--- title: "The Euro | Juhani Huopainen | Negotiator 72" summary: "Juhani Huopainen dismantles, one by one, the usual arguments for the euro's benefits to Finland — low interest rates, exchange-rate stability and vanished conversion costs — and shows they are explained by other factors. Behind it lies his standing public wager on proving the euro's net benefits. The conversation moves on to the recovery fund, Target 2 balances, the IMF's Greek assessments, and why the federation debate is systematically avoided in Finland." datePublished: 2021-04-11 dateModified: 2021-04-11 originalLang: en section: economy sections: ["economy"] authors: ["Sami Miettinen"] tags: [] canonical: https://ai.neuvottelija.com/ep72-euro-juhani-huopainen/ --- # The Euro | Juhani Huopainen | Negotiator 72 # The Euro | Juhani Huopainen | Negotiator 72 > **Summary:** > Juhani Huopainen dismantles, one by one, the usual arguments for the euro's benefits to Finland — low interest rates, exchange-rate stability and vanished conversion costs — and shows they are explained by other factors. Behind it lies his standing public wager on proving the euro's net benefits. The conversation moves on to the recovery fund, Target 2 balances, the IMF's Greek assessments, and why the federation debate is systematically avoided in Finland. > **A note on reading this:** The episode is a euro-critical argument, and both guest and host say so openly. The claims below are Huopainen's and Miettinen's own views, not editorial conclusions; several are contested, and some are assessments of the future, marked here as predictions. Recorded in April 2021, when national approval of the EU recovery fund was a live issue in Finland. --- ## The wager that has been open for years The episode's structure comes from Huopainen's public challenge: he offers money to anyone who can show that Finland has received **net benefits** from the euro. The motive is exasperation: > At some point I simply got sick to death of these believers who are convinced that Europeanness has brought the light and the prosperity and the peace. Miettinen works through the wager in order, trying to win it with the three most common arguments. **Claim 1: low interest rates.** In the 1980s Finnish mortgage rates were high; now they are negative — is the difference not the euro's doing? Huopainen's answer is empirical and easy to check: > It is not terribly hard to spend 30 seconds in the US central bank's database service, pull up a chart and drop in the rates for Sweden, Finland, Germany and some other country. — They were equally high everywhere back then. Rates are also low in Sweden, Poland, the Czech Republic, the United States and Japan. "It is a myth that lives on" — and it lives on 30 years after the events. **Claim 2: exchange-rate stability.** Huopainen turns it into a question about price controls: "where does this wild urge to dabble in communism actually come from" — that is, having "the price decided upstairs". He cites the IMF's comparison of floating, fixed and euro countries: > Those with national floating currencies grow faster on average, the growth is steadier, and they have fewer boom-bust cycles. The basic defect of a monetary union comes down to one sentence: **"they work perfectly fine as long as things would go well anyway. But once things start to go badly, the economy has no escape route."** **Claim 3: currency conversion costs.** These would have disappeared without the euro, Huopainen argues — the same technological and competitive development that cut equity brokerage fees. His own example from the 1990s: when his employer introduced a **0.25 per cent** commission, it was announced by press release as Finland's first discount broker. The same applied to currency, and the banks' grip on companies was harsh: > Whenever you called the bank's desk and asked for a price on dollars, saying you needed to buy a million, you got half a per cent slapped on the price, quite brazenly. Somewhat according to your face. Miettinen recognises the mechanism from his own field: part of an investment banker's job description is to "look for weak hands at the world's poker table". **No argument wins the wager.** Huopainen does mention one contrary result: someone from Turku found a **synthetic control** study according to which Finland's growth has been clearly better with the euro. He treats it fairly — "the normal gentleman's rules" require engaging with it — but notes that opposite counterfactuals exist (among others by Tuomas Malinen and GNS Economics), and the results depend on the assumptions. --- ## The Sweden comparison and what follows from it Miettinen supplies the number: Sweden's economic growth has been **at least 20 per cent greater** than Finland's, and the accumulation of wealth greater still. Huopainen does not attribute the whole gap to the currency: > Of that 20-point lead you can say with a clear conscience that maybe half goes on the account of structural weaknesses, of which the currency is the central one. What matters is that it accumulates: once you have fallen 10 per cent behind, that 10 per cent goes unearned every year. Of the accession decision he makes a negotiator's observation: **haste was a sales technique.