April 18, 2011
The early Finnish votes are in and it does not look good for Portugal. As Reuters reports, Finland’s anti-euro True Finns made huge gains in an election on Sunday, raising the risk of disruption to an EU bailout of Portugal. The right-leaning National Coalition topped the ballot, gaining just over a fifth of all votes. Party leaders will start talks soon on forming a new government. The problem is that as the anti-euro moniker indicates, the True Finns are pretty much hell bent on vetoing the Portugal bailout which means the ongoing annexation of Europe’s periphery by Olli Rehn is about to finish (and yes there is a finish-Finnish joke in there somewhere). Per Marketwatch: “Early results Sunday from Finland’s parliamentary elections suggest the anti-EU bailout True Finns party will hold the second-most number of seats and could even be part of a coalition government. Such an outcome may mean the EU’s planned bailout of Portugal is vetoed by Finland, a move that would roil the euro-zone markets. With half the votes counted the True Finns were on 19% support, and on course for 41 seats, tied with the Social Democrats and one seat less than National Coalition Party’s predicted 42-seat haul, the BBC reported. Finland is the only euro-zone country that requires bailouts to be approved by its parliament. Strong gains by the True Finns could derail a planned rescue for Portugal.” What this means is that Goldman Sachs’ European analysts will be scrambling all night to come up with loophole to European law that will not result in an epic plunge for the European currency, as apparently not even that sage among sages, Thomas Stolper, whose 2010 batting average of 0.000 made his contrarian calls manna from heaven in the past year, could anticipate this Black Swan. We will keep you informed of all the sell-side spin as it starts trickling in.
In the meantime, here is more from Marketwatch:
A stronger-than-expected showing by the True Finns, “or if some members from other parties take a similar line, could make things very touch and go,” said Steven Barrow, currency and fixed-income strategist at Standard Bank. “And clearly if there’s any possibility at all that Portugal might not get its money, it could hit bonds and the euro hard.”
Strategists note that the main opposition Social Democrats have hinted they may also oppose a bailout. The center-left Social Democrats opposed bailouts for Greece and Ireland.
The Portuguese bailout remains unlikely to be derailed, “but caution seems to be the watchword here until we can be sure that Finland can’t upset the party,” Barrow said.
European Union officials hope to finalize negotiations by mid-May on a Portuguese bailout expected to total around 80 billion euros ($115.7 billion).
At the least, True Finn’s ability to tap into anger over euro-zone bailouts may mean the next government draws an ever harder line in negotiations over Finland’s role in future rescues.
Much of the True Finns party’s recent success has been attributed to its leader, Timo Soini. The 48-year-old politician is often described as folksy and charismatic, with a reputation for witty speeches and vivid metaphors.
“How come they can’t see the euro doesn’t work?” Soini told Bloomberg earlier this year. “If a melon and an apple each wear the same size baseball cap, everyone can see that just doesn’t work.”
Well, when Europe is run by a man who tweets haikus and comes from a country that hasn’t had a government for the longest amount of time in modern political history, logic probably is not the failing monetary union’s strong suit.
So just how real is the threat of a derailment of the encroaching bailout scheme:
Pasi Kuoppamaki, chief economist at Sampo Bank in Helsinki, said negotiations to form a new government could take some time. And if the True Finns become the third- or second-largest party in parliament, there could be reverberations in the financial markets, he said, speaking before the polls opened.
But like many observers, Kuoppamaki is not convinced that the True Finns would be in a position to block bailouts or increased rescue funding even if they were able to secure a junior role in a new government.
Finnish officials, however, reacted to the True Finns’ rise by offering tough talk on bailouts.
Finance Minister Jyrki Katainen, leader of the pro-EU National Coalition Party, warned at last week’s meeting of EU finance ministers that Portugal must implement additional austerity measures that go beyond the proposals rejected by the nation’s parliament in March.
And Finland last month balked at committing to a previously-outlined plan for the euro-zone’s AAA-rated nations to boost guarantees to the EFSF. Prime Minister Mari Kiviniemi, who heads the Center Party, said the decision should be made by the nation’s next parliament. EU leaders agreed to finalize the plan in June.
The BBC reported Sunday that while Katainen’s NCP will remain the largest party, Kiviniemi’s Center Party’s number of seats may fall to around 36. Even before the election, Katainen was seen as a strong possibility to lead the next government as prime minister.
But even if Finland is not the proverbial straw on the camel’s back, one is certainly coming. At this point well over half of Europe has had it with the decade long failed EUR experiment.
Randolph sees little chance Finland will turn away from the euro zone in the wake of the elections.
“More worrying is the general spread of populist and nationalist politics in the EU,” Randolph said.
French President Nicolas Sarkozy’s UMP party suffered big losses in regional elections in March, with the far-right National Front making large inroads, he noted.
The tone makes it more difficult to sell austerity in debtor nations and to make the case for backing the euro and the EU in creditor countries, Randolph said.
So far the EURUSD is trading stead, even as silver just took out $43.20. Something tells us the next FX regime will not be one marked by continuing strength of a currency whose ever greater number of constituent countries continue to exist purely on the luck of the draw, or the ever angrier populist vote.
This article was posted: Monday, April 18, 2011 at 3:47 am