April 20, 2011

New Finland Government Threatens Portugal Bailout

Parliamentary vote on package must wait for a skeptical new government, says PM

The surprisingly large gain of seats in the Finnish parliament by an anti-euro party during the Sunday election was previously reported by AdvisorOne as having serious consequences for the bailout sought by Portugal. Now it appears that that is indeed the case, as outgoing Prime Minister Mari Kiviniemi has told the newspaper Helsingin Sanomat that a parliamentary vote on approval of Portugal's bailout package will have to wait till the new government is seated.

Reuters reported that Kiviniemi characterized the vote thus: "It is such a big issue that a caretaker government cannot handle it." That could put Portugal's bailout in real jeopardy, since euro zone finance ministers are expected to discuss the proposed bailout on May 16, and Helsinki most likely must wait till May 20 at the earliest for its new government to take office—with many incoming officials opposed to the terms of the bailout.

Although Jyrki Katainen, leader of the Conservative National Coalition and set to become the next prime minister, has said that the incoming government's position should be clear by the date of the ministers' meeting, the True Finns Party is opposed to approving any bailout on existing terms. Instead, leader of the True Finns Timo Suini has said that he will not accept Finnish participation in the bailout through the European Financial Stability Facility (EFSF) without more liability from private investors.

The True Finns and the Social Democratic Party, both of which will be involved in coalition talks with the National Coalition, want European Union (EU) bailout financing changed. Jutta Urpilainen, leader of the Social Democratic Party, said that her party could accept the EU bailout plan with conditions: "Our condition for aid to Portugal is that it should include liability for investors and banks." She added, "The negotiations are still under way. The EU and Portugal are only now negotiating the terms of support, the final result is not known."

Finland, as one of only six AAA-rated countries in the euro zone, is considered vital to the EFSF both politically and financially; it would be awkward to replace its financial participation. Under the current structure of the package, a third of the funding for Portugal's bailout would come from the International Monetary Fund (IMF) and two thirds would come from the EFSF and another, smaller, fund that is run by the European Commission (EC).

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