Finland, home of polar bears, pickled fish and Nokia, is now the only eurozone country with a stable triple-A credit rating, according to Moody's.
On Monday night the credit rating agency hit Germany, Luxembourg and the Netherlands with a stinging blow, cutting the outlook on their triple-A ratings from stable to negative. This pushes them into the same bracket as France and Austria, leaving Finland as the only European country with a triple-A rating and stable outlook.
What has Finland done right? It has a population of just 5.3-million spread out over a country roughly the size of Germany. Its economy is dominated by services, but it is competitive in manufacturing, principally wood and electronics, and exports account for more than a third of gross domestic product. Income per capita is among the highest in Western Europe and the country is celebrated for its generous welfare state.
Moody's said although Finland would not be immune to the eurozone crisis, it had “strong buffers, which differentiate it from the other AAAs". Among them were that it had no debt on a net basis. The International Monetary Fund estimates that Helsinki will collect taxes and other revenues of €105-billion this year, compared with €101-billion of government debt.
Finland has a small banking system focused on domestic customers as well as “limited exposure to, and therefore relative insulation from, the euro area in terms of trade", Moody's said.
It also cited Finland's insistence on receiving collateral in exchange for its participation in eurozone bailouts. Last week, for example, Helsinki agreed to contribute to the Spanish banking bailout package, but only if Spain provides it with cash collateral worth €R770-million, about 40% of its share of the bailout. Every time Spain receives a payout from the bailout fund, it will pay an instalment to Finland. The deal is similar to a collateral deal it struck with Greece in 2011.
Analysts have focused on this part of the Moody's rating announcement. Michael Hewson of CMC Markets said: “The reason Finland appears to have escaped is due to its insistence on collateral in exchange for aid. This could well see other countries start to demand collateral as well, which could well complicate the swift disbursement of future bailout funds."
Finland has taken a consistently tough line on the crisis. This month it threatened to block an agreement to use Europe's bailout fund to start buying Italian and Spanish bonds in the secondary markets.
Its stance has led some to believe that Finland and not Greece might be the first to leave the single currency. The American economist Nouriel Roubini wrote on his EconoMonitor website: “If Greece moves closer to exit and Italy and Spain end up on the verge of losing market access and requiring even more risky financial support from the eurozone core, Finland may decide that the additional credit risk is not worth the benefit." – © Guardian News & Media 2012