Finland pays lowest interest rates in Europe - public finances in good shape

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The interest that Finland is to pay on a reference loan of EUR 5 billion that it launched last week has an interest rate that is below that of Germany. The event is historic in that Finland is the first European country to issue a bond with an interest rate below the German level.
      The difference between Finnish and German interest rates for five-year loans is razor-thin, but in practice it means that Finland pays less interest than Europe’s traditional economic powerhouse.
      For decades German loans have had the rock-bottom interest rates in Europe.
      The change has been significant. Still in 2001 Finland paid 0.3 percentage points more interest for its loans than Germany did. During the recession years of the yearly 1990s Finland had to pay up to 3-4 percentage points more interest than Germany.
     
The main reason for the low interest rates is the good condition of Finnish state finances. Finland’s state debt is among the lowest in Europe - only 45% of GDP. The relative surplus of state finances is 2.3% of GDP - the highest in the euro zone. The common currency, the euro, has also expanded the investment base of Finnish bonds, by eliminating the risk of fluctuating exchange rates.
      More than 80% of the state’s EUR 60 million in debt is now in the hands of foreign investors. In spite of the good liquidity of Finnish bonds, investors from outside Europe wanting to invest in the euro zone still find it easier to invest in the bonds of a large country like Germany, France, or Italy, which account for 70% of the total.
      "We are hoping to build a brand for Finnish loans", says Satu Huber, head of finance at the Finnish State Treasury. "Germany is like Coca-Cola, France is Pepsi, and we are trying to make Finland Cola attractive."
      Huber and other officials at the State Treasury had not noticed that Finnish interest rates had dipped below those of Germany until the Financial Times wrote a story about it last week.


Links:
  Finnish State Treasury website

Helsingin Sanomat