Why did Finland decide to join the euro?
By Unto Hämäläinen
What should the name of the new common currency be? This was a question on the minds of leaders of the European Union in 1995. At first the name was the ecu, but this sounded too French to German ears.
There were quite a few alternatives, all the way from the sestertius of ancient Rome.
Finnish Prime Minister Paavo Lipponen took the floor and put forward the Finnish view on the matter: “Anything, as long as it isn’t the rouble.”
Lipponen’s comment was a harmless quip, but it also more than just a joke.
Finland was the only country seeking to join the EU’s Economic and Monetary Union whose decision was affected by the Situation in Russia. At the time, Russia, which was Run by Boris Yeltsin, was teetering on the verge of a civil war, and the economy was in a shambles.
There was fear in Russia’s neighbours. Former communist countries applied to join NATO, but Finland did not want to be part of a military alliance. For Finland the euro was something of a substitute for NATO, even though this was not said officially.
Finland had sought to be involved in European integration throughout the post-war period, but the Soviet Union had kept a jealous eye on Finland’s relations with the West.
For that reason, Finland joined the Council of Europe and the European Free Trade Association after other neutral countries, such as Sweden had done so first. Finland did not apply for EU membership until the Soviet Union had broken up.
The euro was the first West European project that Finland could be involved with from the very beginning. When Lipponen proposed joining the euro to the Social Democratic Party’s delegate council in 1997, he said: “Since an anchorage is in sight, it is safest to go straight there.”
The impact of the situation in Russia on Finland’s decision to join the euro has been forgotten in the debate this autumn over why Finland was the only Nordic country to seek to join the common currency. Denmark and Sweden, which stayed outside the euro, could make their decisions on purely economic grounds.
Economics certainly had something to do with Finland’s decision as well. At the end of the recession, Finland was in a bad debt spiral, and state finances were in such poor shape that budget cuts would have been necessary even if Finland had not sought to join the euro.
There were no disagreements on the need to cut the budget between Lipponen’s red-blue government and the centrist opposition, but the Centre Party felt that the government was cutting spending in the wrong places.
The Centre Party also opposed joining the euro, saying that Finland should have followed the example of Sweden’s Social Democratic government. The government of Göran Persson said in the summer of 1997 that it will not seek to join the euro.
This was historic, as before Finland joined the euro, Sweden had always been ahead of Finland in relations with the West.
Also historic was that the Social Democrats, the Centre Party, and the National Coalition Party had not been able to agree on the euro. A common point of view had been found among the three large parties over all of the previous integration decisions.
It is exciting to read the arguments that were made then and now, for and against joining the euro. Assessments by Prime Minister Lipponen, Minister of Finance Sauli Niinistö (Nat. Coalition Party) and opposition Centre Party leader Esko Aho on the Finnish economic situation differed very little, but there were considerable differences in the conclusions that they drew.
Lipponen and Niinistö felt that Finland should join the euro immediately. Aho would have wanted to wait.
So who was right?
Aho was right in that Sweden has done quite well outside the euro. However, it is good to keep in mind that Göran Persson tried to get his country into the euro in 2003, but the proposal was rejected in a referendum.
Lipponen and Niinistö were right in that the Finnish economy has benefitted from the euro so far. The export industry, especially Nokia, led by Jorma Ollila, promoted the euro and its wish was fulfilled. Nokia and the data technology cluster built around it could not be ignored. In the best of years, Nokia alone accounted for a quarter of Finnish exports.
A good question might be if Aho would have gone against Ollila if he had been in the government instead of either Lipponen or Niinistö.
The Lipponen government and the Aho opposition also made some erroneous assessments. Nobody could have predicted that the Finnish economy might be in such good shape that it would be able to help the poorest euro countries. In 1998 anyone who would have made such a brash assessment would have been considered an extraordinary humorist.
On the contrary: at the time it was assumed that Finland would be among those weak member countries that would suffer first if the euro ever were to get into trouble.
Both government and opposition claimed to represent public opinion. Nobody knew exactly what the people felt, as the government did not organise the referendum that the opposition had called for. Opinion polls gave neither side the support of a majority, as a large portion of the population did not know what they should think.
The decision to join the euro is currently being discussed in presidential election debates. Candidates include the architects of the euro decision, Lipponen and Niinistö, as well as the main opponent of joining, Paavo Väyrynen. The setup is delicious, considering that the euro in the worst crisis in its history, with the eurozone liable to split up before the elections.
Väyrynen manages to bring a degree of stature into his speech by quoting himself from the late 1990s. At that time he was much more staunchly against joining the euro than Aho and the other Centre Party leaders at the time.
Väyrynen can uninhibitedly claim to have been a consistent opponent of the EU and the euro, but it is worth keeping in mind something that happened back in 1992.
At that time Väyrynen was the foreign minister in Aho’s government, and was put in a position in which he had to tip the balance. It was up to the Centre Party to decide if Finland should submit an application for membership in the European Union.
The Centre Party was split on the issue, and Aho would not have been able to win approval of submitting a membership application, but Väyrynen came to the rescue and said that he would support Aho. Nothing more was needed. Applying for membership was approved win the Centre Party, the government, and Parliament. If Finland had not applied for EU membership at that time, it is unlikely that we would be in the euro now.
Helsingin Sanomat / First published in print 4.12.2011
Previously in HS International Edition:
What will happen to the euro? (2.12.2011)
Rehn: Financial crisis contaminates core of eurozone (25.11.2011)
UNTO HÄMÄLÄINEN / Helsingin Sanomat