A chronically depressed economy, rising unemployment as well as an aversion to free-market reforms. Sound like a familiar European tale?
But it’s not Greece, Spain or Portugal. It’s Finland.
As the indebted and ailing countries within the euro region’s southern rim struggle from their six-year crisis, some with more success than others, Finland is succumbing to its own.
Its economy, which has contracted each year since 2012, was the worst performer in the common-currency area in the first three quarters of 2015, based on Eurostat data. Its deficit is relatively greater than Italy’s, despite being ranked fourth within the Eu in terms of how much taxes and social charges it demands from the citizens, and it is unemployment rate exceeds those of its Nordic neighbors.
Finance Minister Alexander Stubb has begun talking about his country because the latest “sick man of Europe.”
“Finland has become an economy that runs on a deficit” and it is “10 to 15 per cent behind Sweden or Germany” in terms of competitiveness, Economy Minister Olli Rehn said in an interview this month. “That is why we should adjust.”
Declining orders from neighbouring Russia, a weakening from the the local press industry and also the collapse of Nokia’s consumer-electronics business have emerged to undermine what was once one of Western Europe’s strongest economies.
In 2008, Nokia’s share from the smartphone market topped 40 percent, paper exports were 22 per cent higher, Rovio Entertainment was laying the building blocks because of its successful Angry Birds gaming and Finland was seen as an model in withstanding the global credit crunch.
Greece, Spain, Portugal and Ireland, however, were a year from a crisis that required three bailouts totaling 581.5 billion euros (US$630 billion) and a large number of all-night gatherings of officials in Brussels.
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The World Economic Forum said in a recent survey that Finland has slipped from fourth to eighth place in global competitiveness. The country’s wage-bargaining system is the most centralized among 140 countries surveyed. Fixing that requires profound and rapid change, the federal government argues. The alternative is really a slide into a “southern European-style” quagmire of weak growth and low employment, Rehn says.
Helge Pedersen, chief Copenhagen economist at Scandinavia’s biggest bank, Nordea, says Finland’s status as “among the poorest performing countries from the euro area” is compounded by a maturing population and a particularly tough stance on immigration. With baby boomers now starting to exit the labour market, “the sand is rapidly flowing down Finland’s hourglass.”
To be sure, Finland isn’t going to require the kind of international bailouts that characterized your debt crisis. Nor are the measures Pm Juha Sipila is proposing as draconian as what the southern countries experienced.
Rehn said Finland’s adjustments will amount to “about 0.5 per cent of GDP each year.” Portugal’s recovery, by comparison, required tax hikes and cuts worth “2.5 percent of GDP each year, during Ireland the amount involved 1.5 to two per cent,” he said.
Finland is becoming an economy that operates on a deficit
Niku Maattanen of the Research Institute from the Finnish Economy highlights that while Finland’s ailment is declining productivity, Portugal, Spain and Greece suffered primarily from debt-driven growth.
“We are not on the brink of collapse in the sense to become determined by how international investors see us,” Maattanen said.
Finland is one of the few euro-region countries that still get an AAA rating from Moody’s Investors Service and Fitch Ratings, though Standard & Poor’s took away the top grade in October 2014. At about 60 percent of gross domestic product, Finland’s public debt is less than half those of Portugal’s.
And yet, some analogies do hold.
Like its southern European partners, Finland is being inspired to take on traditionally powerful trade unions because it attempts to boost competitiveness. Government plans to reduce social spending, cut the amount of holidays and make it more costly for workers to consider sick leave happen to be met with strikes and protests.
Antti Palola, head from the white-collar STTK, the country’s third-largest union, says there’s a risk that Finland will are a “polarized” society where “those with permanent jobs are well off” and also the rest are excluded from working life. Similarly, Lauri Lyly, head of Finland’s biggest trade union, SAK, says his organization is going to do what it can to “eliminate these initiatives,” which “affect people in an unfair way.”
The government is anticipated to push its pro-competition measures through parliament by June. While Sipila’s confrontational style has rubbed the unions the wrong manner and his popularity is sliding in the polls, his coalition holds 123 of parliament’s 199 voting seats.
The leaders of Spain, Portugal, Ireland and Greece (twice) were thrown out of office as voters protested austerity. With national elections three years away, Sipila needs his reforms to operate in time to avoid that fate.
Bloomberg News
