Finland is the only Nordic eurozone member and is one of four remaining AAA-rated eurozone countries. The country of 5 million stands out as one of the most vocal opponents of extending financial aid to struggling eurozone countries and as one of the strongest supporters of fiscal austerity. Finnish government officials have said the country could block the European Stability Mechanism from directly purchasing government bonds once the permanent eurozone rescue fund becomes operational. Finnish Finance Minister Jutta Urpilainen has said Finland is not unconditionally committed to the euro and has expressed opposition to the idea of a European banking union and debt mutualization.
Reasons for Joining the Eurozone
Finland suffered a deep economic crisis between 1990 and 1993. Gross domestic product contracted by more than 10 percent while unemployment increased from about 3 percent to nearly 18 percent and government debt soared from 14 percent of GDP to 58 percent. Finland's neighbors were also in disarray at the time — to Finland's west Sweden was experiencing a similar economic crisis and to its east the Soviet Union had just collapsed.
Coming out of the crisis and considering the instability in Russia, Helsinki saw deepening its collaboration with Europe as a way to improve Finland's own security and stability. NATO was not an option because Finland's accession to the organization would have drawn stern opposition from Russia, with whom Finland needed to maintain a stable relationship. Joining the eurozone was seen as an alternative way to enhance collaboration with the European core while also bolstering Finland's economic security. Eurozone membership was seen as a tool for creating some distance from Moscow without upsetting it too much.
After the recession of the early 1990s, Finland experienced strong growth — due in large part to its technology sector — and was able to reduce its government debt. Today, with a deficit below 3 percent of GDP and debt below 60 percent of GDP, Finland has healthier government finances than most eurozone countries.
Apart from the rise of the EU-skeptic True Finns party in the 2011 elections, Finland's political situation is similar to what it was in the late 1990s — the same parties that led it into the euro are in power — but the outlook of the eurozone for Finland is less promising and requires re-evaluation.
Reconsidering Eurozone Membership
With only about 30 percent of Finnish exports going to eurozone countries, Finnish voters are more inclined to believe that economic stability in those countries has little direct effect on the Finnish economy. Rather than receive bailouts, the Finnish population believes that troubled eurozone states should undergo painful reforms just like their country did in the early 1990s to become more competitive.
The Finnish government's main concern is that Finland does not get enough guarantees and control in return for its contributions to bailouts; it fears that it will lose influence and sovereignty, especially as the larger eurozone countries push for further integration and faster decision-making processes. Finns look at the European Union and the eurozone and no longer see a means of making their needs heard in Europe's core. Instead, Finns see that solutions to the eurozone crisis are being decided by Germany and France — and sometimes Spain and Italy — while Finland and others are brushed aside. In today's eurozone, the view goes, the troubled countries are the ones that get recognized because their collapse would lead to the collapse of the eurozone.
Despite Finland's fiscal health, the country has little leverage and its economy is dwarfed by the troubled economies of Spain and Italy. These countries, by virtue of their size, hold more leverage in the eurozone than does Finland. They would likely find ways to circumvent Finland's resistance to further bailouts. During negotiations over the European Stability Mechanism, Finland firmly maintained its stance that future bailouts should require unanimous approval, not simply the approval of members representing 85 percent of contributed capital, as was initially the case. Finland only partially achieved this goal. In cases in which withholding a bailout would threaten the sustainability of the eurozone, a qualified majority can still approve the bailout against the will of the other 15 percent.
Taking all these points into consideration, Helsinki will be reconsidering its eurozone membership and its position within Europe. However, there remain serious obstacles to Finland's leaving the eurozone.
Technically, a country can leave the eurozone only if it also leaves the European Union. This is not a strategy Finland would want to pursue since the Finnish economy still profits greatly from the common market. Should Finland attempt to leave the eurozone, Germany would likely make it as costly as possible — for example, by threatening Finland's access to the European market — to ensure that other small countries such as Austria and the Netherlands do not follow the same course of action.
In addition, although Finnish voters oppose bailouts to peripheral eurozone countries, the Finnish government knows that a wider European crisis triggered by the breakup of the eurozone would also have severe effects on the Finnish economy. Therefore, Finland's participation in bailout measures is important to ensure domestic economic stability. This helps explain why Finland, even as it reconsiders its place in the eurozone, has so far participated in all of the bailouts, and why it ultimately approved the European Stability Mechanism.
Looking Ahead
Finland will likely continue to issue threatening statements regarding eurozone bailouts and deeper integration in order to ensure that Helsinki is heard in Berlin, Paris and Brussels. But Helsinki knows that, whatever it does, it cannot afford to threaten the survival of the eurozone, because the collapse of the currency union would also greatly affect the Finnish economy.
Finland will seek closer collaborations in its own region to replace its lost influence in the European core and to forge alternatives for a possible post-eurozone era. Only when regional plans and the support of Sweden and Denmark are ensured will Finland feel more comfortable in seriously questioning its eurozone membership.
As the core eurozone powers present more plans for integration, the discussion in Finland about the country's place in the eurozone and its transfers of sovereignty to Brussels will lead to greater political debate and instability within the government coalition. Similar debates can be expected in other Northern European countries suffering from the same problems, such as the Netherlands and Austria.
