Looks like Finland is softening its stance on exiting the euro zone!
Last week, Finnish Finance Minister Jutta Urpilainen gave the euro bulls mini heart attacks when she hinted that Finland would rather exit the European Monetary Union (EMU) than continue to shell out money to bail out the region’s peripheral economies.
The threat wasn’t an empty one either. In fact, exiting the union would save Finland, one of the last AAA-rated economies in the region, a lot of money as it would no longer need to contribute to both the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). Not only that, but Finland would also be able to cut its costs in case one of the troubled economies default on its debts.
There are also drawbacks though. One downside is that Finland would also lose the advantage of having the same currency as Germany, its largest trading partner, in case it exits the bloc. And for an export-driven economy, that’s one heck of a challenge! Still, whether or not a “Fixit” is beneficial for Finland, we can’t deny that such an event would take its toll on the euro.
Good thing that a couple of hours ago, Finland’s Prime Minister Jyrki Katainen loosened his purse strings and agreed to contribute to Spain’s bank bailout fund in exchange for cash collateral.
Apparently, the Spanish Deposit Guarantee Fund will give Helsinki around 760 million EUR worth of cash collateral in exchange for 1.9 billion EUR worth of contribution to Spain’s bank bailout fund. The loan period is set for twelve and a half years.
The government is scheduled to present the deal to the Parliament today, which will be followed by a debate tomorrow and a decision on Friday, the same day the euro zone finance ministers are scheduled to formally approve Spain’s bank bailout.
Katainen said that the collateral is vital for the Finnish government to support the Spanish bank bailout. He emphasized the need to avoid a situation where Finland would lose the people’s support over further assimilation.
Finland’s actions basically suggest that nobody, not even those countries that could possibly stand to benefit, want the euro zone to break apart. Finland’s agreement to the collateral deal sends a clear message to the market: euro zone members are prepared to do anything and everything to make sure that the euro zone stays intact.
This, of course, is a good thing for the euro. If the talks go well, market sentiment could get even better and push the euro back up to pre-“Fixit” scare levels.