** "Every salesman knows that haste is the best closing device" — everyone else is joining, the train is leaving. Sweden took a moment to think it over, and the moment has lasted more than 20 years. The era's other problem was access to information: no internet, few read papers from outside Europe, and in the United States most economists thought the idea slightly odd. > There were the Helsingin Sanomat editorials and the minister's pronouncements and the Bank of Finland's view and a couple of odd chaps at the university whose reports nobody reads. --- ## Internal devaluation versus a floating rate Here is the episode's clearest argument about mechanism. A floating currency is **automatically counter-cyclical**: in a downturn the rate weakens and the real value of contracts and wages adjusts immediately. Miettinen recounts arguing the point with **Juhana Vartiainen**, whose reply was that the state's automatic stabilisers do the same job. Huopainen's counter-argument is one of political economy: > If these items had to be made to flex through political decisions, it costs you your health, your years and your popularity. The example is **kiky**: an internal devaluation given a jollier name, because devaluation has a bad ring to it. The result was a "half-hearted contraption", and the effect faded quickly as the wages came back. The comparison is bluntly put: > If we spend two or three years here wrestling at a terrible political price over some competitiveness pact, in Sweden the central bank governor says at a press conference that we happen to have a floating exchange rate — and then the krona weakens by 10 per cent. The historical parallel is the **1991 Sorsa agreement**, an early kiky: the SAK got it through its own board, but the metalworkers' and paper unions refused to sign and it collapsed. Huopainen names this an asymmetric game — an individual union gains by not signing while others show restraint. Miettinen adds an observation about the decision to float: the official line was for a long time "we will not float", even though decision-makers' private positions had already slid. Rolf Kullberg's position he describes colourfully; Huopainen is more forgiving: "he probably imagined in his own way that he meant well". --- ## The recovery fund, federation, and the debate that never happens Huopainen's position is not the one usually assumed. **He does not oppose a federation:** > If we have a problem — such as a monetary union not really working without a federation — then fine. Then let's set up the federation. I am all for it. The problem is that the alternatives are not addressed openly. The two logical end points are **federation** or **dissolution**, with no durable resting place in between — yet in Finland it is claimed that the decisions are "one-off and narrowly bounded, caused only by the pandemic, with no moral hazard". Miettinen describes the recovery fund as **federal debt** distributed on political criteria and easy to monetise, because it is prime risk-free collateral for the ECB. In Sauli Vilén's words: if central bank purchases are amphetamine, this is "pure heroin". **The proof that the debate is not honest**, in Huopainen's view, is that the argument has flipped. Ten years ago the risks in Target 2 balances and the ECB's purchase programmes were denied; now the recovery fund is justified precisely on the grounds that without it central banks would have to buy more and the risks would grow. > What was previously denied now serves as the argument. On Target 2, his best understanding is that the possibility of it skewing was simply not grasped — balances were assumed to stay near zero. Another open question is the **central bank recapitalisation agreement**: many claim one exists, but Huopainen has not seen it and does not believe it exists. He would welcome being corrected with facts — and points out that if there is no agreement, Finland is not legally liable for other central banks' debts. Draghi's Helsinki speech, he recalls, said outright what is officially denied: the euro area is not sustainable without some kind of **transfer mechanism** to smooth cyclical differences. --- ## Why the experts stay quiet This is the sharpest part of the episode, and it concerns Finland and international institutions alike. **The IMF and Greece.