News Column

Finnish Foreign Minister Walks Back Breakup Comments

Aug. 17, 2012
euro coin

Finland's foreign minister on Friday backpedalled on comments he made about the break-up of the eurozone, as other officials also hit back amid concern that the currency bloc's debt crisis could flare up again.

The political dust-up did not appear to immediately spook financial markets, buoyed by German Chancellor Angela Merkel's backing of the European Central Bank (ECB) in its insistence that troubled eurozone countries will not receive unconditional aid.

In an interview with Britain's Daily Telegraph newspaper, Foreign Minister Erkki Tuomioja said that there was a need to "face openly the possibility of a euro break-up."

While insisting that no one in Finland is advocating such a scenario, Tuomioja said that "it could make the EU function better" - predicting that the break-up of the 17-member currency bloc would not spell the end of the wider 27-member union.

Finland's minister for European affairs, Alexander Stubb swiftly rejected Tuomioja's statements.

"I don't think we should be playing with fire here and suggesting the breakup of the euro," Stubb told the broadcaster CNBC. "Scenario number one for the Finnish government is that the euro will continue."

A spokesman for the European Commission in Brussels also insisted that "the euro is irreversible."

"The commission is not working on the split of the euro area, nor on contingency plans or Grexits or any other scenario that would leave one country out of the euro area," Olivier Bailly said. "Our duty is to focus only on the preservation of the euro integrity."

Tuomioja defended himself by telling the broadcaster YLE that what he had stated was self-evident, arguing that "in an uncertain situation, all ministries consider whether such a thing could happen, that the euro would fall apart."

But he also accused the Telegraph of using a misleading headline by titling the article "Finland prepares for break-up of eurozone."

The timing of his comments surprised observers, given that the crisis-battered eurozone has been enjoying a few weeks with lesser pressure from financial markets.

"Why is he saying it now, when the market sentiment about what is happening in the eurozone is improving?" asked Karel Lannoo of the Center for European Policy Studies, a Brussels-based think-tank.

Political communication, he said, "has been the biggest weakness over the last two-and-a-half years of the euro crisis."

Finland had raised eyebrows last month too, after appearing to backtrack on crisis-fighting measures agreed at a high-profile summit that had initially reassured the markets.

Austria on Friday also joined the fray, after its foreign minister, Michael Spindelegger, argued in an interview that eurozone members should be allowed to eject a country if it does not follow fiscal rules.

"If we had this rule, we'd already had to draw consequences," he said, answering a question about Greece's eurozone membership for the Kurier newspaper.

Spindelegger's stance is not government policy, Chancellor Werner Faymann said, warning that the negative consequences of a euro break-up would outweigh any benefits for individual countries.

Financial markets appeared to take Friday's bickering in stride, with the euro slumping to 1.23 dollars, but the blue-chip Eurostoxx 50 up 0.49 per cent by the end of the trading day.

Borrowing costs for Spain, meanwhile, were down by more than 1.25 per cent, with the interest for its 10-year bonds below 6.5 per cent for the first time in a month and a half.

Three weeks ago, they had soared to a record of over 7.7 per cent amid fears that Madrid would require a full-blown bailout.

They have been somewhat appeased by speculation that Spain is poised to ask for initial money from its bank bailout, and for the eurozone's bailout fund and the European Central Bank (ECB) to buy its sovereign bonds.

ECB chief Mario Draghi has indicated that the bank will not get involved unless any government needing help first turns to the bailout fund - thus having to agree to strict conditions in exchange for help.

Merkel was asked about Draghi's statements on Thursday during a trip to Canada.

She said recent decisions "have made it clear that the ECB is counting on political action in the form of conditionality as the precondition for a positive development of the euro."

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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