Thursday

1st Oct 2020

Analysis

Real economic challenges come after Finnish elections

  • As Finland’s first postwar president Paasikivi put it: “The beginning of all wisdom is the acknowledgement of facts.” (Photo: raneko)

During a recent visit to Helsinki, I noticed that Finland is haunted by a brooding sense of crisis. The past record of solid economic growth has stalled.

The economy has been in recession for three out of the last five years. This is the context for the general election on Sunday (19 April).

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Since the global crisis in 2008-9, Finland’s old export-led growth model has been spluttering (Photo: Karin Beate Nøsterud/norden.org)

The incumbent government is a four-party coalition, consisting of two big parties, the conservative National Coalition Party, and the Social Democrats, and two small parties, the Swedish People’s Party and the Christian Democrats.

The key question is whether the Centre Party – which is expected to emerge as victor on Sunday - can reverse Finland’s economic decline.

Between 2011 and 2014, the Finnish government was led by conservative Prime Minister Jyrki Katainen, currently vice president of European Commission. He spoke of the need for structural reforms but was not able to execute them.

When Katainen left for Brussels, his foreign minister Alexander Stubb was chosen as the chair of the party and thus PM last June.

The conservatives hoped he would create momentum ahead of the elections. That did not happen. In the past nine months, support for the conservatives has plunged from 22 percent to 16 percent, and soared to 24 percent for the Centre Party. The latter is led by Juha Sipilae, a politician and businessman.

In Finland, the centrists offer an alternative to the conservative right and the socialist left, by appealing to the urban middle class, rural conservatives and those voters who are increasingly critical of Brussels but not willing to join the eurosceptic and nationalist Finns Party.

Today, the eurosceptics, led by Timo Soini, are supported by 17 percent of Finnish voters, almost as many as the Social Democrats, led by Antti Rinne, current finance minister. The rest is split among the leftists (8%), Greens (8%), the Swedish People’s Party (4%) and the Christian Democrats (4%).

According to pre-election polls, 60 percent of the Finns expect the Centre Party to play the leading role in the next government, while nearly as many anticipate the Social Democrats to be the second government party.

To create a majority government, Sipilae also needs The Finns, however.

Eclipse of export-led growth

Not so long ago, economist Paul Krugman criticised ex-EU economic chief Olli Rehn, who oversaw Brussels’s austerity policy, for having misguided “Rehn of terror” policies; now Rehn is running for Finnish parliament as a (very liberal) centrist.

And now Finnish people are likely to have a taste of their own conservative austerity medicine.

The economic landscape is dire.

Credit agencies expect growth to plunge to 0.5 percent in 2015. Unemployment exceeds 10 percent. Vital sectors of the economy are deteriorating.

Not so long ago, Finnish electronics still accounted for more than 20 percent of exports. Today, its share is barely 11 percent. Instead, Finnish exports are dominated by metal-engineering (32%), chemical industry (25%) and forest industry (20%).

As even thriving core economies in the Eurozone are slowing down, export-led growth is lingering across the region.

The current account deficit in 2011 was the first in nearly two decades – but not the last.

What’s worse, 80 percent of Finnish exports continue to be dominated by Europe.

With foreign direct investment, the reliance on Europe remains even more overwhelming.

Finally, as wages are falling and both household and corporate investment plans are postponed, Finland is beginning to suffer from demographics - it has Europe’s fastest aging population.

Standard and Poor’s docked Finland’s rating to AA+ in October 2014.

Moreover, the EU sanctions on Russia have had a particularly adverse impact on Finnish exports to and investments in Russia.

Deepening bilateral friction has not helped matters. On Sunday (12 April), Russia’s foreign ministry said that moves by Finland and Sweden toward closer ties with NATO are of “special concern.”

The keys to Finland's future

After the election, the Centre Party - if it wins - holds the key to Finland’s future. Incremental changes are no longer enough. The priorities should be reforms for growth, determined but gradual, fiscal consolidation, as well as measures to address lingering financial stability concerns.

In order to sustain its high living standards and generous social model, Finland can no longer price itself out of global competition.

As Finland’s first postwar president Paasikivi put it: “The beginning of all wisdom is the acknowledgement of facts.”

After seven years of missed opportunities, Finland’s incoming leaders will need adequate political consensus to carry out the needed structural reforms.

Dan Steinbock is research director of International Business at India China and America Institute (USA), visiting fellow at Shanghai Institutes for International Studies (China) and in the EU-Center (Singapore)

Opinion

On the Finlandisation of Europe

The Finlandisation of Europe is a very real prospect that would undermine our security and the credibility of the European project.

Agenda

Greece, Finland, and TTIP this WEEK

The focus will once again be on the Greek debt crisis this week, as well as continued negotiations on an EU-US trade deal, and Iran's nuclear programme. Plus, a new media kid on the EU block.

Chemnitz neo-Nazis pose questions for Germany

UN human rights commissioner urged EU leaders to condemn violence that recalled the 1930s, but the local situation in former East Germany does not apply to the whole country.

News in Brief

  1. Polish MEP defects to Greens from Socialists & Democrats
  2. Finally a federal government agreement in Belgium
  3. Auditor appeals for EU funds on child poverty
  4. British MPs get behind controversial Brexit bill
  5. France admits Covid-19 app low take-up
  6. UK sanctions Belarus leadership
  7. Poland introduces new Covid-19 rules but no lockdown
  8. Turkey reportedly downs Armenian fighter jet

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Council meets Belarusian opposition leader Svetlana Tichanovskaja
  2. Nordic Council of MinistersNordic Region to invest DKK 250 million in green digitalised business sector
  3. UNESDAReducing packaging waste – a huge opportunity for circularity
  4. Nordic Council of MinistersCOVID-19 halts the 72nd Session of the Nordic Council in Iceland
  5. Nordic Council of MinistersCivil society a key player in integration
  6. UNESDANext generation Europe should be green and circular

Latest News

  1. Celebrate with us. EUobserver's 20 years of independent EU news
  2. Ban on Catalan leader condemned as 'disproportionate'
  3. EU defends Jourova over Hungary's resignation demand
  4. A 'geopolitical' EU Commission. Great idea - but when?
  5. The EU's new rule of law report - pushing at an open door?
  6. EU tries to avoid lockdowns as global death toll reaches 1m
  7. Reports: Turkey sent Syrian fighters to Azerbaijan
  8. German presidency tries to end EU's rule-of-law battle

Stakeholders' Highlights

  1. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  2. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  3. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  4. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  5. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  6. UNESDACircularity works, let’s all give it a chance

Join EUobserver

Support quality EU news

Join us