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As Heikki Neimelaeinen, chief executive of the Municipal Guarantee Board says: “We have started openly discussing the mechanism of euro exiting, without indicating that we will initiate such a process". And this, in turn, is sparking some curious economic debates.
Take a look, for example, at a recent research paper from Nordea, the Nordic bank. This paper looks at the question of what might happen if Finland ever decided to run a so-called “parallel currency” system. The idea behind this, as Nordea explains, is that at times of stress it can sometimes seem beneficial for countries to maintain more than one currency unit. Most notably, if a country is trying to leave one currency, keeping that as legal tender alongside a second currency for a period can ensure a country honours its old contracts – and thus avoids a technical default.
In the case of Greece, for example, the idea of maintaining the euro as legal tender alongside the drachma has been floated by some economists as one technique for leaving the euro, without formal default. This concept has been used in the past, in places such as the Weimar Republic (in 1923), the Soviet Union (when it broke up in the early 1990s), and more recently, in some emerging market regions. But for Finland the concept is different. If a country such as Greece was to adopt its own currency alongside the euro, it would act from a position of weakness and probably need to force its citizens to hold drachma.
However, says Nordea: “Finland’s exit of its own accord would differ from a Greek exit, because a balanced national economy may, theoretically speaking, have two currencies even for a long transition period, and peg the new markka to the euro at a rate of 1:1 during the transition period".
Most notably, under that scenario – of strength – the Finnish central bank could effectively let consumers and customers choose which currency they preferred to use. “Euros will not automatically be converted into markka; all deposits, debt and agreements will remain in euros until the depositors transfer their deposits to markka-denominated accounts and the parties to the agreements amend their contracts”, Nordea writes.
It is worth remembering that most Finns abhor those ECB bailouts; having embraced creative destruction in their own history, they now loathe moral hazard with a puritan zeal. And the longer the eurozone crisis rumbles on, the easier it becomes to imagine the once-unimaginable. Perhaps it is time for ECB president Mario Draghi to visit Helsinki; if nothing else, Nordea’s report is a timely reminder that it is not just Greece and Spain that now have the capacity to surprise.