Friday

25th May 2018

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).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

  • 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.

Analysis

Orban, the 'anti-Merkel', emboldens European right

Hungary's premier Viktor Orban has inspired 'illiberalism' across central Europe and far-right politicians in the West. His expected re-election this Sunday will further reinforce his standing as a symbol for being tough on Europe's political mainstream.

News in Brief

  1. Italy set to pick eurosceptic finance minister
  2. UK foreign minister fooled by Russian pranksters
  3. Rajoy ally gets 33 years in jail for corruption
  4. Close race as polls open in Irish abortion referendum
  5. Gazprom accepts EU conditions on gas supplies
  6. Facebook tells MEPs: non-users are not profiled
  7. Commission proposes ending France deficit procedure
  8. UK households hit with Brexit income loss

Stakeholders' Highlights

  1. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  2. Centre Maurits Coppieters“Peace and reconciliation is a process that takes decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  3. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  4. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  5. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  6. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  7. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments
  8. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  9. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  10. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  11. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach
  12. Sustainable Energy Week 2018"Lead the Clean Energy Transition"- Register and Join Us in Brussels from 5 to 7 May

Stakeholders' Highlights

  1. EU Green Week 2018Green Cities for a Greener Future. Join the Debate in Brussels from 22 to 24 May
  2. Nordic Council of Ministers12 Recommendations for Nordic Leadership on Climate and Environment
  3. Macedonian Human Rights MovementOxford Professor Calls for an End to the Anti-Macedonian Name Negotiations
  4. ACCAPeople Who Speak-Up Should Feel Safe to Do So
  5. Mission of China to the EUProgress on China-EU Cooperation
  6. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  7. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  8. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  9. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  10. UNICEFCalls for the Protection of Children in the Gaza Strip
  11. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations
  12. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight