EU Economy
Support for anti-bailout party jumps in Finland's election; IMF said to believe that Greek debt should be restructured
By Finfacts Team
Apr 18, 2011 - 6:44 AM

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Finnish party leaders on election night: Jutta Urpilainen (SDP), Mari Kiviniemi (Centre Party), Jyrki Katainen (National Coalition Party), and Timo Soini (True Finns). Image: Finnish State broadcaster YLE

Finland's nationalist True Finns party which opposes the bailout of struggling EU countries, including Ireland, made big gains in the general election that was held on Sunday. Meanwhile The Wall Street Journal reports that the IMF (International Monetary Fund) is believed to support restructuring of Greek debt.

The centre-right National Coalition Party (NCP), which is the junior partner in the outgoing government and advocates a pro-euro line, will be the biggest party in the new Finnish parliament after winning 44 out of 200 seats with a 20.4% share of the vote. However, the True Finns saw their number of seats rise from 6 to 39 on a 19% share.

The Centre Party of Mari Kiviniemi, the outgoing prime minister, lost 15 seats, party attributed to a funding scandal and it took 15.8% of votes.

The Social Democratic party (SPD) which had voted against the Greek and Irish rescue packages, got 19.1% of the vote and it won 42 seats.

Jyrki Katainen, NCP's leader and finance minister, is expected to be asked to try and form a government.

The bailout package for Portugal will have to win the support of the majority of the Finnish parliament and as unanimity will be required in Brussels, the election adds further uncertainty to the Eurozone's sovereign debt crisis.

The result is consistent with anti-bailout sentiment in Germany, France, the Netherlands and Austria.

True Finns Party's charismatic leader Timo Soini told Finnish broadcaster, YLE, that he expects post-election government formation talks to be "very interesting." And, while he was still awaiting final results, Soini added, "They may be difficult, too." He did say, however, that the True Finns will be aiming at a place in government.

Soini, whose party made massive gains in these elections thanked True Finn candidates and the voters.

"It's a big shake-up. That's what we were after."

YLE reported that the True Finns leader showed no surprise when the first projection of the final results showed his True Finns and the National Coalition neck to neck.

"This trend has been seen for years," he commented.

Soini called the True Finns gains a victory for reason and for the Finnish people.

"It is just not possible to go ahead only with the old parties from year to year and decade to decade. This has now been challenged and this will bring significant new politics," said Timo Soini.

True Finns Party's charismatic leader Timo Soini addressing supporters after his impressive win in Sunday's general election in Finland.


The Wall Street Journal reports that the International Monetary Fund believes Greece's debt is unsustainable and has told European government and central bank officials that Athens should consider restructuring by next year, three people familiar with the situation said Saturday.

"The IMF believes the debt situation in Greece is unsustainable," one of those people, who has direct knowledge of the matter, told Dow Jones Newswires. "Senior [IMF] officials have told the parties involved that restructuring should be considered soon," including the European Commission and euro-zone governments, this person said.

"The pain and cost of restructuring would be bigger than the benefits," Greece's Papaconstantinou said. "Restructuring is not the position of the Greek government."

A first step would be to substantially extend Greek bond maturities, another unidentified official said, according to the newspaper. That may include extending debt repayments by as much as 30 years, the official said.

Zsolt Darvas, an economist at Bruegel, the Brussels think-tank, says Greek debt is expected to reach about 160% of GDP (gross domestic product) in a country with weak institutions, weak tax-collection capability, social unrest and a loss of confidence.

Economists at the think-tank Bruegel estimate that roughly 20% of Greece's debt at the end of 2010 was held by domestic banks. They are in difficult straits, and forcing losses on them may require additional bailout funds.

About a third is held by "nonbanks," including pension funds and insurance companies.

The Economist says calculations by the Bank of England on losses that would arise from haircuts to Greek, Irish, Portuguese and Spanish debt suggests that a 50% haircut would wipe out 70% of the equity in Greek banks, almost half of it in Portuguese and Spanish banks and about 10% of the equity in German and French banks.

The newspaper adds that German banks are owed twice as much by banks in the three bailed-out countries as they are by governments. Once corporate loans and other exposures are included, Germany’s vulnerability is clear: its banks are owed some €230bn.

Zsolt Darvas of Bruegel says:"Restructuring is not a free lunch – far from it. It always has to be paid for in various ways. For example, if a country gives its creditors 'haircuts' by refusing to pay them back in full as part of the restructuring, it should also seek to ensure that they stand to benefit and even recoup some of their losses if the restructuring leads to an economic revival."

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