“One against all”

The symptoms of Eurozone malaise are very visible, well summarized in this graphics from the Financial Times.

Less visible but fundamental to the euro survival are the political undercurrents that have begun to manifest themselves all over the “zone”. The most recent and potentially the most damaging is the April 17 election result in Finland, where the True Finns party that until then had only 4% of parliamentary seats jumped to 19.0%, coming in third, close on the heels of the Conservatives (20.4%) and the Social Democrats (19.1%).

With their strong election performance, the True Finns could disrupt ongoing efforts (read bailouts) to tackle the euro debt crisis because in Finland the parliament has to approve the country´s participation in the bailouts of member countries and EU rules require unanimous approval for each euro bailout fund.

Finland is special because of its recent history. In the early 1990´s Finland had went through a “Great Recession”. Between 1990 and 1993 real growth was significantly negative and unemployment reached almost 17% in 1994.

Since 1995, Finland stabilized its economy with nominal spending evolving close to a 5% stable trend level growth path until the crisis hit.

Among Eurozone countries Finland is also an exception in that it has remained within the Maastricht deficit and debt limits of 3% and 60% respectively.

Naturally, the Finns must be thinking: If we managed to do it on our own, why shouldn´t Portugal, Greece and others do it also?

It hasn´t helped at all that euro governments went all out to save their banks at the expense of taxpayers. Even “save” is the wrong word since according to Tyler Cowen, many of the Eurozone countries are moving “toward a land inhabited by zombie banks”. The result is that now the crisis is generating a political backlash – a revolt of the taxpayers – that extends from the “northern periphery” to both the large and small euro economies. Bets on the outcome are wide open. But it is almost certain the statu quo will not survive.

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