Beyond the Fringe: Finland and the Choice of Currency

Abstract

This paper seeks to explain why Finland, which is further from the main population and productive centres of Europe and arguably more different and more prone to asymmetric shocks than some countries that have chosen to stay out of Stage 3 of EMU, chose to participate. We argue that economically relatively marginal issues affected the choice. How the decision-making process is conducted can be as important as the balance of information on which the decision is based. We also use evidence after the event on how the economy reacts to show that some of the problems hypothesised beforehand have turned out rather more favourably than expected. In particular Finland has experienced a substantial positive asymmetric shock in the ICT sector where membership of EMU has had a very clear positive effect on the impact on the economy. Lastly we offer some limited evidence that membership of EMU itself forces some of the changes to institutions and behaviour that are required to cope with the new pressures.