Bloomberg News

Finland Wants Permanent Rescue Mechanism in Place Next Year

September 29, 2011

(Updates with German EFSF approval in third paragraph.)

Sept. 29 (Bloomberg) -- Finland wants Europe’s permanent crisis management facility to start a year earlier than first envisaged to send a “clear message” to private investors that they need to share losses, Prime Minister Jyrki Katainen said.

Implementing the European Stability Mechanism in 2012 is “suitable” for Finland, he said yesterday in a phone interview in Helsinki. “We’re ready to implement new legislation if that is the case. We have already accepted the principle of the ESM and we think that it’s only good if we get the new mechanism in place as soon as possible.”

Finland, one of six AAA rated nations in the 17-member euro area, yesterday approved the expanded scope of a temporary rescue fund, the European Financial Stability Facility, becoming the ninth country in the bloc to ratify the mechanism. Germany’s lower house backed the EFSF today.

Finland hasn’t stepped away from its demands for collateral in exchange for its commitment to new Greek loans and has pushed for burden sharing as a cornerstone of future bailouts. European Commission President Jose Barroso yesterday also called for faster implementation of the ESM.

Investors shouldn’t be allowed to delude themselves on the risks entailed in holding sovereign bonds, Katainen said.

“There is also an element which we find crucial in encouraging countries to keep their economic situation balanced,” he said. “That’s why private sector involvement is a crucial part of the ESM and everybody knows it’s part of the structures so it shouldn’t be news for anybody.”

Under Pressure

European officials are under pressure to do more to contain the region’s 18-month debt crisis as Greece teeters on the brink of default. Governments must implement austerity measures as soon as possible and not bow to pressure as markets test the resolve of politicians in tackling the crisis, Katainen said.

“I’m worried about the situation,” he said. “It’s very grave. No one can solve the problem if European governments can’t do it.”

Due to be set up in mid-2013, the permanent fund will wield a 500 billion-euro ($680 billion) war chest that could be used more flexibly than the current guarantee-based interim backstop and will include provisions for managing a sovereign default. As Europe waits for the ESM to become effective, the EFSF’s enhanced powers will allow it to recapitalize banks, buy bonds in the secondary market and offer precautionary credit lines.

ECB Bond Purchases

The European Central Bank has acted “productively” in seeking to quell the crisis as liquidity in the interbank market remains a risk, Katainen said. ECB purchases of bonds from the euro area’s most indebted nations doesn’t mean it’s “becoming a ‘bad bank,’” he said.

“Of course everyone is worried when public money is used,” he said. The ECB has acted “responsibly” and has “managed to stabilize the situation.”

The Frankfurt-based central bank yesterday said it will lend banks 140.6 billion euros for three months to ease tension in the money markets. Financial institutions are wary of lending to each other after the debt crisis fueled concern that some governments may struggle to refinance their debts, prompting investors to shun bonds from nations including Greece, Italy and Spain.

Transactions Tax

Finland is also ready to consider a Europe-wide financial transactions tax, Katainen said, adding he preferred a global model. The level of the tax must be kept “moderate” to avoid “negative side-effects,” he said.

The European Union yesterday proposed a financial transactions tax that would take effect in 2014 and raise about 57 billion euros a year, prompting calls from the U.K. to refrain from such measures unless they are global.

The plan would set minimum tax rates for financial transactions throughout the 27-nation EU, the bloc’s Brussels- based executive said. The proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts.

Katainen also called for a “strong” commission to monitor jointly agreed rules “more carefully.” One such measure would be increasing the powers of EU Economic and Monetary Affairs Commissioner Olli Rehn, and making him the chair of the group of euro-area finance ministers after Jean-Claude Juncker, he said.

--Editors: Tasneem Brogger, Jonas Bergman

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at

To contact the editor responsible for this story: Tasneem Brogger at

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