Urpilainen: ”This week is crucial for the euro”
Minister of Finance Jutta Urpilainen is expecting the eurozone countries finally to reach some resolutions
Greece, the bank crisis, the risk of contagion, financial management in the euro area.
These are the big issues that will be discussed at a summit of European Union leaders at the end of this week.
”When it comes to the future of the euro, this week is crucial”, says Minister of Finance Jutta Urpilainen (SDP).
Sticky decision-making already begins to be a crisis of its own amidst the crises.
That is why even Commission President José Manuel Barroso has called for urgent decisions to rescue Europe from the economic and debt mire.
”First, we will have to find a sustainable solution to Greece”, Urpilainen notes.
The heads of state and government in the euro area and the EU institutions have already decided to cut Greece’s loans by 21 per cent, but it is not adequate. ”We are speaking of a larger reduction”, Urpilainen adds.
The debt arrangement will be expanded. In other words, investors will be increasingly responsible for the remission of Greece’s debts.
The EUR 8 billion tranche of bailout money is to be paid to Greece in November, provided that the loan terms will be met.
The EU summit will try to prevent the possible contagion of the crisis from Greece to other countries, particularly to Italy and Spain.
The Minister of Finance is speaking of a firewall.
In practice, the question is about increasing the flexibility of the European Financial Stability Facility (EFSF).
”It is the only tool that can be used to build a firewall by the eurozone’s own efforts”, Urpilainen continues.
The Finnish Parliament recently gave its approval to changes in the EFSF, which will increase the country’s liability for loan guarantees to EUR 14 billion.
Urpilainen said that she does not approve of any further expansion of loan guarantees through the EFSF, while increasing the capacity through the International Monetary Fund (IMF) could be possible.
”We have proposed that large non-European surplus countries could grant loans through the IMF in order to help the eurozone to recover from its debt crisis. This would not require increasing IMF resources, for which there is no readiness. But it would give the firewall more credibility”, Urpilainen believes.
Finland supports Barroso’s proposal that the European Stability Mechanism (ESM) should be launched already in 2012. The ESM is a permanent rescue funding programme to replace the temporary Euroopean Financial Stability Facility and European Financial Stabilisation Mechanism in 2013.
”The ESM includes two positive factors. Firstly, it will maintain the possibility of debt arrangement or the investor’s responsibility, and secondly, the loans granted through the IMF will have the right of priority”, Urpilainen points out.
It means that the IMF and the taxpayers in the eurozone countries will be first to get their money back in a debt crisis.
The summit is also expected to find a common view on a support programme for banks in order to prevent the debt crisis from spreading to financial institutions.
The leaders have just agreed to increase the flexibility of the EFSF in order that the facility will be able to recapitalise financial institutions through loans to governments.
However, there is no general willingness to take this measure.
”Finland’s starting point is that the recapitalisation of banks will have to be done by the owners and national governments. The EFSF would be the last resort”, Urpilainen continues.
The various EU countries have differing opinions about this issue.
At EU meetings, there are two ways of thinking. Some countries are calling for joint and several obligations or Eurobonds.
Finland is not one of those countries.
”On no account will we approve of Eurobonds. They would lead to a loss of morals. Those countries that have taken good care of their economy would be held accountable for the economic neglect of the others”, Urpilainen charges.
There is also a debate on reform of the common economic management in the European Union. Some members are calling for the establishment of a new EU budgetary bureau.
”No new organs will help to solve the current financial crisis. Fewer directors and fewer organs, but better leadership and better preparation”, Urpilainen demands.
FACTFILE: Super week for euro economy
The Euro Group will convene next Friday.
The group involves those member states of the European Union that have adopted the euro as their official currency. As a rule, the ministers meet a day before a meeting of the Economic and Financial Affairs Council (ECOFIN) to handle affairs relating to the Economic and Monetary Union (EMU).
The ECOFIN will meet on Saturday.
The meeting of the finance ministers of the eurozone convenes once a month.
On Sunday, the European Council or the EU summit will make decisions on the matters prepared by the ECOFIN.
The meetings of the European Council are chaired by its President Herman Van Rompuy.
In addition, the European Council includes the EU heads of state or government, Commission President Jose Manuel Barroso and Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy.
Previously in HS International Edition:
Parliament passed nearly EUR 14 billion in loan guarantees (29.9.2011)
NEWS ANALYSIS: Collateral issue and Finland´s standing in the EU (11.10.2011)
High price to be paid by Finland for collateral for Greek loan guarantees (5.10.2011)
Lipponen defends Finnish demands for collateral for Greek loan guarantees (21.9.2011)
European Stability Mechanism (Wikipedia)
European sovereign debt crisis (Wikipedia)