Finland is sympathetic to controversial German proposals for a fresh European Union treaty if necessary to enforce fiscal and economic discipline in the eurozone after the Greek debt crisis.

Matti Vanhanen, prime minister, acknowledged that treaty changes would be “very sensitive” so soon after the EU’s latest rule book came into force last year after nearly a decade of gruelling debate.

But he said Finland was “ready” to back proposals by Angela Merkel, German chancellor, to strengthen economic co-operation within the eurozone and impose sanctions against countries that threaten its stability.

The prospect of another round of treaty negotiations has caused alarm in many European capitals after the difficulty of forcing through the Lisbon treaty but Mr Vanhanen’s remarks indicate that Germany is starting to win allies.

He said the priority should be to look for ways to tighten rules within the existing treaty, including the withdrawal of EU structural funds from countries that ignore official warnings from Brussels over excessive budget deficits.

Such a measure could be introduced “very quickly” using the present framework, he said, while treaty changes were likely to take “several years”.

“We need an instrument that will guarantee that, after a warning, member states really change their fiscal policies,” he said. “I think we can do it without changing treaties but we are also ready for treaty changes if it would produce something better.”

Mr Vanhanen said the eurozone must restore its credibility as a “rules-based” union by tackling soaring deficits that have left almost every member, including Finland, in breach of the stability and growth pact, which was supposed to limit deficits to 3 per cent of gross domestic product.

His comments came amid the most serious crisis in the euro’s 11-year history, with Greece on the brink of a bail-out from the International Monetary Fund and fellow eurozone countries. “Greek debt is not so big but there is a domino threat so we need to isolate the problem as early as possible,” said Mr Vanhanen.

He insisted the crisis must not be allowed to disrupt plans by Estonia to join the euro next January and said the eurozone must keep its doors open to aspirant members.

The European Commission and European Central Bank are expected to consider Estonia’s readiness to join next month with a final decision from the European Council due in summer.

The Baltic country, a near neighbour of Finland, appears to have met all the criteria for membership. It battled to reduce its deficit below 3 per cent of GDP amid one of the deepest recessions in the EU last year.

Some analysts have questioned whether the eurozone has the appetite for further expansion after the Greek crisis but Mr Vanhanen said Estonia’s application seemed to be moving ahead “on timetable”.

He warned that any delay would “send totally the wrong message” to other aspirant members, such as Latvia and Lithuania, which are making tough budget cuts and other reforms to keep alive hopes of euro entry.

Mr Vanhanen, who is stepping down in June after seven years as prime minister, said greater co-ordination was needed within the EU on economic and fiscal policy, as members draw up exit strategies from the exceptional measures introduced since the financial crisis.

In the longer-term, Europe must co-operate more closely on structural reforms needed to maintain competitiveness against China and other emerging economies, he said. “We are facing very challenging times and there is a risk of very slow growth in the whole of Europe compared with Asia.”

Get alerts on Eurozone economy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article