The corporate benefits of the euro: Finnish companies cannot live without a common currency

Abstract:

The costs of euro membership have been a topic of lively political debate in recent years, and they have received ample media attention. In contrast, numerical estimates on the benefits of the euro have been practically non-existent.

While the corporate benefits of the euro have been widely documented in the academic literature, the practical value of those publications has suffered from their technical complexity.

Several experts have linked the fast growth of corporate bond markets in Europe since 1999 to the introduction of the euro. With growing arm’s length credit markets in Europe, companies’ access to financing has improved significantly.

Companies from countries with small and unstable legacy currencies, such as Finland, have benefited comparably more from the widened financial markets.

The cost savings due to the lowered cost of debt are non-trivial. For a set of large Finnish companies alone, the narrowing spread between their interest expenses and those of their German counterparties has resulted in after-tax cost savings of over €400 million each year.

Sweden, Norway, and Denmark may have received some free-rider benefits while staying outside the currency union. However, it is difficult to estimate whether such benefits would have been obtainable had Finland chosen to keep its own currency.

Reductions in the cost of financing should increase companies’ ability to invest, and thus these savings are likely to have multiplicative effects on the economy for years to come.