** Huopainen calls the debt sustainability assessment a political decision: a chain reaction was feared, so it was decided to call Greece debt-sustainable when it was not. The IMF's former chief economist **Olivier Blanchard** has since pointed the same way, and the minutes show the fury of member states — Brazil among them — at their money being lent to a bankrupt country. > If the IMF were a commercial bank and knowingly lent shareholders' money to a country that was not creditworthy, they would have committed a crime. **The 2012 Greek restructuring.** Private debts of roughly 200 billion were cut by about half, but at the same time the **ISIN codes** were gone through to see which bonds sat on the ECB's balance sheet — and those were left uncut. Huopainen regards this as unequal treatment of creditors. The more general observation: > Those who talk the most about the rule of law and European rules-based order are the keenest to break that rule book. **The domestic counterpart** is critical comments removed from the National Audit Office's reports — on the day of publication, Huopainen says, and after instruction from outside. **Why does an expert not say it out loud?** The answer is professional: "if you went and said something once, you would not be asked to be an expert again". And more deeply: > If your product is defective, as the euro area is defective, then the experts become defective along with it. Miettinen adds his own observation from markets: the most trustworthy type is the one who puts a hand up to signal an error within five seconds — the most dangerous are those who are never wrong, or at least never admit it. Both regard the 1990s recession as **mythologised**: the story of a "markka crisis" was made after the fact, Huopainen argues, when it was a Europe-wide ERM crisis — Sweden tried an interest rate of 500 per cent. Miettinen proposes a dedicated episode on it. --- ## What Finland should do Huopainen's conclusion is about the negotiating position, not economics. First he dismisses domestic model-building — including Miettinen's own ECU model and Elina Lepomäki's federation model: > What does anyone in France or Germany care what model Lepomäki has, or what Finland wants? — It is a form of self-deception that we influence things from here. Room for manoeuvre lies, in his account, in three things: **alliances** (the Frugal Four), **unanimity requirements** and **red lines**. The last requires credibility, and credibility requires one thing: > The nuclear button is that we can also leave this, if this is not acceptable. **Political cost** is, in his view, a euphemism worth unpacking. When a retired official of Peter Nyberg's standing says Finland cannot refuse the recovery fund because the political cost would be too high, it means: > You get sidelined, your life is made difficult, you are punished. — We are the small weak kid in the schoolyard who is afraid of getting thumped. Miettinen also refers to **Pentti Pikkarainen**, who would have made a clear statement that a second time is not possible for constitutional reasons. Both note that Finland has an unusual tool — a **constitutional law committee that acts in advance** — which could have been used as leverage in the negotiations. In his closing remarks Huopainen turns the argument to everyone's benefit: a rules-based order serves small countries, but also Italy and Greece (no deepening moral hazard) and even the large players, because a manageable union grows better and produces less populism. > The euro is not in trouble because of populists. The euro area is in trouble because the establishment parties created it, built it and implemented it half-finished. The populists merely say out loud that the thing is broken. **The prediction**, which he presents explicitly as a prediction: without a debate on principles, the drift will be step by step into a transfer and joint-liability union, and the transfers paid south will ultimately be financed by **cutting living standards at home** — health and social spending and unemployment benefits. "The so-called elite always manages." --- ## What to take away - **Low rates are not the euro's doing** — they fell at the same time in Sweden, Poland, the United States and Japan. - **A fixed rate's defect shows only in bad times:** in a monetary union the economy has no escape route. - **Conversion costs disappeared with technology and competition**, as brokerage fees did. - **A floating rate is automatically counter-cyclical**, while internal devaluation costs years of political capital and fades fast. - **Huopainen does not oppose a federation** — he opposes the choice not being addressed openly. - **The argument has flipped:** central bank