bail-out creep or fiscal union by stealth.

“We have to face openly the possibility of a euro-break up,” said Erkki   Tuomioja, the country’s veteran foreign minister and a member of the Social   Democratic Party, one of six that make up the country’s coalition government.

“It is not something that anybody — even the True Finns [eurosceptic party] —are advocating in Finland, let alone the government. But we have to be   prepared,” he told The Daily Telegraph.

“Our officials, like everybody else and like every general staff, have some   sort of operational plan for any eventuality.”

Mr Tuomioja’s intervention is the bluntest warning to date by a senior   eurozone minister. As he discussed the crisis,   the minister had a copy of the Economist on his desk. It had a picture of   Angela Merkel, the German Chancellor, reading a fictitious report entitled   “How to break up the euro”, with a caption: “Tempted, Angela?”

“But let me add that the break-up of the euro does not mean the end of the   European Union. It could make the EU function better,” he said, describing   the dash for monetary union in the 1990s as a vaulting political leap in   defiance of economic gravity. Finland has emerged as the toughest member of   the eurozone’s creditor bloc as it tries to hold together a motley   coalition. It has insisted on collateral from both Greece and Spain in   exchange for rescue loans.

The coalition government is on thin ice as voters peel away to eurosceptic   parties. The True Finns shattered the political order in last year’s   election with 19pc support. “Taxpayers here are extremely angry,” said Timo   Soini, the True Finn leader.

“There are no rules on how to leave the euro but it is only a matter of time.   Either the south or the north will break away because this currency   straitjacket is causing misery for millions and destroying Europe’s future.

“It is a total catastrophe. We are going to run out of money the way we are   going. But nobody in Europe wants to be first to get out of the euro and   take all the blame,” he said.

Like other member states, Finland has a veto that could be used to block any   new bail-out measures. However, unlike some states, its parliament would   have to approve each future measure of the eurozone rescue, including a full   bail-out of Spain.

The issue of euro break-up may come to a head in October as EU-IMF Troika   inspectors report back on Greek bail-out compliance. Pleas from Athens for   two extra years to stretch out its austerity regime have run into fierce   resistance from creditor powers.

“It is up to Greeks whether they want to stay in the euro,” said Mr Tuomioja.   “We cannot force Greece out. We can cut off lending and that would lead to a   default. Then we could speculate whether that would entail getting out of   the euro. Nobody knows if it could be contained,” he said. Mr Tuomioja said   Finland would block attempts to strip the European Stability Mechanism (ESM)   or bail-out fund of its senior status at the top of the credit ladder, a   move that could greatly complicate efforts to lure investors back into   Spanish and Italian bonds. “The ESM loans have priority. That is a red line   for us. We are very concerned that the rules of the ESM seem to be changing.”

He voiced deep suspicion of plans by a “gang of four” EU insiders — including   the European Central Bank’s Mario Draghi — to ensnare member states into   some form of fiscal union. “I don’t trust these people,” he said.

Mr Draghi said two weeks ago that the issue of seniority would be “addressed”   as part of his twin-pronged plan for the ECB and ESM to buy bonds in   concert. A number of EU leaders and officials claimed there had been a deal   on the ESM’s seniority status at an EU summit in late June. Finland,   Holland, and Germany all deny this.

The warnings on the ESM were echoed by Miapetra Kumpula-Natri, chairman of the   Finnish parliament’s Grand Committee on Europe, who said bail-out fatigue is   nearing its limit.

“Our law passed this summer says the ESM has the same priority as the IMF.   There was a clear understanding on this. Any change would require a new law   passed by the whole parliament, and this would be very difficult because the   risks would be much higher.”

The issue of EU senior status has become an extremely sensitive one for   markets after the ECB and EU creditors refused to share losses from Greece’s   debt restructuring, in which pension funds, insurers, and banks lost 75pc.

Critics say the Greek deal set a fatal precedent, triggering further capital   flight from Spain and Italy.

Mrs Kumpula-Natri said Finland can be pushed only so far. “There is a feeling   on the street that there has to be a limit. I can’t say whether it is 10pc   of GDP, or what. It’s not written. But it is obvious that a small country   can’t help big countries eternally.”

http://www.telegraph.co.uk/finance/financialcrisis/9480990/Finland-prepares-for-break-up-of-eurozone.html