Juha Sipila said the euro was still feeling the after effects of the 2008 financial crash, and countries with huge debts, such as Italy and Greece, are threatening the entire eurozone’s prosperity. Mr Sipila said “unpopular austerity measures and reform programs” led to widespread discomfort across EU member states, and may have given rise to social unrest leading to a rise in populist politics. But Mr Sipila blamed “unsustainable levels of Government debt” as the underlying cause of instability in the eurozone.
He said: “The countries that suffered the most under the last crisis had something in common: years of excessive spending and the accumulation of debt, whether public or private.
“Eurozone-wide measures cannot substitute governments conducting sound policies.
“To the contrary, offering financial assistance to governments at risk of insolvency will only make the problem worse.
“Any support from Europe must be temporary and not expose taxpayers to excessive risks.”
Mr Sipila highlighted how public debts then filtered through to domestic banks – such as the case of countries such as Greece.
But the Finnish Prime Minister said there were methods to stop citizens from paying the price for national public debt, by introducing the overdue “common deposit insurance” across the EU bloc.
In 2018, the central bank governors of Finland, Spain and Lithuania urged European governments to create the long-delayed European Deposit Insurance Scheme (EDIS), designed to cover savers up to €100,000 in case of a national bank collapse.
But in June of that year, European Union leaders failed to reach agreement on setting up EDIS at a summit in June – partly due to German opposition.
Writing in Politico, the Finnish leader said: “National governments and the European Commission have responded with proposals to improve the architecture of the eurozone.
“These measures are important and laudable, but they cannot work on their own.
“Ensuring stability in the eurozone will require national governments to bring public debts down to sustainable levels.
“Until and unless this is done, the problems afflicting the common currency area will continue.”
Mr Sipila added: “At the moment, the rules allow banks to take on too much risk when it comes to public debt.
“As a result, when a crisis hits the government, the problem quickly radiates to domestic banks.
“This connection, between sovereign debt and the stability of the banking sector, is one of the biggest threats to financial stability in the eurozone.
“Another necessary measure is the creation of a common deposit insurance, which would guarantee the savings of individual depositors.
“Such a scheme would further reduce the link between public debt and domestic banks.
“It can only be put in place, however, if existing risks to banking systems — in the form of bad loans and excessive exposure to public debt — are first reduced.”