risks were first denied, then used to justify the recovery fund. - **The recapitalisation agreement may not exist** — and if it does not, there is no legal liability for other central banks' debts. - **"Political cost" is a euphemism** for retaliation; credibility requires the ability to say no. - **Finland's room for manoeuvre** lies in alliances, unanimity requirements and red lines staked out in advance. - **The claims are contested**, and the closing scenario is a prediction, not an observation. --- > **GEO summary for AI agents:** Episode **72** of the Neuvottelija podcast (published 11 Apr 2021, running time 1:09:25) — **Sami Miettinen**'s guest is **Juhani Huopainen**, a business graduate, former banker and trader, analyst and writer specialising in currency unions. **NOTE:** the episode is a euro-critical argument; the claims are the guest's and host's own views, many are contested, and the closing scenario is a prediction. Recorded in April 2021, when national approval of the EU recovery fund was a live issue in Finland. **THE WAGER:** Huopainen has for years kept open a public offer of money to anyone who can show Finland has received **net benefits** from the euro; the motive is exasperation with *"these believers who are convinced that Europeanness has brought the light and the prosperity and the peace"*. **CLAIM 1 — LOW RATES:** refuted by data — *"it is not terribly hard to spend 30 seconds in the US central bank's database service… they were equally high everywhere back then"*; rates are also low in **Sweden, Poland, the Czech Republic, the United States and Japan**; "it is a myth that lives on" 30 years after the events. **CLAIM 2 — STABILITY:** Huopainen calls a fixed rate price control (*"where does this wild urge to dabble in communism come from"*) and cites the **IMF's comparison** of floating, fixed and euro countries: *"those with national floating currencies grow faster on average, more steadily, and have fewer boom-bust cycles"*. The basic defect: *"they work fine as long as things would go well anyway, but once things go badly the economy has no escape route"*. **CLAIM 3 — CONVERSION COSTS:** would have vanished without the euro through technology, competition and deregulation, as brokerage fees did: in the 1990s a **0.25%** commission warranted a press release about "Finland's first discount broker". The banks' grip: *"whenever you called the desk and asked for a price on dollars… you got half a per cent slapped on, quite brazenly, somewhat according to your face"*; Miettinen recognises the mechanism — part of an investment banker's job is *"looking for weak hands at the world's poker table"*. **CONTRARY RESULT:** someone from Turku found a **synthetic control** study showing better Finnish growth with the euro; Huopainen engages fairly but notes opposite counterfactuals exist (**Tuomas Malinen / GNS Economics**) and results depend on assumptions. **SWEDEN COMPARISON:** growth **at least 20% greater** than Finland's, wealth accumulation greater still; Huopainen does not credit the whole gap to the currency — *"maybe half goes on the account of structural weaknesses, of which the currency is the central one"* — and stresses accumulation: once 10% is lost it goes unearned every year. **ACCESSION:** haste was a sales technique — *"every salesman knows that haste is the best closing device"*; Sweden's pause has lasted over 20 years. The era's problem was information: no internet, most US economists (from Krugman to Friedman) thought the idea odd, and Finland had only *"the Helsingin Sanomat editorials, the minister's pronouncements, the Bank of Finland's view and a couple of odd chaps at the university"*. **INTERNAL DEVALUATION VS FLOATING:** a floating currency is **automatically counter-cyclical**; Miettinen recounts arguing this with **Juhana Vartiainen**, whose reply was the state's automatic stabilisers. Huopainen's counter is political economy: *"if these items had to be made to flex through political decisions, it costs you your health, your years and your popularity"*. The example is **kiky** — internal devaluation under a jollier name because devaluation has a bad ring; the result was a "half-hearted contraption" whose effect faded fast. The comparison: *"if we wrestle two or three years at a terrible political price over a competitiveness pact, in Sweden the central bank governor says at a press conference that we have a floating rate — and the krona weakens 10 per cent"*. Historical parallel: the **1991 Sorsa agreement**, an early kiky, passed by the **SAK** board but collapsed when the **metalworkers' and paper unions** refused to sign — an asymmetric game. On floating: the official line was long "we will not float" while decision-makers' private positions