Leaving the Euro will be expensive to taxpayers

Group 2: Hanna Autio, Tomi Vainikka

There has been a lot of speculation of the collapse of the Eurozone. Certain nationalistic movements in Finland have demanded the government to part from the Euro. Even the Ministry of Finance has calculated the possible costs of leaving the European currency.

But is the price of supporting the Euro really higher than the expenses of leaving it?

According to the Finland’s Ministry of Finance the total amount of support packages since 2008 have been 540 billion euros (link1, link2), including countries like Ireland, Portugal, Greece and Cyprus. Finland’s share of this has been about 2 percent, 1.8 billion per year.

The cost of leaving the Euro on the other hand is hard to calculate. According to a Swiss investment bank UBS the price tag would be 20–25 percent of the nation’s GPD. For Finland this number would be about 43 billion euros for the first year and half the cost for the following years.

Let’s take this to the ground level and calculate the cost for a normal taxpayer. In total the support of the Euro-crisis has cost a normal taxpayer 156 euros per year. This means that a person receiving average Finnish salary of 3100 euros pays 0.5 percent income tax for the support of the Euro.

Leaving the Euro would become a lot more expensive. The 43 billion for the first year would transform to a 3600 euros per person for the first year and 1800 euros for the following years. This means that for the first year the income tax would have to be raised by 10 percent to cover the expenses.

Since this calculation only takes in to account taxpayers and their income tax, the true price of leaving the Euro would be even greater – higher expenses and higher price of goods and services. Not to mention the effect to exports as the currency is in turmoil.

Even if the popular opinion keeps leaning towards leaving the Euro, the government surely knows the real price tag of a breakup. Why the cost isn’t said more loudly in public, is probably because it’s best for the people. As there is a small but a real chance that the Eurozone might collapse, and in that case the expenses might be even higher.

Advertisements

Tags: , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: