Portfolio: Populist Backlash and Greek Debt Restructuring
Video Transcript:
Analyst Marko Papic explains why Finland did not block the Portuguese bailout and how euroskepticism is affecting Germany's thinking on bailouts.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
Rumors about a potential Greek restructuring continued to swirl in Europe, as the eurozone at least gets some positive news, because it seems that the potential Finnish blocking of the Portuguese bailout is no longer threatening the eurozone. News emerged in Finland on Wednesday that the True Finns, a right-wing populist party that has campaigned on a eurosceptic platform, has decided to essentially allow the government to pass the Portuguese bailout before the government is constituted, therefore saving face for the True Finns and allowing the Portuguese bailout to pass the Finnish Parliament.
This is something that STRATFOR never really concerned itself with and from the beginning forecast that Finland would not be an impediment to the eurozone bailout of Portugal. The reason for this is that at the end of the day, despite its AAA-rated status, Finland really is a small economy -- smaller than that of Greece --and there was no way that Berlin's will, which is to bail out Portugal, was going to be thwarted by a small country like Finland. Ultimately, Finland, because of its geopolitical situation and proximity to Russia, needs the EU more than the EU needs Finland, and therefore there was really never any chance that Helsinki would stand in the way of the Portuguese bailout.
However, this is not to mean that populist backlash against bailouts in core European states, where taxpayers are at the end of the day bailing out countries such as Greece and Ireland, has no effect on Berlin's thinking. As an example, the Free Democratic Party (FDP), junior coalition member in German Chancellor Angela Merkel's government, is potentially taking a turn toward a eurosceptic line of its own, and therefore the main 13th Party Congress in Rostock is going to be extremely important to view how that party develops.
The reason this is important is because ultimately European taxpayers are realizing that they are paying for the Greek and Irish and now Portuguese bailouts. And therefore they don't want to see these countries defaulting in 2-3 years' time when the share of the EU and IMF loans to Greece and Ireland are greater than the share of the private investors' loans. Why is this important? It's important because if Greece defaults in 2013, it will invariably be the EU taxpayers who take the hit. Therefore, there is a movement right now within Berlin -- a line of thinking -- that it's better, politically speaking, to force Greece to restructure to some extent right now. And the reason this political decision is possible right now is also because the European Central Bank (ECB) is providing the safeguard against any detrimental effects that such a restructuring or default could have on the eurozone. The ECB has essentially purchased about 75 billion to 80 billion euros ($110 billion to $120 billion) worth of sovereign debt on the secondary markets. And even though that number is small, just the fact that the ECB has taken that step has shown politicians in Berlin that if push comes to shove, the ECB will be there to rescue the eurozone.
