The gamble for Nordea is a race to the bottom

By Tor Gasslander, from Flamman 12/2018 (22 March 2018)

With the move of Nordea’s main office, Sweden is also transferring responsibility for saving the bank in the event of a crisis to Finland and the rest of the EU. Finnish leftist Li Andersson is not exactly thrilled with her big new bank.

Finland’s Prime Minister Juha Sipilä believes his country is a stable region to operate in. He was overjoyed on Twitter last Thursday evening after having won the power struggle for Nordea.

The bank advertised its move from Sweden after the Swedish Government announced a raise in resolution fees last year. On Thursday, the bank’s decision was pushed through. 96 percent of the shareholders voted for the proposal to move the bank’s head office to Finland.

The decision has given rise to harsh criticism: on the one hand, from those who believe the Government failed to hold on to one of Sweden’s most important businesses, and on the other, from those who believe that the bank, which was saved with tax revenue during the last financial crisis, is shirking its responsibility by moving as soon as there is talk of repayment.

One million Swedes could leave the bank

According to a study the research company Inizio conducted last fall, as many as one million Swedes are considering leaving the bank. The Swedish trade union federation, LO, asserted that they also were planning to move their savings from Nordea in protest.

Swedish Social-Democratic Minister for Finance Magdalena Andersson has expressed regret over Nordea’s decision to move, while Left Party leader Jonas Sjöstedt called the bank’s decision “avarice.”

Nor does the Finnish left seem happy with the move. Li Andersson, leader of the Finnish Left Alliance party, is in fact not happy at all.

Nordea, she argues, is not so much a price as a risk.

“It’s a big business, additionally in a sector where unfortunately it’s the taxpayers who bear responsibility if the risks are realized. So you could say it’s a big business that doesn’t bear its own responsibility,” she told Flamman.

And now Finland is taking over that responsibility?

“Exactly. And since Finland is part of the Eurozone, the risks are spread across the entire EU. So it’s not just Finnish taxpayers, it’s everyone else as well.”

Saving a billion euros

The Finnish Financial Supervisory Authority has increased its workforce by around 30 people to meet the increased demand for inspections that Nordea is expected to bring with it. The move is also expected to inflate the Finnish finance market to a value equivalent to 400 percent of the country’s GDP.

According to Nordea, the move will save the bank a billion euros in unpaid fees.

However, the move is not expected to result in any major changes to the Finnish labor market. Li Andersson calls it “a victory in name only.”

“During the last election season, Finland lowered its corporate taxes to 20 percent, which was below Swedish levels. It was justified entirely with the argument that it would increase our competitiveness in relation to Sweden. So it wasn’t enough to lower it to the same levels, they had to be lower. That’s how a race to the bottom starts, also between countries that should have a shared interest in maintaining a sufficient level of tax revenues to be able to fund social services,” she says.

“This is part of the problem with the world we’re now living in. Big businesses subjecting countries to competition like this, and deciding for purely political reasons where they choose to have their head office.”

Focus on the European bank union

In Nordea’s own communications about the move, focus has lately been on the European bank union, which – it is argued – provides better conditions for the bank to conduct its operations than Sweden, with its regulations.

The Swedish Government is currently also investigating conditions for a Swedish entry into the bank union. The investigation will be reported in late November, 2019. After that, there could be talk of Sweden joining.

Li Andersson thinks that is a bad idea, since Sweden would then be forced to be part of, and bear the results of, a potential new European banking crisis. Which would include the costs of a Nordea in crisis.

“Based on the information I have, I would not see it as a sensible decision. I think the likelihood of a new European bank crisis is great,” she says.

Without doubt, Finland is in a different situation than Sweden. It is the only Nordic country that has joined both the EU and the euro. The joint European finance policy they are thus part of has both created the conditions for a new crisis and weakened the possibilities of managing it, in Andersson’s opinion.

“If a new euro crisis were to break, for example, the net public debt of the euro countries is at a significantly higher level than it was previously. So there isn’t the same space for bailing out banks as there was earlier, when there was no choice.  On the whole, what we’re most worried about is this linking the fates of private banking and the states: it still exists in the euro region.”

This is the precarious situation Nordea will be moving into during the latter half of the year. Andersson would now like to see fewer discussions on exactly what position to take towards the EU in both the Nordic and the European left.

“I think there is a lot of room for collaboration among the European left where we concentrate on factual matters. We all agree on the importance of fighting climate change and a tax-haven economy, and on the importance of political collaboration on preventing businesses like Nordea pulling maneuvers like this where they subject countries to competition and play them against each other about who supports big business the most.”