By Brian Cronin

Before starting off on another trip around Europe, let me remind regular readers that about a month ago in my essay on Spain, “The Impossible Dream” (which you will find in Alhambra’s archives if you didn’t keep it), that Spain has 17 semi-autonomous regions who run their own finances, and for some of them, none too well. Valencia and Murcia had asked for help (€3.5 billion and €300 million respectively) but were wary of making the request because they were unsure of what strings would be attached. Now Catalonia, whose main city is Barcelona, has petitioned the central government for relief. Things have become so dire, that they have officially asked Madrid for help to the tune of €5.02 billion. Spain’s regions have a total debt of €145 billion with about a quarter of that needing to be refinanced this year. And they are experiencing a double dip recession. Not good.

While Frau Merkel has toned down some of her harshness, aware of how she is seen abroad, and seems to be attempting to be “nicer”, she and M. Hollande nevertheless said no to Greek PM Samaris this past week when he requested as much as two years leeway in order to bring about reforms. Stick to your agreements, he was told. While he had to accept that, he raised the specter of hordes of unemployed and desperate Greeks exiting north looking for work and opportunity. Mobility of labor is guaranteed under EU law but the last thing northern governments want is to have to cope with near suicidal Greeks, looking for work.

Meanwhile, the Greeks and the Swiss are on the point of signing an agreement to try and get richer Greeks (i.e. the ones with yachts) who have ferreted away money in Swiss banks to fork over taxes. While it goes nowhere near to alleviating the budget crisis, it is a step in the right direction.

Anyway – on with the journey. If memory serves me right, the Intermezzo from “Karelia Suite” was the theme music to “This Week” on the new British independent television channel (i.e. independent from the BBC) in 1956. It was ITV’s answer to the top rated current affairs program “Panorama”. At last, Brits had two television channels rather than just one! The music was instantly majestic and thrilling and it introduced me at the tender age of 12 to the music of Finland’s greatest musician and composer Jean Sibelius.

Finns, like Hungarians, have a seemingly impenetrable language that looks like it has many more consonants than vowels compared to most languages. I always tried to learn a few words and phrases of the countries I visited. I managed some in Hungarian but Finnish was different. It always defeated me. Not to worry though, since most Finns speak impeccable English.

In the late 1980s, I was responsible for overseeing the activities of central banks and their relationship with my bank. One of the banks I visited was the central bank of Finland in Helsinki. Suomen Pankki (Bank of Finland) stood out as innovative and more forward looking than its brethren. It was more adventurous with benchmarking and building systems internally to monitor risk. Most other central banks were happy to work it all out on the back of a cigarette pack, or so it seemed, and saw no reason to be too sophisticated. Finland was different. The Reserve Bank of New Zealand also ventured into these uncharted waters too, so much so that there was an exchange of information between these two central banks and exchanges of staff to see how the other was managing risk in an increasingly difficult and volatile world. Indeed, you would not be surprised to see staff members from other smaller central banks visiting Helsinki or Wellington to learn at the feet of the masters.

The reason I bring up this piece of history is that Finland thinks outside the box. It is one of the smaller countries of the European Union and the only Scandinavian country to have joined the eurozone. The dilemma for Finland is that while its economy is performing better than most others in the zone, it is not doing as well as the three other Scandinavians, Sweden, Denmark and Norway, all of whom refused to join the euro. That said, it has relatively low unemployment, its debt to GDP ratio is about 50%, well under the Maastricht guideline of 60%, and it still has its AAA rating and not likely to lose it any time soon. But conservative Prime Minister Jyrki Katainen wants to strengthen Finland’s finances and encourage growth. As with most western countries, the baby boomers are retiring and the birth rate is falling. It all has to be paid for and that means retirement will have to be put off for many.

So with all this belt tightening, Finns are also questioning the worth of belonging to the zone and spending money to support the deadbeats along the Mediterranean. While every government makes contingency plans for whatever comes its way, the voices have been growing louder inside and outside the government. Foreign Minister Erkki Tuomioja, in a rare admission recently, stated that if the euro did break up, they would be fully prepared. The “True Finns”, the anti-bailout party which gained seats in the 2011 election, have been particularly vociferous. But there is general concern too whether the costs of getting out would outweigh the costs of staying in.

For the moment, Finland favors staying in the euro, tying itself to Europe and resisting the blandishments of Mother Russia next door, its biggest trading partner but its former overlord. But, they say, if the southern Europeans want our help, they have to put up collateral. Mr. Katainen stated recently that monies from the rescue fund have to be used “efficiently”. That means there are strings attached and it’s not a free ride.

That hard-headed view is also echoed in Holland which, like Finland, pays in more than it gets back from the EU. While Mr. Katainen holds power for a while longer, his counterpart in the Netherlands, Mark Rutte, the leader of a minority coalition government, faces a general election on September 12, and the outcome is by no means certain. At this point, disillusion with Europe and euro-skepticism may topple Minheer Rutte and put the Socialist Party under Emile Roemer in charge.

Just like the Finns, the Dutch are also laboring under bailout fatigue and “more Europe” is not high up on the popularity charts right now. They also still have their AAA rating and don’t want to lose it. Holland was one of the founder members of the European Economic Community sealed by the Treaty of Rome in 1957, but the optimism and enthusiasm of 50 years ago has dissipated. The Dutch even rejected the EU constitution when it was put to a referendum in 2005. If Mr. Roemer does win, he is likely to want a referendum on Frau Merkel’s idea of a fiscal treaty to bind nations more closely.

I once asked a senior official at De Nederlandsche Bank, the Dutch central bank, to describe their monetary policy. “that’s easy”, he said, “we just do what the Germans do. They raise rates, we raise rates. They lower rates, so do we”. They just try to keep up. Right now, they are facing austerity measures to make sure they don’t lose their high grade rating as they face a looming recession. How this election turns out might also affect the dynamics of any European bailout.

Back in Finland, Mr. Katainen spoke out recently against the “big bazooka”. The term refers both to the European Stability Mechanism and/or the plan for the European Central bank to buy sovereign bonds directly, rather than via the secondary market, from countries in distress above a certain level, in order to keep borrowing costs down, in the same way as a major option player will sit on a rate in the currency markets in order to prevent an option being triggered. The ECB thereby determines the cap but would only come in to the market if the countries concerned committed to reforms.

The Deutsche Bundesbank, on which the ECB is modeled, under Jens Weidmann, is at odds with the ECB and says that such action dilutes its mandate, putting potentially unlimited amounts of questionable assets on the books. He says that it is perilously close to state financing via the printing press and it potentially inflationary, which is anathema to Germans. It is, he said, at odds with central bank independence. A central bank should not be seen to be pulling political chestnuts out of the fire.

The ECB’s Sr. Draghi says not to worry.  Countries have to commit to reform and austerity before such actions are taken. But if the ECB is the eternal backstop, do the governments who are issuing these mega-euro IOUs have the incentive to reform when all they have to do is offer promises of good behavior? That could become addictive.

In “Knickerbocker Holiday” (1938), an aging Peter Stuyvesant sings Kurt Weill’s “September Song”. One of the lines is “one hasn’t got time for the waiting game” but it looks like September is going to have to be exactly that. This month promises to be very interesting for markets and there is plenty to keep investors nimble. The ECB meets on September 6, and will presumably expand on its previously announced bond buying program. EU leaders meet the following week to take the first steps towards a more perfect banking union. That same week, the Dutch go to the polls and the German Constitutional Court rules on the legality of the European Stability Mechanism. So, with apologies to Bette Davis: Fasten your seat belts, it’s going to be a bumpy September.