Podcast · #rahapodi #270 · 2022-01-13 · 1:15:18 · In Finnish
Bringing Back the Markka — Sami Miettinen on Rahapodi #270
Published as “Markka takaisin! feat. Sami Miettinen | #rahapodi 270”
Hosted by: Martin Paasi · Miikka Luukkonen
Martin Paasi and Miikka Luukkonen open with a framing device: Finland has been taken hostage, and they have brought in a negotiator to get it out. What follows is the most detailed public account Miettinen has given of what leaving the euro would actually require.
First, the negotiation questions
Before the main subject, the hosts use him for what he is. Negotiation is a team sport — Ahtisaari’s teams ran to eleven people, three lawyers and six diplomats, with Ahtisaari himself taking only the hinge moments. Compromise is a poor tactic, because the book’s slogan is that you do not get what you deserve, you get what you negotiate. Roles matter: an alpha who stays quiet, a scribe, and a talkative third who can be overruled when the thing runs off the rails — a finer-grained division than good cop, bad cop.
On Chris Voss’s Never Split the Difference, Miettinen is respectful but dissenting. Tactical empathy is the book’s best contribution, and Voss too had a team feeding him through an earpiece. But hostage negotiation is over-romanticised into business: Voss advises against anchoring and recommends waiting for the other side’s opening, which works when the counterparty turns out to want a weekend’s drinking money rather than the ten million they asked for. In an M&A negotiation the other side knows to ask for the hundred million — so if you want a hundred, say a hundred and thirty, because coming down from there is easier than climbing up from seventy.
The two doctrines
The technical core of the episode is a pair of legal principles.
Lex monetae — a sovereign state may always choose the unit in which payment is made, whether that is squirrel pelts, bitcoin, kronor or euros. This is what makes the conversion possible at all, and it is why a five-thousand-euro salary can become a five-thousand-markka salary without an exchange rate being applied: in a sovereign state you can compel every transaction into the unit the state designates.
Lex contractus — but the counterparty to an existing contract can insist that hundreds of billions of euros already agreed under another system cannot be unilaterally redenominated.
In 2014, when Miettinen worked on the book Euron tulevaisuus, Suomen vaihtoehdot with Elina Valtonen and Vesa Kanniainen, this would have been relatively straightforward, because the small print did not yet exist. Then Greece nearly left in 2015 — a matter of hours, he says, from having a drachma — and everyone noticed it was possible. Since then every Finnish government bond carries a collective action clause requiring 75 per cent of bondholders to approve a redenomination, and corporate bonds increasingly carry a 50 per cent equivalent. The porthole was found and plugged. Nobody in Finland, he notes, appears to have objected: these things are done so that everyone signs or nobody does, and a holdout gets walked round the corner.
Paying euro debts in euros while running a domestic markka is not the escape hatch it looks like: that is dollarisation, and Venezuela demonstrated where it goes.
The perverse arithmetic
Miettinen’s most interesting observation is that the direction of the currency move decides who consents. Nomura’s chief economist modelled a roughly six per cent move for Finland in 2014.
If a leaving country’s currency strengthens, its euro debts get easier to pay — and creditors would happily accept the conversion, because they end up with more euros. That is why everyone would take D-marks from a departing Germany, and why nobody would accept lire from a departing Italy. It is also why Germany will not go: the competitiveness loss would stop it against a wall.
Then the joker. Finland sits at +€67 billion in Target 2 — a claim nobody agreed to and that arose by accident, since the system was designed without anyone considering that the balances could go so far negative. Italy and Spain are over €500 billion in the other direction and Germany around a thousand. Draghi has said a departing Italy would have to settle its deficit; nobody discusses whether a surplus is a foreign reserve. If it is, a departing Finland could open with a €67 billion reserve — and if it is not, the countries in deficit have the stronger reason to leave.
What he would actually do
Not go alone, and not go first without company. Czechoslovakia managed a two-party split as an announcement — declared on 1 February 1993, executed within a week — but a nineteen- or twenty-seven-party version is another matter, and a single leaver gets taken round the corner like Tsipras. He would want the Netherlands and Austria in a quiet agreement first; Estonia has no debt and does not need it, Germany is too compromised by its thousand billion.
His actual proposal is different and more elegant: every euro country adopts a national currency simultaneously, lets the market price them, and redefines the euro as a weighted basket of those currencies — the IMF’s SDR construction, applied to the euro area. That restores a counter-cyclical shock absorber to each national economy while keeping the single market, which is the genuinely valuable part. Target 2 gets either forgotten entirely or settled at ten cents in the euro.
The mechanics are the easy part: Finland’s banknote printing works, the card networks already handle a currency selector the way Swedes run parallel euro and krona accounts, and most money is digital anyway. The one real weakness is that Finland killed its own domestic settlement infrastructure on joining, where Greece kept a backup — though the government designated a domestic contingency payment bank at the end of 2020, which he suspects is about cable cuts and Target 2 outages rather than about the markka, but which would serve either way.
Why he votes to stay
The end of the episode inverts the whole argument, and Miettinen supplies the mechanism.
The euro area cannot raise rates, because Italy cannot survive them. The ECB is therefore hostage to fiscal dominance: with inflation at five per cent and rates at zero, real rates are deeply negative, which is destructive on its own terms — why would a bank lend at minus five per cent real? — but which also inflates the debts away. Kicking the can has stopped being neutral and started producing perverse outcomes, and the endgame is that rates stay down, inflation eats the debt, and the euro weakens, which hands the whole area an export tailwind.
If that is the scenario, leaving is exactly the wrong move. His advice becomes the opposite of the episode’s premise: Finland should stop being the boy scout, borrow while the borrowing is cheap in real terms, cut taxes, build infrastructure, and stay in for the ride. The risk on the other side is the German bureaucrat who insists debts be paid in full — a real possibility, since Germany recovers a thousand billion if hard money wins, and since these decisions are made by individual officials rather than by scenario committees, as the EFSF’s founding documentation demonstrates.
His actual ask is procedural and it is the one he keeps returning to across every appearance: Finland should write the scenarios down, assign them probabilities, and prepare a negotiating plan for each — which other countries do and Finland does not.
The vote at the end splits: Paasi for the markka, Luukkonen for the euro, and Miettinen — the casting vote — siding with the markka fist on condition that the secret cabinet agreement with the Netherlands and Austria comes first.
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