Monday, April 18, 2011

Finland's Election May Put Future EU Bailouts in Question

WSJ: Finnish Voters Cast Shadow on EU Rescue Plans

Finland held a national election on Sunday, and a close, four-way race has emerged. One party in the running is the True Finns Party, led by Timo Soini. The True Finns are in third place with 18.7% of the vote. In the last elections, this party received only a small fraction of the vote. However, they have quadrupled their previous vote totals in this election, which many have suggested represents growing frustrations among many Finns about having to financially support the weaker EU economies such as Greece, Ireland, and Portugal. This is because the True Finns strongly oppose the EU Bailouts. The conservative party (National Coalition Party) is currently in power and is led by current Finance Minister Jyrki Katainen. This party is in the lead with 20.2% of the vote and is expected to remain the largest party in Finland. The Social Democrats are in second place with 19.4% of the vote. This party also opposes further bailouts, but is not as hard-lined as the True Finns. The Social Democrats oppose additional bailouts unless private investors are responsible for financial losses.

The outcome of this election could be important for the Eurozone as it continues to grapple with further bailouts of struggling Europoean nations. Under the current government, Finland has provided aid to Greece and has guaranteed borrowing by the EU's rescue fund that aided Ireland is likely to provide aid to Portugal in the near future. It is not yet clear how much power the True Finns will have. However, it is likely that they will be a part of a coalition government, given the strong showing they have already garnered. This could turn Finland's traditionally pro-EU stance "on its head." Unlike other nations in the Eurozone, Finland's parliament is able to vote on EU requests for bailout funds. This makes it entirely possible that the True Finns will hold up EU plans for future bailouts.

In order for the EU bailout fund to grant new rescue loans, all member nations of the common currency have to agree to the grant unanimously. Therefore, if Finland's government opposes future bailouts, it could have a big impact on the EU. These election results have already had an impact on European markets. In response to the results, the cost of Portuguese debt rose, as did the price of Greek, Irish, and Spanish default swaps.

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