Euro Wild Card

Greece's Finnish Problem

True Finns Getty
True Finns.
  • Why it matters

    Why it matters

    Finland has long proved one of the main cheerleaders of austerity in Europe. The inclusion of euroskeptic Finns Party in the government there will only increase the country’s tough stance on Greece.

  • Facts

    Facts

    • The Finns Party, previously known as the True Finns, came second in Sunday’s elections.
    • IT millionaire Juha Sipilä’s Center Party came first and will now form a coalition.
    • Finns Party leader Timo Soini had said his party will not back a third Greek bailout.
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    Audio

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A small country on the outer edges of Europe, battling with a struggling economy, minimal growth, mounting public debt, stubbornly high unemployment and uncompetitive labor costs.

An outgoing government that failed to implement necessary reforms and awkward populists set to join the government.

No, it’s not Greece, but Finland.

The Scandinavian country with a population of just over 5 million held elections this weekend, and while the difficult task of coalition building begins among the smorgasbord of small parties, it is likely that the euroskeptic populist party, the Finns, will be part of the next government.

The question is what impact that could have on the European Union’s attempts to keep Greece, at the other end of the bloc, in the euro zone.

Finland, along with the Netherlands, has already been one of Greece’s toughest critics, outshining even Germany, in its insistence that the Hellenic state stick to tough austerity measures in exchange for bailouts.

The inclusion of a vehemently euroskeptic party probably could make that stance even more hardline.

The populist Finns, formally known as the True Finns, who mix conservative nationalism with support for the welfare state, emerged as the second biggest party in Sunday’s elections which marked the defeat of center-right Prime Minister Alexander Stubb.

They are now on track to form part of an administration lead by the Center Party’s Juha Sipilä.  The process of coalition-building will take weeks, but ahead of the election Mr. Sipilä, a pragmatic former IT entrepreneur, said he was open to forming an alliance with the Finns.

Back in 2011 when the party saw its vote soar from a previous 4.1 percent in the 2007 elections to 19.1 percent, the Finns’ leader, Timo Soini, refused to be part of any government that agreed to bail out Greece.

“Finns Party MPs will not vote for a third Greek bailout …. we will not continue these kinds of immoral policies.”

Timo Soini, Finns Party leader

Since 2010 Athens has been extended bailouts worth €240 billion ($256 billion) from its European partners, the European Central Bank and the International Monetary Fund.

The radical-left Greek government is still embroiled in difficult talks with its lenders to receive the last tranche of the current bailout program, some €7.2 billion. Even if it reaches a deal, Greece will then almost definitely need to negotiate another bailout once its current program ends in June.

Finland could prove a stumbling block in giving even more European money to Greece. Particularly if the Finns Party is in government.

In March, in the run-up to Sunday’s elections, Mr. Soini had said categorically: “Finns Party MPs will not vote for a third Greek bailout …. we will not continue these kinds of immoral policies.”

At the same time, the party, desperate to be in government, could moderate that stance somewhat, argues Annika Hedberg, a Finnish political analyst with the European Policy Centre, a think tank based in Brussels.

“Timo Soini was not very keen in the debates on stating clearly what they think. This may be an indication that this is one of those areas where they are willing to make a compromise,” she told Handelsblatt Global Edition.

“I think that the Finns Party will not have a veto right” when it comes to Greece, Ilkka Ruostetsaari, a professor of politics at the University of Tampere, told Handelsblatt Global Edition. “Juha Sipilä has said that the cabinet will have to function in consensus, so that no party can resist major policies.”

At the same time, all of the Finnish parties are pretty hardline when it comes to Greece, with Finland along with the Netherlands backing Germany’s tough stance on Athens, insisting that it implement reforms in return for any loans from the European Stability Mechanism, the bloc’s bailout fund.

Finland only agreed to the last Greek bailout after receiving guarantees for its contribution to the loan package.

The strict commitment to austerity is in part due to the country’s “Lutheran, Protestant ethic,” argues Ms. Hedberg. “There is the Finnish mentality that we work ourselves out of a crisis. There is this division between cultures north and south. The question of how far do you go in helping if you don’t see that the others are helping themselves?”

At the same time, Finland’s own economic challenges have also reduced the appetite to come to the rescue of the Greeks.

The country has spent three years in recession. And the government has just reduced its growth forecast for this year from 1 percent to 0.5 percent. In the euro zone, only Italy and Cyprus had slower growth rates in 2014, according to figures released by the IMF last week.

 

Finland's Malaise-01

The unemployment rate is 10 percent and youth unemployment is 25 percent. And Finland, despite its tough stance on Greece, has itself breached the euro-zone deficit limit of 3 percent of GDP, and will breach the 60 percent debt limit this year.

Finland has been hit hard by a triple whammy of the euro crisis, the decline of the once mighty telecom corporation Nokia, and the conflict between the West and neighboring Russia. It has also been affected by a collapsing market for its paper industry.

Nokia, which has been one of the country’s biggest employers, had pushed up labor costs, failed to foresee the smartphone revolution and in 2013 sold off it mobile phone business to Microsoft.

Meanwhile the country’s trade with Russia, which accounted for 10 percent of exports, has been hit hard by the sanctions imposed by the West in response to Moscow’s annexation of Crimea last year. It has also seen a drop in Russian tourism, as a result of the declining value of the ruble.

The poor economic performance and the lack of progress in implementing reforms was one of the reasons Finns voted to turf out Prime Minister Alexander Stubb on Sunday.

“In the last four years, none of the reforms that should have been done, that could get Finland back on its feet, were carried out,” said Ms. Hedberg. “The situation is extremely bad, and the support for the Finns party comes from the fact that they are very strong advocates of ‘we have to get our house in order before we can help others.’ ”

Incoming prime minister, Mr. Sipilä, has promised to turn things around, by creating 200,000 new jobs in private industry while cutting back on public jobs. He has however warned Finns not to be overly optimistic. “It will take years until we have achieved this.”

 

Siobhán Dowling covers European politics from Berlin. Helmut Steuer, Handelsblatt’s correspondent in Stockholm, and Konrad Fischer, a reporter with WirtschaftsWoche, contributed to this article. To contact the author: dowling@handelsblatt.com.

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