Reuters — Finland was one of the toughest European critics of Greece during its debt crisis, chastising it for failing to push through reforms to revive its economy.
Now the Nordic nation is struggling to overhaul its own finances as it seeks to claw its way out of a three-year-old recession that has prompted its finance minister to label the country the new “sick man of Europe”.
Efforts by new Prime Minister Juha Sipila to cut holidays and wages have been met with huge strikes and protests, while a big healthcare reform exposed ideological divisions in his coalition government that pushed it to the brink of collapse last week.
There have even been calls from one of Sipila’s veteran lawmakers for a parliamentary debate over whether Finland should leave the euro zone to allow it to devalue its own currency to boost exports – a sign of the frustration gripping the country.
In the latest manifestation of the difficulties of cutting spending in euro zone states, Sipila is walking a political tightrope.
He must push through major reforms to boost competitiveness and encourage growth, while placating labour unions to avoid further strikes and costly wage deals next year – and carrying his three-party coalition with him.
Unemployment and public debt are both climbing in a country hit by high labour costs, the decline of flagship company Nokia’s phone business and a recession in Russia, one of its biggest export markets.
And with a rapidly-ageing population, economists say the outlook is bleak for Finland, which has lost its triple-A credit rating and is experiencing its longest economic slump since World War II.
Sipila – who has warned Finland could be the next Greece – is pushing for 10 billion euros ($10.8 billion) of annual savings by 2030, including 4 billion euros by 2019.
As part of this the government, in power for five months, plans to overhaul healthcare, local government and labour markets to boost employment and export competitiveness.
One alternative to austerity – increased spending to stimulate growth – is not on the table as government debt already breaches the EU’s 60 percent limit. It is still low compared with many other states but given Finland’s fast-ageing population, the government says debt growth must be halted.As the unemployment rate climbs towards 10 percent, many Finns yearn for the pre-1990s times when it could devaluate the markka time and again to improve export competitiveness.
Neighbouring Sweden benefited from a sharp fall in its crown currency in the wake of the 2008 financial crisis.
Without an independent currency, the government is asking for a “moderate wage deal” as collective agreements expire in many sectors next year.
“As we have now squeezed out a very difficult deal on healthcare, it is fair to expect the labour market parties to be able to agree on difficult issues too.”
A majority of Finns still support the euro. The European Commission’s Eurobarometer poll last week showed 64 percent of Finns backed the single currency, though that was down from 69 percent a year earlier.
But in a sign of mounting frustration, Paavo Vayrynen, a veteran of Sipila’s party and a European Parliament member, launched an initiative to demand a referendum over euro membership. With more than 49,000 signatures, the matter is likely to be debated in parliament next year.
“Finland has an expensive workforce and high taxes,” said Janne Rantanen, CEO of Merta Logistic Oy, a Finnish food start-up looking to start gourmet fish exports next year. “To export, it would be very useful to get the advantage of devaluation.”
