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4th Jul 2022

Rehn warns Finland against a Portuguese 'Lehman'

  • Rehn: 'We are not here saving French or German banks, but preserving economic stability' (Photo: ec.europa.eu)

EU economy chief Olli Rehn on Tuesday (10 May) warned Finnish political parties to back the EU-IMF bail-out package arranged for Portugal, comparing the situation to that ahead of the collapse of financial services giant Lehman Brothers in the United States in 2008, the catalyst for the global economic crisis.

"The decision on the EU-IMF programme for Portugal requires unanimity amongst all member states. Every member state counts," he said at a press conference in the European Parliament in Strasbourg.

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On Tuesday, Finnish prime minister-elect Jyrki Katainen consulted with political parties hoping to cobble together a parliamentary majority for the bail-out. The chamber is due to vote on Wednesday on the subject.

Commissioner Rehn suggested that the country should think beyond itself and to the whole European economy.

"I trust that Finland can support the programme for Portugal for sake of stability in Europe as a whole, including that of Finland. I hope Finland continues to play the constructive role as regards Europe that it has over the past decades and that has served Finland well."

Questioned by a Finnish reporter whether it was fair that the country should participate in the bail-out if its banks did not have a high level of exposure to Portuguese debt, Rehn said that the country "also did not have much exposure to Lehman Brothers ... but in 2009 saw an eight percent recession after Lehman Brothers collapsed."

"This shows how strongly interdependent financial markets are."

He went on to argue that the bail-out, which will see cuts to welfare, healthcare and pensions, as well as an easing of protections for workers, was designed to protect the most vulnerable.

The EU-IMF programmes in Ireland and Greece have come under heavy criticism from civil society, which argues that the bail-out programmes are designed to protect core EU banks at the expense of regular people.

"We are not here saving French or German banks, but preserving economic stability in the eurozone," he said.

The programme is "a demanding but fair adjustment .. [that] will require major efforts by the Portuguese people. But great attention has been paid to social fairness and protecting the vulnerable."

"Europe stands by Portugal for the sake of country and the sake of stability and growth in Europe."

He said that the interest rate to be charged on the Portuguese rescue will be "somewhere in scale of above 5.5 but clearly below six percent," and that he foresees Lisbon returning to money markets before the end of the three-year programme.

Rehn also for the first time tacitly acknowledged that Greece will need a second bail-out package.

On Tuesday, an unnamed senior Greek official said that the government expects that an audit of its accounts in June will reveal the need for a supplemental aid package amounting to €60 billion in order to keep the lights on into 2013

Asked about the realism of such a figure, Rehn said: "It is too too early to specify any figure for the refinancing needs of Greece in 2012."

He said that this matter was "precisely the task of the [EU-IMF senior officials] review mission [currently underway] to specify and quantify the needs for next year."

He added that he sees "decisions on this in the coming weeks." Mid-next week there will be the "first results" he said.

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