Thursday, April 21, 2011

Crisis and chaos - but who's in charge?

Portugal and Finland are far apart in most ways but they have at least one thing in common: neither has a proper government at present. This is causing further confusion to the already contorted EU financial crisis that is bordering on the farcical.

The good news is that fears of a Finnish veto on Portugal's bailout hopes seem to have subsided somewhat in the aftermath of the True Finns' euphoria at the weekend. A couple of friendlier faces have come to the fore.

After finishing a surprisingly strong third in Finland's general election, the leader of the anti-euro True Finns party, Timo Soini, vowed to overturn the European Financial Stability Facility (EFSF) under which Portugal will be offered a rescue package amounting to some €70 billion.

An EFSF agreement would require the unanimous approval of all eurozone members, including Finland. The True Finns want no part of it.

Said Mr Soini indignantly about the EU's plans for Portugal: “Of course there will have to be changes. The package that is there – I do not believe it will remain.”

Mr Soini's right-wing threat to scupper a deal with Portugal has been offset by the views of Jyrki Katainen, leader of the National Coalition party which won the most votes in Finland's election. As the most likely next prime minister, he says it would not be possible for Finland to demand big changes to the Portugal bailout package. Small ones maybe, but not big ones.

Mr Katainen is all geared up for protracted talks to form a new government that may include the True Finns. But the parties will have to reach some sort of compromise agreement, over the proposed Portugal bailout among other matters. Yesterday, Mr Soini said he would not set absolute conditions for joining a new coalition, yet he was adamant about his opposition to the present Portugal bailout plan.

The second strongest Finnish party, the Social Democrats, support EU policies in general and are not as fiercely opposed to a Portugal bailout as the True Finns, but they are not entirely happy with what is envisaged and may demand extra conditions.

Meanwhile, Finland is being run by a caretaker government. Before the election, the outgoing Finnish Prime Minister Mari Kiviniemi said a caretaker government in her country could approve a rescue package for Portugal. She has now changed her mind. She now believes the Portuguese bailout is so important that it can only be approved by the next properly constituted government in Finland.

Portugal is currently being run by a caretaker government as well. Representatives of the European Commission and the International Monetary Fund are beavering away in Lisbon to come up with a bailout blueprint as soon as possible, hopefully by mid-May. But Portugal won't have a proper government until after the next general election on 5th June. The latest opinion poll suggests it could result in a dead-heat between the centre-right Social Democrats and the centre-left Socialists, thus adding to the country's political uncertainty. To cap it all, just days after the election Portugal will face a major debt redemption.

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