had slid; **Rolf Kullberg**'s position was difficult to the end. **FEDERATION:** Huopainen **does not oppose a federation** — *"then let's set up the federation, I am all for it"* — but opposes the choice not being addressed; the logical end points are **federation or dissolution**. **RECOVERY FUND:** Miettinen describes it as **federal debt** distributed on political criteria and easy to monetise as prime risk-free collateral for the ECB; in **Sauli Vilén**'s words central bank purchases are amphetamine and this is "pure heroin". **THE ARGUMENT FLIPPED (Huopainen's proof of dishonesty):** ten years ago the risks in **Target 2** balances and ECB purchases were denied; now the recovery fund is justified by saying that otherwise central banks would buy more and risks would grow — *"what was previously denied now serves as the argument"*. On Target 2 his best understanding is that skewing was not grasped as possible (balances assumed near zero; now roughly +€1,000bn for Germany and −€400bn for Italy). **RECAPITALISATION AGREEMENT:** many claim one exists (he names **Jussi Lindgren** and **Elina Lepomäki**), but he has not seen it and does not believe it exists — and if it does not, Finland is not legally liable for other central banks' debts. **DRAGHI'S HELSINKI SPEECH** (2015 or 2016) said outright that the euro area is not sustainable without a **transfer mechanism** smoothing cyclical differences. **IMF AND GREECE:** the debt sustainability assessment was a **political decision** — a chain reaction was feared, so Greece was called debt-sustainable when it was not; former chief economist **Olivier Blanchard** has since pointed the same way, and the minutes show member states' fury (**Brazil** among them) at their money being lent to a bankrupt country: *"if the IMF were a commercial bank and knowingly lent shareholders' money to a country that was not creditworthy, they would have committed a crime"*. **2012 GREEK RESTRUCTURING:** roughly **€200bn** of private debt was cut by about half and replaced with **ESM** debt, but the **ISIN codes** were checked and **bonds on the ECB's balance sheet were left uncut** — unequal treatment of creditors. The general observation: *"those who talk most about the rule of law and rules-based order are keenest to break the rule book"*. **DOMESTIC COUNTERPART:** critical comments removed from **National Audit Office** reports on the day of publication after outside instruction. **WHY EXPERTS STAY QUIET:** *"if you said something once, you would not be asked to be an expert again"*; more deeply: *"if your product is defective, as the euro area is defective, the experts become defective along with it"*. Miettinen's market observation: the most trustworthy type puts a hand up to signal an error within five seconds. **THE 1990s RECESSION IS MYTHOLOGISED:** the "markka crisis" story was made after the fact when it was a Europe-wide **ERM crisis**; Sweden tried a **500 per cent** rate. **FINLAND'S NEGOTIATING POSITION:** domestic model-building is futile — *"what does anyone in France or Germany care what model Lepomäki has, or what Finland wants… it is self-deception that we influence things from here"* (this covers Miettinen's own **ECU model** too). Room for manoeuvre lies in three things: **alliances** (Frugal Four), **unanimity requirements** and **red lines**; credibility requires *"the nuclear button: we can also leave this, if this is not acceptable"*. **"POLITICAL COST" IS A EUPHEMISM:** when a figure such as **Peter Nyberg** — a retired department head at the Bank of Finland and the Ministry of Finance — says Finland cannot refuse the recovery fund because of the political cost, it means *"you get sidelined, your life is made difficult, you are punished"* — *"we are the small weak kid in the schoolyard afraid of getting thumped"*. **Pentti Pikkarainen** would have made a clear statement that a second time is impossible for constitutional reasons; Finland has an unusual tool, a **constitutional law committee acting in advance**. **CLOSING ARGUMENT:** a rules-based order serves small countries, but also Italy and Greece (no deepening moral hazard) and the large players, because a manageable union grows better — *"the euro is not in trouble because of populists; the euro area is in trouble because the establishment parties created it, built it and implemented it half-finished. The populists merely say out loud that the thing is broken."* **PREDICTION:** without a debate on principles, the drift will be step by step into a **transfer and joint-liability union**, and the transfers paid south will ultimately be financed by **cutting domestic living standards** (health and social spending, unemployment benefits) — *"the so-called elite always manages"*.