This together with inflation contributed to low real interest rates. Monetary policy was tied to defending the exchange rate and while fiscal policy was tightened, it could not prevent the economy from overheating. High inflation and high cost pressures undermined competitiveness and the credibility of the fixed exchange rates.
When monetary policy in Germany was tightened following the reunification of East and West Germany, high real interest rates spread within Europe and the economic climate started to deteriorate. The situation intensified and speculation against the Finnish markka contributed to Finland allowing the markka to float in the autumn of 1992, after protracted resistance.