The euro countries’ debt crisis is perhaps the dominant theme of Finland’s presidential election campaigning, with a feeling of ‘been there, done that, don’t want to go back’.
The global economic climate thrust the Finns into the deep freeze. Their export markets dried up. Their exports dropped nearly a third in 2009, and exports make up almost half their income.
Their economy contracted by eight percent in 2009. The country’s small size and the radical corrective actions taken meant they were able to return to growth the following year and in 2011. But it was like bare knuckle boxing with the public accounts, and they are still on a strict financial diet.
Finland is one of four eurozone countries (with Germany, the Netherlands and Luxembourg) that have kept their AAA credit rating, and it did not come easy. In the 1990s the Finns were downgraded by credit rating agency Moody’s – the only one doing so then.
Finland had been a major conduit for trade between the West and the former Soviet Union. When it went bust, Finland took a hit. Then the reunification of Germany raised the costs of borrowing in Europe generally.
Household and private sector debt went overboard, and Helsinki started pumping cash. Social spending exploded. The budget was already running a deficit in 1989. Three years later it was at seven percent.
Moody’s knocked it off the top notch in 1990, then gave it a third-place rating in 1992. The government flew to the banks’ rescue. Only half of them were left standing.
Restoring confidence in Finland’s finances and potential was the top priority. Reducing public spending appeared pitiless.
The state liberalised, sectors in trouble were cut loose to sink or swim. Capital was left to flow to healthy sectors like technology. Tax reform favoured research and development. Salaries were capped.
Some 18 percent of Finland’s active workforce was unemployed in 1993. But welfare provisions were cut back. Finland returned to a balanced budget in 1997. The year after that, it qualified to join the single currency group, and Moody’s once again rated it AAA.
Financially fit today, the Finns are contributing 33 billion euros to the fund to rescue euro members in trouble. They think that is enough. Any more and they are afraid they would risk being downgraded again. They have already been through their austerity.
A lot of Finnish voters are against the EU giving more money to the Greeks, who they feel are responsible for their own sorry state. But Finland still has an interest in preserving the eurozone, since it is dependent on it for trade.