Guest Commentary: ESM Seniority could be the Breaking Point for Finland
The Finnish flirt with a euro exit continues. Another anti-euro statement came from a senior Finnish minister: Foreign minister Erkki Tuomioja said that”We have to face openly the possibility of a euro-break up”.
Finland’s Europe minister later distanced the country from that statement, saying that this speculation on the euro breakup doesn’t reflect the government’s position and that Finland is 100% committed to the euro. While this strong comment was later renounced by another minister, Tuomioja did show where the friction would come from.
Tuomioja joins Finland’s finance ministerJutta Urpilainen, that recently threatened to leave the euro-zone “before paying others’ debt”.
In the interview that Tuomioja gave, he further added:
“The ESM loans have priority. That is a red line for us. We are very concerned that the rules of the ESM seem to be changing.”
Another Finnish politician, Miapetra Kumpula-Natri, explained that Finland passed a law this summer that states that the ESM has the same level of priority as the International Monetary Fund (IMF). The Finnish parliament, but this would be very difficult in an environment where the euroskeptic parties are gaining traction.
In Greece’s case, the ECB got seniority and was exempt from the severe haircut that private bondholders suffered. The backlash was that private investors now fear investing in bonds of peripheral countries.
Having learned the lesson, the ECB recently stated that a fresh wave of bond buys will “address the issue of seniority“. There are still no details about how Mario Draghi and his colleagues will address seniority.
Yet it is becoming clear that any less-than-senior status for the ESM bailout fund will put Finland on a collision course with its European peers. Finland, that got collateral deals with Greece and Spain, doesn’t want to risk any of its money via the ESM bailout fund.
Further reading: Inflating Away Debt – Future of Monetary Policy?
By Yohay Elam, Forex Crunch
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