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Finnish report
by Euro Reporter
2012-07-08 10:59:02
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Finland refuses to pay for other countries' debt

Finland has no intention of footing the bill to cover the debt of other countries in the eurozone, Finnish Finance Minister Jutta Urpilainen said in a newspaper interview Friday. "Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for," Urpilainen told financial daily Kauppalehti. The newspaper interpreted her comments as an indication that Finland would consider leaving the eurozone instead of agreeing to pay down the debt of other countries in the currency bloc.

"Finland will not hang itself to the euro at any cost and (is) prepared for all scenarios," Kauppalehti wrote. Urpilainen's spokesman Matti Hirvola rejected that interpretation, insisting to AFP that "all claims that Finland would leave the euro are simply false." Urpilainen herself stressed in Friday's interview that "Finland is committed to being a member of the eurozone, and we think that the euro is useful for Finland." However, amid the deepening debt crisis in the bloc, she told Kauppalehti that Finland, one of only a few EU countries to still enjoy a triple-A credit rating, would not agree to an integration model in which countries are collectively responsible for member states' debts and risks.

She also insisted that a proposed banking union would not work if it was based on joint liability. Urpilainen acknowledged in an interview with the Helsingin Sanomat daily Thursday that Finland "represents a tough line" when it comes to the eurozone bailouts. "We are constructive and want to solve the crisis, but not on any terms," she said. As part of its tough stance, Finland has said it will begin negotiations with Spain next week in order to obtain collateral in exchange for taking part in a bailout for ailing Spanish banks. And last year, Finland created a significant stumbling block for the eurozone's second rescue package for Greece, only agreeing to take part after striking a collateral deal with Athens in October 2011.


Bank of Finland chief cautions against excessive borrowing

Just when borrowers thought rates couldn’t go any lower, the European Central Bank (ECB) announced Thursday that it was slashing its key lending rate from one percent to an all-time low of 0.75 percent. The move has forced down the cost of borrowing for home owners, especially for fixed rate home loans. Recent low rates have seen a boom in borrowing for home ownership in Finland – one in three Finns has a mortgage. The average home loan is about 100,000 Euros.
Just under 10 percent of loans are tied to the short term euribor rate, which is directly affected by yesterday’s ECB decision. Longer term fixed-rate loans will also be cheaper.

However, central bank governor Liikanen said while the ECB rate cut was intended to boost household spending, borrowers should consider that interest rates will not remain low indefinitely. Liikanen, who is also an ECB governor, said that households should carefully review interest rate history and avoid taking on excessive debt that could become a burden if interest rates rise.

Commenting on last week’s EU summit, the central banker said that one of the most important outcomes was agreement on creating a banking or finance market union. He said that the central idea of common banking supervision is the concept of shared power and responsibility. “Each (country) is responsible for its own mistakes and not another’s, but if the power and the responsibility are at the European euro area level, then together we can make decisions and assume responsibility,” Liikanen explained.


Finland to block ESM secondary market bond buying

Finland will block the euro zone's permanent bailout fund from buying government bonds in the open market, the Finnish government said on Monday, while The Netherlands also indicated opposition to the bond-buying idea. Comments suggesting a rough time ahead for the idea followed euro zone leaders' agreement at a summit last week to take steps to shore up their monetary union and bring down Spanish and Italian borrowing costs. They gave few details on how they might use the temporary EFSF and permanent ESM rescue funds to buy bonds. A Dutch finance ministry spokesman said on Monday his government did not like the bond-buying idea but did not explicitly say the Netherlands would block the plan, saying only that it would evaluate purchases on a case-by-case basis. "The prime minister said on Friday he is not in favour of buying up bonds," said Niels Redeker, spokesman for the Dutch finance ministry. "Using the existing instruments to buy up bonds will be expensive and can only be done if there is unanimity (between member states). That means the Netherlands would need to vote in favour."

On the insistence of Spain and Italy, now in the eye of the euro debt storm, euro zone leaders decided last week to soften slightly the terms on which countries that observe EU rules and recommendations can get euro zone help to lower market premiums. The agreement after last week's summit said interventions on bonds markets by the ESM and EFSF rescue funds would be carried out by the European Central Bank, acting as an agent for t he funds. But ESM bond buying on the open market would require unanimous approval from the 17 euro countries and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said a report to a parliamentary committee.

"Finland finds it an inefficient way to stabilise markets," said a senior Finnish government official. "Due to intervention of Finland and, among others, the Netherlands, the possibility of ESM operations in the secondary markets was blocked," the government said in the report, to parliament's influential Grand Committee. It was not immediately clear which other governments were opposed to the move.

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