Bloomberg News

Finland to Actively Resolve ESM Impasse, Urpilainen Says

January 04, 2012

(Adds fiscal accord in 13th paragraph. For more on the European debt crisis, see {EXT4 <GO>}.)

Dec. 22 (Bloomberg) -- Finland will be “active” in overcoming its constitutional hurdle to give support to a European Union proposal that would make it easier bailing out indebted nations, Finance Minister Jutta Urpilainen said.

Finland balked at a call on Dec. 9 by the other 16 euro governments for an 85 percent supermajority vote in case an emergency bailout is needed by the European Stability Mechanism, the permanent fund slated to start next year. In Finland, a change from a unanimous vote must be approved by two thirds of its parliament since it conflicts with the constitution of the northernmost euro member. Failing to resolve the issue means Finland will remain outside the ESM, Urpilainen said.

“Finland needs to be active in this,” Urpilainen, 36, said yesterday in an interview in Helsinki. “We’re doing the work now in Finland and we’re negotiating with other countries.”

European leaders are struggling to contain a debt crisis that started two years ago in Greece and has also forced Ireland and Portugal to seek bailouts. Officials earlier this month proposed measures to speed up the rescue fund and to tighten fiscal rules for euro members and channel more money into the International Monetary Fund’s rescue toolkit.

Forgoing Collateral

Finland has been a sticking point already once this year, when its demands on collateral for bailouts threatened to delay a second rescue package for Greece. While the Nordic country requires collateral for all bailout loans paid from the European Financial Stability Facility, it will forgo that demand for any lending from the ESM, said Urpilainen, who’s also head of the Social Democratic Party.

As the debt crisis deepens, pushing up yields of indebted nations, Finland is grappling for a solution that simplifies decision-making in the 17-nation euro area while respecting its constitution.

The 500 billion-euro ($652 billion) permanent rescue fund will include collective action clauses stipulating how investors share the burden of potential losses. The fund is planned to be implemented in July, a year earlier than planned.

When European policy makers agreed to allow majority decision-making in the ESM, they added a footnote that said their ruling is subject to the approval of Finland’s parliament.

“My colleagues are aware of the constitutional issue Finland is facing,” Urpilainen said. The matter was also discussed during this week’s teleconference of EU finance ministers, she said.

‘Better Elements’

Finland, which is AAA rated, seeks to participate in the permanent rescue fund, which contains “better elements” than the temporary fund, the EFSF, including burden sharing and priority status for the loans together with funds lent by the IMF.

Prime Minister Jyrki Katainen’s cabinet has 124 members in the legislature, short of the 133 needed for the two-thirds majority to pass the unanimity measure. Katainen and Urpilainen rule in a six-party coalition that was formed in June, after two months of wrangling to limit influence of the anti-bailout “The Finns” party, which surged to 19 percent in April’s election.

A solution to Finland’s impasse must be found next month because policy makers aim to sign the ESM agreement in January, Urpilainen said. EU leaders will hold a summit on Jan. 30 to discuss jobs and economic growth, EU President Herman Van Rompuy said on Dec. 20 in a statement.

Self-Imposed Deadline

Another summit, slated for March, is the self-imposed deadline for a final agreement on a closer fiscal accord. Governments will vow to almost eliminate structural deficits and devise automatic mechanisms to ensure cuts are made.

“Unanimous decision-making matters from the point of view of national sovereignty and democracy,” Urpilainen said. Removing it would mean “Finland could incur large liabilities against its will.”

Using majority voting in the IMF doesn’t conflict with Finnish legislation, because more countries share the burden, reducing the liabilities incurred by a single country, she said.

“Some constitutional experts say the scope also matters,” Urpilainen said.

--With assistance by James Neuger in Brussels, Editors: Jonas Bergman, Christian Wienberg

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


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