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Finland: Single currency, double whammy

Finland's membership of the EU's exchange rate mechanism looks imminent and the country will be well placed to join monetary union. But Finnish banks, just coming out of recession, will need to cut costs and probably merge to keep their heads above water in the new, more competitive environment. John McGrath reports

On September 16, Finland's prime minister, Paavo Lipponen, said his country would soon join the EU's exchange rate mechanism (ERM). He would not specify a date. Other ministers have been equally reticent, both in public and private. Speculation has already taken the likely entry date through to this month and it's looking as if the move will come after the European parliament elections on October 12. Juha Ahtola, chief economist at Merita Bank, dismisses the date game as distracting: "The important thing is that Finland will be joining and the markets have taken this on board. Picking the day is politics."

When Finland does join the ERM it will be better placed than most of the neighbouring EU members to qualify for European monetary union (EMU) if, as seems likely, a decision is made to go ahead with this in 1998. Finland will by then have had close to two years' ERM membership. Its interest rates are low enough to satisfy the convergence criteria set out in the Maastricht Treaty. Its debt/GDP ratio is only just above the 60% limit and, according to economists at Finland's leading banks and the finance ministry, will be below it by 1999.