The future of Europe is more uncertain than ever: the UK is leaving the bloc, while France and Germany are planning to rekindle the European project, as a way of addressing the increasing centrifugal tendencies in the Union. The next few years will be decisive in determining the future direction of the continent. In a time where the mere survival of the EU is at stake, Nordic countries are often seen as sitting on the fence: not particularly enthusiastic about further European political integration, but not on their way out either. Although the public opinion in Denmark, Sweden and Finland is not supportive of leaving the EU, these countries fear getting marginalized in a multi-speed union, because of their reservations on military, monetary and political integration. This report sheds light on the positions of Nordic policymakers on the issues that are set to shape the future of the EU, the Defence Union, EU relations with Russia, the reform of the Eurozone and the Banking Union.
Nordic countries prefer regional defence cooperation to a EU Defence Union
All Northern countries, including non-EU member states, Norway and Iceland, share a common security concern regarding a “resurgent Russia” and the escalating situation in the Baltics. On June 30th, 2017 Finland and Sweden joined the British led Joint Expeditionary Force (JEF), a group that also includes Denmark, Norway, Estonia, Lithuania, Latvia and the Netherlands. This might have been a subtle sign that the Nordic bloc wants to deepen ties with both the UK post-Brexit and regional partners, by joining a non-military alliance.
However, despite the increasing attention paid to regional defence cooperation, Nordic policy-makers are not very supportive of the current plans to increase military cooperation at the EU level. As shown by our previous report on the matter, Denmark, Sweden and Finland are at the forefront of the opposition to an EU Defence Union. Not even half of the Nordic EU Parliamentarians (MEPs) voted in favour of a report that proposed the establishment of a Defence Union with strong shared capabilities. The MEPs from other national delegations were much more supportive of the plan, which was eventually endorsed by a comfortable majority of representatives in the EU’s Parliament.
While the European Parliament as an institution has limited powers on defence, the votes of the EU Parliamentarians are highly useful indicators for understanding the (current and/or future) positions of the governments of the countries they come from.
As the Nordic left-leaning parties tend to be wary of defence initiatives, the Swedish governing parties (Social Democrats and Greens) are opposed to further EU military integration. Even stronger opposition is shown by the second largest party in the polls, the far-right Swedish Democrats, whereas the Centre-right Moderate Party is more supportive on the matter. The next Swedish elections in 2018 will be key in determining the future stance of Sweden on the Franco-German plans: a potential victory of the Centre-right coalition (the Alliance) could lead to a more active role of Sweden on European defence- cooperation.
In fact, the uncertain regional security has probed debate on the best defence alternative for Sweden. The debate on how to defend the country from Russia is getting traction in Sweden and, after the re-introduction of the mandatory military service, the Moderate Party (EPP) and the Centre Party (ALDE) are calling to join NATO.
The opposition among Danish policymakers is even stronger, as none of the major Danish parties are endorsing this renewed push towards a common defence. Considering that Denmark is not participating in the Common Security and Defence Policy, the situation is not likely to change in the near future. Denmark enjoys the protection of NATO and, when it comes to security, it prefers to prioritize its transatlantic relations.
The coalition governing Finland is more divided, with the Centre-right National Coalition Alliance being more supportive of closer defence relations with the rest of the EU, whereas both the agrarian Centre Party and the main opposition force, the Social Democratic Party, are wary of breaking away with the traditional non-aligned stance of Finland. Therefore, participating in the most ambitious initiatives is not that likely, although this will also depend on the political developments in the country.
Sweden and Denmark are trying to contain Russian influence in the region
One of the reasons for which Nordic countries prioritize regional and transatlantic cooperation is also the need to counter-weigh an increasingly assertive Russia. As highlighted by our previous analysis, this topic tends to divide EU Parliamentarians along their national groups. For example, French, Italian and (to some extent) German political forces are more open to pursuing friendlier relations with Russia, when compared to Eastern and Nordic MEPs.
In this case, a majority of policymakers from Sweden and Denmark supported stepping up measures to counter Russian propaganda, whereas the positions of Finnish MEPs is more nuanced. Because of its proximity to Russia, Finland tends to adopt a less confrontational stance towards its Russian neighbor. However, The Social Democratic Party of Finland, which strongly advocates for keeping good bilateral relations with Russia, is currently in the opposition.
