The President offered his words of caution to commentators swept up by nostalgia for the past when Finland had its own currency and could independently decide on monetary and fiscal policy measures to help kick-start a sagging economy.
Having the Finnish mark and the corresponding ability to devalue the currency would not have helped the country out of the current economic morass, he said.
“In the 1990s devaluation did indeed increase competitiveness 30 percent within one year. But no one seems to remember that all consumers paid for that and that it was especially hard on small business owners, who had begun to borrow in foreign currencies for the first time,” Niinistö recalled.
Niinistö pointed out that if Finland still had its own currency, it would not bring the benefits that many now imagine.
“If we still had the mark it would not have saved Nokia or the forestry industry. We would most likely be in a stew, and we would most certainly have had a huge amount of euro-denominated debt, which would have been extremely expensive to pay back in marks,” he commented.
Devaluation tool now out of reach
Finland finally dropped the mark in 2002 when it joined the eurozone under the stewardship of then Minister of Finance and current President Sauli Niinistö, after clawing its way out of a bruising recession.
The Finnish economy has now found itself in the worst trough since the difficult times of the 1990s, and some analysts have pointed out that in the past the country had its own fixed currency and the autonomy to decide on monetary policy.
Nowadays as a member of the euro club Finland is tied to the common rules laid down by the European Commission and Central Bank and unlike its neighbor Sweden, cannot bring down the value of its own currency to help boost exports by making them more competitive and attractive in terms of price.
In the interview the President also touched on the European Union’s Stability and Growth Pact SGP, which stipulates that member states should not run budget deficits greater than three percent of GDP, and that public debt should not exceed 60 percent of GDP.
He observed that all of the governments that had signed up to the original agreement had upheld its conditions, but subsequent administrations did not adhere as closely to the pact.
“There is a temptation for the government to live in the light of a better future, rather than in the reality of the present,” he remarked.
The SGP empowers the European Commission to intervene in cases where member states do not live up to the agreement. However, Niinistö said he did not believe that the Commission could interfere in the affairs of individual countries.
In its budget review for 2015, the Ministry of Finance projected that Finland would exceed the EU’s recommended debt to GDP ratio of 60 percent next year, pegging the statistic at 61.2 percent in 2015 and 62.1 percent in 2016.