Katainen assesses implications of Greek crisis
An overall economic slowdown stemming from the financial crisis in Greece would likely be more serious from Finland’s point of view than if some of the money lent to Greece were never paid back, said Finnish Prime Minister Jyrki Katainen (Nat. Coalition Party) on Wednesday.
There are fears in Europe that Greece might reject the spending cuts that were set as a condition for emergency funding, and that in the worst possible case it might default on its loans.
If Greece stops paying back its loans, Finland would lose the billion euros that it lent Greece, and the Bank of Finland could lose EUR 2 billion if Greece becomes insolvent.
In Katainen’s view a much more serious problem would be the wave of uncertainty that would result from a possible default and refusal to cut spending. This would slow down investments entrepreneurship, and consumption.
“Of course, losing the money partially or completely would be serious, but it would be smaller in scale than the risk of overall economic decline”, he said.
Katainen compared the seriousness of the situation with the US banking crisis, which was sparked by the fall of the Lehman Brothers investment bank in 2008.
The Bank of Finland estimates that Finland lost EUR 40 billion in tax revenue as a result of the banking crisis and the recession that followed. The amount is approximately the same as what the state got in tax revenues all last year.
Katainen would not speculate if an equally serious crisis was looming. “It depends on how deep we go.”
“Then the bank crisis came as an ambush. On the other hand, this is a completely different kind of situation. When we are talking about a total catastrophe of a country in the eurozone, the results will be very difficult to anticipate and estimate.”
The Prime Minister’s advice to the Finns was to remain calm. In his view, housing loans can be taken without worry.
“When there is work and income, debts should be scaled accordingly. Interest on Finnish state debt is at an historic low. This will probably keep interest on household debt at a reasonable level at least for a while”, Katainen said.
Finland is set to get some momentary relief from the fact that the crisis in Southern Europe is making investors look for safer targets for their money. These include Finland, and, for instance, Germany.
However, Finland will also suffer in the long run if the crisis in Greece gets worse.
“Finland is prepared for instability through the most recent framework agreement, for instance. There is no panic, but we are not being spared the problems of the rest of the world”, Prime Minister Katainen said on Wednesday.
Previously in HS International Edition:
Finnish civil servants to help Greece get finances in order (20.3.2012)
Greek collateral agreement could be partly made public (25.4.2012)
NEWS ANALYSIS: The eurozone’s self-inflicted mess (24.4.2012)