Mar. 22nd, 2011

peterbirks: (Default)
Very interesting times coming at the EU. You may recall that Enda Kenny, recently appointed PM in Ireland after his Fine Gael party won the most seats, is heading for Brussels filled with optimism that after the EU leaders see the results of the stress tests on Irish financial institutions (likely to come out rather more impressive than those on Greece, Portugal, and even Spain) they will say "hey, you're a good bet, please pay less interest on your loan".

They won't say this, of course, and they now have one more reason not so to do than they had last month.

That reason is Finland.

The EU's "bail-out" fund was raised from €250bn to €440bn. When other chippers-in were added, this brought us to about €750bn -- enough, it was hoped, to convince people that the euro would survive, simply because once you get into the €700bn-plus region, there is enough available to save Spain. And Spain is the key player in all of this. Not Portugal -- there it is just a matter of time. And not Ireland or Greece, both of which are, sadly, minor players and almost bystanders (except for the fact that they are likely to be sufferers of collateral damage) in a far bigger war.

Now, the EU has one small problem with its vote to increase the bailout fund to €440bn -- it didn't actually work out where it was going to get the money from. Or, rather, it did, kind of. It assumed that the eurozone's remaining "rich" countries would double their loan guarantees. The near sticking point when this was agreed was Germany, which had to come up with the most, and which had a hell of a time getting it through.

But Germany is not alone. In negotiations last week Finland blocked the increase.

We should have seen this coming. Last November Finland did not want Ireland to apply for a bailout, because the Finnish government knew that if Ireland did apply it would be approved, and Finland would be one of the bailers-out. Currently Finland guarantees about €8bn of the €250bn. But it doesn't want to guarantee €16bn of €440bn.

Now, €8bn may not seem to be much in the grand scheme of things, but when all of the other cupboards have been stripped bare, it is. You won't get any more from the IMF, and Germany certainly won't stump up the extra. And if Finland is allowed to not put any extra in, how will this play with the other countries which ARE putting in extra? Not well.

The bailout of Greece had been unpopular in Finland. The bailout of Ireland was also unpopular, but, with elections coming up in Finland, this increase in the fund to almost certain bail out Portugal and perhaps to bail out Spain is controversial. It appears that the Finnish electorate is having none of it. The eurosceptic "True Finns" are making headway in rural areas, in depressed paper mill towns. The True Finns have promised that they will block any increase in Finnish commitments. And just that veto could cause the entire bailout fund increase to fail. And if that fund increase fails, we are back to a bailout fund the size of which is not enough to save Spain and, therefore, the euro.

More importantly than this, there appears to be some kind of north-south divide emerging here. The Finns have traditionally been very pro-euro, but they seem to be getting fed up with it. Or, rather, with those they see as having made hay while the sun shone, compared with the sturdy Finns, who carried on with their business as usual (and that business is not going as well as usual).

I suspect that the Finns would be enthusiastic supporters of some kind of "new euro", perhaps consisting solely of those countries that remain highly rated by the rating agencies.

Would that move result in a twin-track euro? Or what? Buggered if I know, but it will be interesting.

It's not often that I look at the results of the Finnish elections, but the April 17 vote could be extremely important indeed.

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