Saturday

28th May 2022

In Finland, the euro is not the real problem

  • The current debate asks questions about the future of Finnish society (Photo: Tuomo Lindfors)

The Finns say theirs is a country of one truth. At one point, everyone was excited about start-ups and their ability to save Finland’s economic future, at another point it was the mining industry that would get Finland up and running.

Finland's GDP collapsed in 2009, but it quickly recovered for two years due to expansionary macroeconomic policy. However, the government has since tightened its spending, forcing GDP into negative growth for three years. Last year, the Finnish economy grew about 0.5 percent.

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  • Infrastructure is one area where economists believe more investment is needed (Photo: City Clock Magazine)

At the same time, Finland has suffered from the fall of Nokia. It made up some 20 percent of Finland's exports during its best years. In addition, exports to Russia have decreased drastically as a result of the economic troubles across the border.

For quite some time we have played the blame game. At some point it was the euro, the trouble of all troubles. When Finland had its own currency, it could devalue it and overnight exports were relatively cheaper. The traditional export sector, the wood industry, increased its competitiveness and the economy would be up and running.

Now it is history, say politicians. As a member of the eurozone, Finland has lost its independent monetary policy to Frankfurt, seat of the European Central Bank. According to politicians, this leaves us with two options: leave the eurozone or perform an internal devaluation by, for example, cutting labour costs.

No Grexit situation

Let's consider the probability of the first option. From the outside, it might seem that Finland is on the verge of leaving the eurozone, since we have a populist anti-EU party in the government, the Finns Party.

The situation is actually not so critical. Though, the parliament is supposed to discuss a citizens’ initiative about having a referendum on eurozone membership at some point this year.

The initiative was drawn up last summer by veteran politician Paavo Vayrynen, a former minister and current member of the liberal Alde group in the European Parliament.

It is an independent initiative without formal support from his own Centre party nor the eurosceptic Finns Party – both parties are in the government.

However, the initiative has exceeded the threshold of 50,000 signatures, so it has to be examined by parliament.

Yet, Finland is far from a situation similar to Grexit or Brexit.

It is doubtful that there will even be a referendum on euro membership despite the citizens’ initiative. Parliament can easily dismiss the initiative; it only has to discuss it, not take it further.

As mentioned, there have been no public motions to support the initiative. The majority of MPs do not feel it necessary or wise to leave the eurozone. Some say the whole initiative is a way for Vayrynen to promote his political career.

The discussion on leaving the eurozone was on more solid ground a couple of years ago when the euro crisis was acute. Economists such as Vesa Kanniainen, professor of economics from the University of Helsinki, had strong arguments supporting the idea.

However, as the euro crisis calmed down, so did the debate. Now the migrant crisis has taken centre stage.

Polarised Finns

What of the second option - internal devaluation? It is, in fact, already well under way.

The Finnish government has forced the trade unions and business groups early this year to agree on cutting labour costs mainly by transferring social insurance contributions from employers to employees and by increasing annual working time by 24 hours without extra pay.

The other option was a set of laws drafted by the government, the so-called forced laws that included no pay on the first day of sick leave and cuts on holiday pay.

The centre-right government believes cutting labour costs will increase competitiveness of the export sector and lead to more orders and more work. The government’s main aim is to stop Finland’s public debt from growing.

Concerns about domestic markets and purchasing power are voiced more and more strongly. Some economists are calling for infrastructure investment to speed up the economic recovery.

But it is unlikely such voices will be heard when the government discusses the 2017 budget next week. Finance minister Alexander Stubb has said there is a need for further budget cuts, which might lead to an increase in unemployment.

According to the ministry of employment and the economy, the unemployment rate was 13.7 percent in Finland in February and long-term unemployment continued to grow. At the same time Finland has seen a surge of racist attitudes fuelled by the migrant crisis.

Yet, sociology professor of Juho Saari from the University of Eastern Finland is less concerned with aggressive anti-migrant atmosphere than the polarisation of Finnish society between the “haves” and the “have-nots”.

“The wave of migrants caused a moral panic which was channelled in to a political party what is exceptional situation in Finland,” he said.

“This panic is likely to calm down. The problem is inflated unemployment and long-term unemployment which will cast a long shadow.”

According to Saari, the current government policy does not focus on tackling problems of these social groups. In addition to this, high costs of housing further reduce standards of living in these groups. Saari says this will have consequences.

“Trust in political system among these groups diminishes and when there is no trust, society cannot be reformed. Finnish society will see a division between 'us' and 'them', and when there is child poverty, it produces poor adults.”

Finally, the euro is not the issue but the future of the Finnish welfare state and society.

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