Friday. 02.12.2022

Finnish government paralyzed, economy in trouble

The leaders of the ruling coalition parties have been locked in, confronted and unable to agree on the budget for nearly a week as bad economic news continues to arrive.
Prime Minister Sanna Marin speaks to the press during a break in negotiations. Photo: Laura Kotila/Vnk.
Prime Minister Sanna Marin speaks to the press during a break in negotiations. Photo: Laura Kotila/Vnk.

Tuesday, 27 April 2021. Finnish Employment Minister Tuula Haatainen visits the city of Kemi, on the north-west coast of the country, near the Swedish border.

It is not a pleasant trip, but it is the sign of the present times: Haatainen meets there with workers affected by the closure of the Veitsiluoto paper mill and with the management of the plant, owned by Stora Enso, one of the largest Finnish companies.

The company announced last week its intention to close the plant and lay off all its employees due to lack of competitiveness. 670 jobs may not seem like too many, especially in the eyes of people used to higher numbers, but for a sparsely populated country like Finland the effects could be devastating for the entire northern area.

Why? because to the direct jobs we must add thousands of jobs indirectly linked to the plant, and because no one seems to have a plan for the day after.

The government knows it. Minister Haatainen meets with local authorities and offers state aid and more resources for unemployment services to help those about to be laid off.

Veitsiluoto is the second paper mill to announce its closure in less than a year. And both pointed to the same reason, loss of competitiveness.

For many residents of Finland, this collapse of a sector in which Finns were once leaders reminds them of what happened with Nokia. People vent their frustration with harsh comments on social media.

Until now it was possible to blame all the economic woes on the coronavirus epidemic, but this case is different. It cannot be solved with vaccines and reopening. The roots of the problem run much deeper.

Once again, the Finns come face to face with reality. The specter of the loss of competitiveness and the lack of structural reforms that some Finnish economic experts and also international organizations like the OECD have been demanding from the country, reappears.

And again, the government reacts by promising to increase aid, that is, to increase public spending.

Meanwhile in Helsinki

Meanwhile in Helsinki, Prime Minister Sanna Marin continues to head, for the seventh consecutive day, the meeting with the representatives of the parties that make up the government coalition.

They have been stuck for an entire week trying to agree on budgetary decisions, in a negotiation that should have ended first last Thursday and then during the weekend.

But they failed both times and it seems impossible to reach an agreement between the leftist bloc that dominates the cabinet (formed by the Prime Minister's SDP, the Left Alliance and the Greens) and the Center Party headed by Minister Annika Saarikko.

The finance minister, former premier Matti Vanhanen, the man who has the key to the money box, has been strangely excluded from the talks.

The negotiations are tough, party leaders accuse each other and the Center Party leadership even talks about a possible rupture of the government pact. At the core of the controversy there is little more than 550 million euros of public spending, according to the main Finnish newspaper Helsingin Sanomat.

The amount also seems small when you consider what is at stake, but this is not just a question of money.

Municipal elections

The leader of the Center Party, Annika Saarikko, says "it is also about principles."

Her party is demanding hundreds of millions of euros in budget cuts and determined measures to curb the rise in unemployment, including staggering income-linked unemployment benefits. She also wants to delay the ambitious goals that the country has set for itself in terms of peat burning.

Money is important, but principles and ideology also play their part, especially now with the country at the gates of municipal elections on 13 June.

These elections should have been held earlier, on 18 April, but were delayed by the government. The coronavirus was officially blamed for the delay, but in Finland it is an open secret for many that when the government made the decision the popularity of the main parties in the coalition was in free fall, while the right-wing populist party of the True Finns (Perussuomalaiset) led the polls in voting intentions.

Many citizens wonder which of the two factors weighed more on the scale.

Deficit, unemployment increasing

Last Wednesday, the government had to deal with other bad economic signs. The state statistics agency released deficit and debt data for 2020, which rose to record levels. The conclusions of the release are worrying: the former guardian country of fiscal discipline in Europe has broken the deficit and public debt limits set by the European Stability and Growth Pact.

For now, the global situation helps: the European Commission understands that what happened in 2020 is exceptional due to the pandemic and has introduced a general escape clause from the pact, allowing a temporary deviation from the Pact. Finland will avoid subjecting its economy to an Excessive Deficit Procedure (EDP), which would imply presenting a balance plan in Brussels and, if necessary, a subsequent plan of structural reforms.

On Friday, in the midst of the government budget disagreement, some more oxygen arrived. The rating agency Fitch affirmed Finland's creditworthiness at AA+, the second-best rating possible. According to Fitch, this rating reflects its belief that the government, with its "consensus-based political system" will make decisions consistent with improving growth in the medium term growth and strengthen the sustainability of public finances.

But Fitch also said, in line with Brussels, that Finland's recovery will be weaker and may take longer than that of other states due to pre-pandemic problems such as low productivity growth and a declining working-age population. It is in this context that the Finns will have to finance their deficits and pay off their debts.

And while the political-economic storm rages, Prime Minister Sanna Marin proposed in the negotiations measures to create 80,000 jobs. Or even more, she told the Finnish broadcasting company (Yle).

The problem is that her government partners no longer believe in her employment plans. The figures are cold but illustrative: despite all her past plans, by the end of February there were 220,000 unemployed in Finland, which is 35,000 more than a year earlier, according to Statistics Finland’s latest Labour Force Survey.

Finnish government paralyzed, economy in trouble