December 13, 2011

Finland Jeopardizes Bailout Process

Divided government could balk at changes to rescue mechanism

The Finnish government is at it again. Previously threatening the latest Greek rescue package by demanding collateral agreements for Finland when other eurozone countries had no such arrangements, now the government is split over a change in rules to approve a bailout. 

In the Dec. 9 agreement reached by eurozone countries is a provision to change a requirement for unanimous consent to an 85% consent instead. But opposition within the Finnish government to such a proposal could jeopardize the whole package.

Bloomberg reported that Finance Minister Jutta Urpilainen, head of the Social Democrat party, is opposed to Finland joining the European Stability Mechanism (ESM) if it switches to majority voting, a provision agreed to by the other 16 nations in the eurozone. However, Prime Minister Jyrki Katainen, who heads the National Coalition, says the country has to find a way to stay in the ESM.

The move to a majority vote would expedite matters in case of need for an emergency bailout. Finland, though, is constitutionally opposed to simple approval of such a change and requires a two-thirds vote of its parliament to OK the measure. The Social Democrats are balking.

Ville Pernaa, head of the Center for Parliamentary Studies at Turku University, west of Helsinki, was quoted in the report saying, “Since the spring, it has become apparent that Finland’s EU policy is changing. The bailouts are still causing the same tensions as they did during the spring election.”

In the wake of the April elections, Urpilainen spent two months pushing for the collateral arrangement, which, while designed to limit Finland’s liability, threatened the rescue of Greece. Now she is speaking out against the change in the ESM voting rules, and said on Dec. 9, “As we are strongly committed to unanimous decision- making, in practice that means we have two options. Either we keep to the original agreement that decisions are taken unanimously on the permanent mechanism, or Finland doesn’t participate in the permanent mechanism.”

Katainen pointed out that the change in the emergency procedure rules was to be used only in case of emergency–“if the financial and economic sustainability of the euro area is threatened,” he said, and added that that was a narrower interpretation of the change than in an earlier draft. He also stated that Finland would not be forced to increase its liabilities at the ESM through majority decisions, saying, “Finland’s stance is clear: We can’t accept it.”

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