Finnish government is divided on the proposed Eurozone plans
In recent developments, Macron and Merkel have expressed their mutual interest to proceed to further overhaul the economic and political integration of Eurozone, and they even signaled the possibility to alter EU treaties. A deeper integration of the Eurozone would affect Nordic countries in a different way, as neither Denmark or Sweden have adopted euro as their currency, while Finland is fully integrated in the Economic and Monetary Union (EMU). This explains why Sweden and Denmark are opposing further integration in the Eurozone, as the two countries fear being gradually marginalized within an EU prioritizing the economic development of the Euro Area. In particular, the establishment of a budget for the Eurozone and even new dedicated institutions could gradually lead to a separate system of rules and governance. As Denmark and Sweden are not set to adopt the euro anytime soon, they will try to ensure that further political integration in the Eurozone will not come to the detriment of the integrity of the current system of governance of the internal market.
Nevertheless, from among the Eurozone countries, Finland is one of the least supportive of the establishment of a budget for the Eurozone. This is not surprising, as they were among the most hawkish national delegations during the debate on the Greek debt crisis. As in the case of Germany and the Netherlands, Finnish politicians are concerned about the moral hazard stemming from pooling financial resources among the Eurozone countries, fearing that Finnish taxpayers will end up subsidizing Southern European countries. However, the current proposal of setting up a Eurozone budget is less ambitious than the so-called Eurobonds (pooling of debt at the EU level).
Its final approval will also depend on the political developments in the Member States: the Finnish governing coalition is currently divided, with the National Coalition Alliance being supportive of a common budget, whereas the Centre Party is opposed. The opposition of the Centre Party is not particularly surprising, as it opposed the Finnish adoption of the euro in the first place. The main opposition party, the Social Democratic Party, is also in favor of a Eurozone budget, whereas the Eurosceptic True Finns are obviously opposed. Only if strict conditions are attached to the governance of the common budget, this will have a chance to be accepted by the Finnish, German and Dutch governments.
Finland participates in the Banking Union (as every other Eurozone country), whereas Denmark and Sweden are still deciding whether to join it. Both Denmark and Sweden announced that they would review merits to join, announcing their final decisions by 2019.
However, the final shape of the Banking Union is still uncertain, as the implementation of the third pillar, namely the Deposit Insurance Scheme, is blocked by a conflict between groups of Member States, most importantly Italy and Germany. The European Deposit Insurance Scheme (EDiS) is supposed to cover investor losses up to 100,000 euros in case of a failure of a large European bank. This fund would be transnational, with European banks from different countries paying into its coffers. The purpose is to avoid other expensive public rescues of ailing banks, therefore reducing the pressure on public finances.
Nevertheless, Member States such as Germany and the Netherlands are worried about the bad conditions of the banking system of some southern countries, such as Italy. In addition to non-performing loans, many banks are also overexposed to the sovereign bonds of their countries, which are not classified as risky assets. Reducing the expositions of national banks to sovereign bonds is one of the conditions demanded by certain governments in order for them to accept the establishment of the EDiS. However, this is unlikely to be accepted by the Southern countries, as it would increase the pressure on the public finances and undermine the efforts to keep the national debt under control.
Concerns about the over-exposition of banks to sovereign bonds are shared by Nordic MEPs, who are more supportive of stringent measures than the EU average.
This is especially the case of Denmark, where both the Centre-right party, The Liberal Party (currently in government), and the Eurosceptic Danish People’s Party, support strong measures aiming at reducing the exposition of national banks to public bonds. These reservations are likely to slow down Danish entry into the Banking Union, although this will also depend on whether an agreement for the implementation of the third pillar can be found.
In Finland, which is already a member of the Banking Union, similar positions were adopted by the party of Finnish Prime Minister, Juha Sipilä (Centre-Party), whereas its coalition partner, National Coalition Alliance is supporting a softer approach. These divisions within the Finnish cabinet on EU integration show the importance of monitoring closely the political developments in Finland.
Interestingly, Swedish policymakers are less concerned than the other Nordics about the over-exposition of banks to sovereign bonds, as none of the main Swedish parties supported more stringent requirements at the EU level. This moderate position might facilitate the entry of the country into the Banking Union.
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