Market Overview

Why Finland Will Not Leave the Eurozone

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The euro/U.S. dollar spot rate hit its lowest level in about two years during Friday's session. The ever increasing concerns over the European debt crisis have caused the Euro to slide lower and also sparked speculations that the Economic and Monetary Union might be falling apart.

The rumors of a Grexit--Greece exiting the Eurozone--has been speculated on ever since the troubled country needed its first bailout in 2010. Frankly, many Eurozone citizens would welcome this news, as the current sentiment is that the taxpayers in the rich Eurozone countries (such as Germany and Finland) are funding the entitlements of people in the southern, indebted countries.

This negative sentiment has also initiated new worries that some of the rich, AAA-rated euro members might be looking to leave the mutual currency. Last week renowned economist Nouriel Roubini, warned that Finland exiting the Eurozone (“Fixit”) is likely to happen earlier than a Grexit.

The Finnish finance minister, Jutta Urpilainen, added fuel to the fire this morning by telling a Finnish financial newspaper, Kauppalehti, that "Finland will not hang itself to the euro at any cost and we are prepared for all scenarios. Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for."

Despite these warnings, it is very unlikely that Finland will be the first one to leave the Eurozone. The country's economy is extremely export-driven--in 2010 nearly 40% of its GDP came from exports. Therefore, having a mutual currency with Germany, which is Finland's biggest export partner, is an advantage that the Finns do not want to give up easily.

It is understandable, however, that Urpilainen wants to play hardball with other Eurozone countries. Finland is currently trying to negotiate a collateral agreement with Spain, and signaling that the Finns are prepared to leave euro might give them an upperhand in the negotiations. After all, Finland still has a pro-euro government and its largest party has expressed its support towards staying in the EMU.

The Finns are likely to keep making headlines as long as negotiations with Spain continue. The country has realized that, in spite of its small size, its AAA-rating and healthy economy give it leverage in talks about the ESM and EFSF structures and bailout deals with the troubled Eurozone countries. However, at the end of the day, it is more likely than not that the Fixit is not going to happen as long as Germany and the Netherlands stay in euro.

You can follow me on Twitter @TuomoKallio.

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