Just when we thought that euro zone officials are willing to do anything to keep the region intact, Finland’s Finance Minister Jutta Urpilainen hinted that they would rather ditch the euro than bail out other debt-ridden countries.
Apparently, Urpilainen was quoted by a financial newspaper saying “Finland will not hang itself to the euro at any cost and we are prepared for all scenarios,” as she explained how Finland is no longer ready to risk a huge chunk of its GDP just to save other economies in the region. Although she clarified that the shared currency has been beneficial for Finland and that her statement didn’t mean that the country would leave the euro zone, it didn’t stop market junkies from speculating about a “Fixit” or a Finnish exit.
Finland is one of the original members of the euro zone as it joined the economic region from its inception in 1999. In terms of annual GDP for 2011, Finland ranked 12th right after Greece in 11th place, but its per capita GDP could give Big Brother Germany a run for its money!
Despite the ongoing debt crisis, Finland managed to maintain its pristine triple-A debt rating and I can imagine they’d like to hold on to it for much longer. Another reason why Finland isn’t too happy about staying in the euro zone is that it’s currently risking as much as 5% of its GDP on the region’s bailout fund.
It didn’t help that most of the EU leaders are considering the idea of further bailouts for countries such as Spain and Italy while Finland, along with the Netherlands, remain strongly opposed to this proposal as well as that of using the ESM to buy bonds from financially troubled nations. Analysts estimate that Finland would have to sacrifice a larger chunk of its GDP, anywhere from 10 to 15%, just to support the bailouts and to stay in the euro zone.
Some market gurus actually think that an exit from the euro zone would actually do Finland more good than staying in the bloc. Renowned economist Nouriel “Dr. Doom” Roubini, who predicted the 2008 credit crisis, cited a few reasons why.
Among them is the obvious exemption in contributing to the ESM and EFSF. As I said, the country has to set aside a portion of its savings for debt-ridden countries. However, should Finland retire its euro zone membership, it won’t have to give anything to the rescue programs.
Roubini also addressed problems that could arise when Finland reverts back to the markka and abandon the euro. You see, other analysts speculate that the country’s export industry could tank when it exits the bloc as its new currency would probably rapidly appreciate.
According to Dr. Doom, Finland could peg the markka to the euro similar to what Denmark has done with the Danish krone. That way, it would be able to manage volatility in the exchange rate.
Of course, this sounds all good in theory.
Finland’s economy is extremely export-driven. Some market junkies highly doubt if the Finns are willing to give up the advantage of having the same currency as its biggest trading partner, Germany. Estimates reveal that economic growth would take a hit at the wake of a Fixit, at least in the short-term. Overall though, the repercussions to Finland’s economy of a Fixit don’t seem apocalyptic.
But looking at the euro zone in general, a Fixit could turn out to be a disaster.
For one, there would be less money available to fire up the bailout funds as Finland is one of only four EZ countries with a triple-A rating. On top of that, a Fixit may just convince other prosperous economies, such as Germany, to leave the bloc as well. Yikes!
Talks of a euro zone break up often center around one of the debt-ridden economies, such as Greece, getting booted out. But what if it would be one of the richer ones that decide to abandon the euro first?