Euro limits flexibility of strong economies

Analysts link economic woes of advanced economies to euro, with Finland seen as an example

Photo by: Reuters
Photo by: Reuters

The eurozone is a key player in the global economy and its combined gross domestic product (GDP) is ranked second after that of the US. However, several eurozone countries have seen staggering slumps in their economies linked to the euro. 

According to economists, Finland has strong fundamentals for a prosperous economy. Despite this, it is entering its 4th year of recession, as output hovers below its peak in 2008.

Since the Nordic country’s economy is highly dependant on its manufacturing sector, in particular the technology industry led by Nokia and paper producers, the smartphone and tablet manufacturing boom in other countries has crushed the country’s economic performance. 

"A little bit paradoxically I guess one could say that the iPhone killed Nokia and the iPad killed the Finnish paper industry, but we'll make a comeback," said Finland's Finance Minister Alexander Stubb in an interview with CNBC. 

Meanwhile, the credit rating agency Standard and Poor’s (S&P), which has recently stripped Finland of its triple-A ranking, “remains uncertain whether other sectors can consistently compensate for the output loss.” 

Finland is Russia’s biggest trading partner and also suffered after low oil prices and Western sanctions hit that country's economy. 

In normal circumstances devaluing the currency could help to solve the problems, but being tied to the euro means waiting for the verdict of the European Central Bank (ECB).

“Devaluation is a little like doping in sports…it gives you a short term boost,” said Stubb. 

Although the euro is clearly not the source of all Finland's woes, it is fair to say the shared currency has limited the options the country may take to help bring about a recovery. 

Iceland, neither a eurozone country nor an EU member, is a possible example of how being outside the euro gives countries more room to maneuver. Even though Iceland went bankrupt in 2008 and at first suffered much worse from the global financial crisis than Finland, it has also managed to recover faster. 

When Iceland’s currency, the Krona, suffered a staggering fall in value its people lost 60 percent of their purchasing power on imported goods. However, the drop in the Krona's value also helped to keep Iceland's goods more competitive overseas. 

Being in the eurozone not only involves a shared currency but also shared obligatory commitments. 

For instance, the German public is unwilling to provide Greece with further bailout funds. 

Similarly, a survey conducted by the international polling institute YouGov suggests that only 14 percent of Finns said they were in favor of negotiating over Greece’s debt. 

Although being a member of the eurozone has many advantages, it can cause complications.

TRTWorld and agencies