Finland Likely to Accept Higher EFSF Guarantees After Elections

There have been concerns over whether Finland will accept the increase in European Financial Stability Facility (EFSF) guarantees. We consider acceptance very likely, but it seems clear there will be no approval until the new government is formed after the Finnish elections on April 17.

Nevertheless, the expected acceptance is not without risks. One is that the anti-EU True Finns party (PS) will make it into government. However, this seems unlikely, as for PS to secure a place in government it would most likely have to win the greatest number of parliamentary seats (which still would not guarantee it a place), if it maintains its position that it will not accept more guarantees or capital injections for the EFSF (or the European Stability Mechanism—ESM). National Coalition (KOK), currently in the government, is leading the opinion polls and only in one much cited poll has the PS even managed to come second. There are also arguments to suggest the currently high opinion poll support PS is enjoying will not be fully realized in the actual elections, such as a lack of credible candidates in some constituencies and that PS supporters are more likely to stay at home on polling day.

Finnish Opinion Polls and Support in 2007 Parliamentary Elections (%)


Source: Taloustutkimus

It seems most likely that the current Centre Party (KESK) and KOK-led center-right government will continue—supported by smaller parties—while KOK, KESK, and the Social Democrats (SDP) in the same government cannot be excluded. We expect that such governments would accept higher EFSF guarantees. SDP is currently saying it is not willing to accept higher EFSF guarantees, but this is likely to just be election rhetoric: SDP, also in the opposition, is competing with PS for the votes of many of the same unhappy voters and benefiting from the public anger the guarantees are generating. Traditionally, SDP has been very pro-Europe, actually taking Finland into EMU in the 1990s.

We expect Finland eventually to accept higher EFSF guarantees. As for ESM, the same analysis applies as for the EFSF, with the exception that SDP’s support (whether in the government or not) should not be a problem because the ESM includes provisions to bail-in private creditors, the need for which SDP has emphasized. PS has said they will oppose the ESM, but it is hard to see enough opposition from other parties for parliament to vote against it, even if a two-thirds majority is required (it is not yet clear whether a simple majority would suffice). (See related eurozone coverage.)

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients: Europe Focus: Portugal Rescue; Emerging Europe Nuclear Policy; Turkish Tightening