Will Finland leave the euro-zone?

One of the leading economist of Finland thinks that the recent seemingly serious advices are absurdity – to reintroduce Finnish markka so it could be depreciated right away, putting an end to the country’s economic problems.
Even though Finland is one of the few countries that still suffer from recession, our interviewee, Pasi Kuopamäki, economist of Danske Bank in Helsinki, thoroughly explains that Finnish banks have reasons absolutely different from having the euro as the official currency. Further innovations and adaptation – based on well-funded research and development – to global challenges will help Finland; and, furthermore, that the Finnish people will have to work more for the same money.

Péter Zentai: Everything you do is the absolute opposite of what Greece does, yet Finland has issues – allegedly – just like Greece…
Pasi Kuopamäki
: This is quite exaggerating. Finland has no unpayable debts, and our savings rate is one of the highest in the world. Shall I keep listing the gigantic differences between us and Greece any further?

I only wanted to provoke you because more and more comments have been published from recognized economists who believe Finland is unable to recover from recession, and blame it on the euro. In other words, your country suffers because the euro is an overpriced ‘bad product’.
Compared to other northern, usually richer European countries, there is no doubt we perform more poorly – especially compared to how we did in between the mid-1990s and 2008. For 15 years we were one of the countries of success, and being in the euro-zone greatly contributed to this. However, no – since to outbreak of the crisis – the lack of growth burdens the Finnish economy. In Western Europe, Finland has the highest unemployment rate: it has been stagnating around 11 percent for a long time…

Paul Krugman, a Nobel Prize-winning economist says Finland is a victim of austerity?
With all due respect to the American economists, but in this case I am afraid they are wrong; they do not see the European situation clearly.
We profit from timber processing, and paper industry boom, furthermore, the success of Nokia – for about 20 years.
In the meantime, advances in information technology, for example the appearance of tablets, and the internet with all its advantages coming forward substantially set back the demand on paper; people rarely read newspapers anymore. In interior-design and construction, new materials have taken the place of timber, and fashion has also changed a lot.
Is this the euro’s fault? Or should we blame the alleged overvaluation of euro and its inflexibility because Nokia not a shining star anymore? No; the reason is that something was done wrong at Nokia, they did not adapt to the extreme competition well enough…
Meanwhile, we lost the majority of our Russian export market, though the Finnish industry had been satisfying the needs of Russia. But the crisis has reached Russia too. There is no connection between the Russian problem and whether Finland belongs to the euro-zone.

What you say is convincing and also quite surprising too. We have always thought that Finland is one of the world’s most flexible economies, where researches and developments are well-funded. What you just said means Finland struggles keeping up with the competition… This is the same problem that Greece has.
Greece – in contrast to Finland – has no relevant industry; hence it had and still has no export. The two countries cannot be compared; the only common thing is that both are in trouble. However, the fact is, Finland’s financial problems are potentially slighter than Greece’s.  Its reason is – among other things – what you said; we spend a lot on innovation, research, and development. Besides Sweden, Israel, and the United States, Finland spends the most of its GDP on such purposes.

Despite all that, you did not only suffer from a crisis, but you cannot recover from it…
Finnish experts, scientists, engineers, and developers have achieved results in fields that are linked to economic cycles, and the growth of world economy. Contrary to Sweden, our economic structure is not connected to retail, like clothing, furniture, and interior design, but to large industries. I mean, the current researches and developments will show their effects in our everyday life, when the growth of the world economic conjuncture is stable and sustainable.

The Russian market will not start to grow for a while…
Nobody can tell exactly which fields will be leading the economy in the next five to ten years. We must look for new markets for research results which – hopefully – will soon take effect.

More precisely?
Timber processing and paper industry has stepped forward again – but in a different way. Parallel with the expansion of online trading, demand on new types of packaging materials and technological innovations has skyrocketed. Hopefully, we will succeed in this field, just like in the postal, transport, and logistics ones too. Nokia will return and stand its ground in yet unexplored areas of information technology. KONE, the world-class Finnish elevator manufacturer will make significant use of the construction industry boom, and grow into a conglomerate.

Numerous euro-sceptic economists, including Finnish politicians say Finland would perform much better if it devalued its currency.
Since we cannot devalue the euro, the advice you mentioned would mean we should leave the euro-zone…

Will you leave? Let’s presume that Greece actually leaves – is it possible that as an indirect effect, Finland – for different reasons – leaves too?
There are some quite influential Finnish politicians and economist who do want that; moreover, soon a proposal to reinstitute the Finnish markka too within a defined deadline will be forwarded to the parliament. Both currencies would be used in the country…
As for me, I think this is utter nonsense, and the parliament will certainly refuse the motion. Unrelated to this, nobody can tell what consequences Greece’s exit would have. Unfortunately, we cannot surely exclude Finland’s exit either, however, I think, this scenario has fairly lower possibility, and I also see it as a terrible idea.

Why?
The problem is not with Finland’s currency, but with its competitiveness; more precisely, with the decreased demand for its traditional export markets and goods. There are issues with Finland’s productivity as well. We could not solve these problems – only for a short time – if we could devalue our currency.

What do you think of proposal to decrease Finnish wages because they are too high?
Before 2008 – at the time of the great boom – Finnish wages indeed started to stand out from the western European average. They have not changed ever since; today a Finnish employee earns less than a Swedish or a German. Wages should be left alone, but we should work more for the same money. Annual leaves are still too long, and we have to cut them back. Reducing wages is not an option, because it would only lead to decreased domestic demand. Especially, since banks could not give loans to people with less income without serious restrictions.
There is no other way for Finland’s renewal. Withdrawing the euro from the scene would only increase the risk rather than ease it.

Original date of Hungarian publication: August 3, 2015