April 17, 2015

Finland Votes in the Shadow of Russian Crisis

LEHTIKUVA / Sari Gustafsson
Juha Sipilä, the leader of the opposition Centre Party, arrives back at the party's reception after taking part in media events in Helsinki, Finland, on October 28, 2012.
Juha Sipilä, the leader of the opposition Centre Party, arrives back at the party's reception after taking part in media events in Helsinki, Finland, on October 28, 2012.

IT millionaire Juha Sipilä is on the point of becoming Finland’s next prime minister.

After the 18 April elections, the internationally known Finnish Prime Minister Alexander Stubb will probably hand over the reins of the country to the politically inexperienced northern Finnish businessman Juha Sipilä, leader of the Centre Party, which is very likely to win a significant victory.
The Centre Party (Keskusta) has been in opposition for four years, but the Russian crisis has increased its support to the extent that not even the greatest challenge in Finnish internal politics—Sipilä’s recent proposal to restrict beer sales in grocery stores—has been enough to weaken its support in opinion polls. These predict about 25% for the Centre Party, with the other three larger parties all in the range of 14–17%. In recent decades, Finnish politics has been dominated by three parties of relatively equal size: the Centre Party, the Social Democratic Party and Kokoomus or the National Coalition Party. (Two of these have usually formed the government, led by the largest party.) The last election saw another addition to our northern neighbours’ major parties with the rise of the populist Finns Party, whose closest counterpart in Estonia is probably the Conservative People’s Party of Estonia.
Lehtikuva/ScanpixFinland’s most likely next prime minister is an MP relatively unknown to the rest of the world, who entered politics as late as 2011 when he received 5,543 votes in the elections, gaining him a seat in parliament. Sipilä, the Centre Party’s leader since 2012, will celebrate his 54th birthday a week after the election, during negotiations to find a coalition. Sipilä himself has almost always put a swift end to talk about him becoming prime minister by stressing that the elections come first.
After receiving a degree in engineering from the University of Oulu, Sipilä became one of the first technology millionaires in Oulu in 1996, when he sold his company and started an investment business, through which he became a major investor in many technology companies in northern Finland over the next 17 years. From 2002 to 2005 he was also the CEO of Elektrobit. Soon after Sipilä was elected party leader, he sold all his interests in Elektrobit, in which he had been one of the largest shareholders. “Right after becoming party leader I said it is no longer possible for me to participate in entrepreneurship, even on a small scale,” Sipilä commented on his withdrawal from the business world. “The question is not only about time management, but also about the freedom to do things for all companies and entrepreneurship without having an interest in the topics discussed through companies I own.”
In his first address as party leader, he highlighted the role of a “distributed” society, which places important emphasis on growth poles, county centres and rural areas—the Centre Party is traditionally agrarian—while also announcing that Finland could create 200,000 jobs in the bioeconomics sector. Sipilä became interested in the sector after he asked for an estimate to bring a power line to his summer cottage. The price was high even for the millionaire, and he decided to keep the cottage off the national power grid. At first, Sipilä produced wind power, using a diesel generator on still days. A few years later he decided to replace the generator with eco-friendlier wood chips—this paved way for a new company, Volter Oy, which produces electricity from wood chips and pursues new developments in this field. Electricity produced by Volter is used to power the eco-quarter in the city of Kempele near Oulu, which remains independent from other power networks.
In addition to the proposal to restrict beer sales, Sipilä has also managed to stir up controversy in local media by saying that the number of staff in national and rural municipality offices should be cut by tens of thousands, mostly achieved “naturally”—by not hiring new people to replace those who retire. The proposal certainly makes sense but, among other things, the political outcry that followed cost the journalist who covered the story their job.
Economic issues will be crucial for the next government. The main principles of Sipilä’s economic policy are clear: the growth of debt must be stopped, taxes cannot be raised and all types of support programme must be approached with extreme caution. The Left Alliance, which has a communist background, has been hoping for the state to take billions in loans in order to support the economy and jobs, but this is definitely not what Sipilä’s government will have in mind.
Finnish financial and business magazine Talouselämä (Economic Life) analysed Sipilä’s comments on economic policy and came to the conclusion that the goal is to form a right-wing government with the National Coalition Party, the Finns Party and either the Swedish People’s Party of Finland, the Green League or the Christian Democrats. This would only be hindered by the National Coalition Party doing very badly in the election, which could result in the party going into opposition and electing a new leader. An additional issue is that Centre Party supporters tend to favour cooperation with the Social Democrats.
The National Coalition Party is planning to make drastic cuts in unemployment benefits and development aid, as well as reducing income tax for individuals and companies. Other larger parties have proposed smaller cuts and raising the tax burden in order to stimulate economic growth through public investment. As expected, most politicians find it difficult to answer the question of where exactly they are going to make cuts, because none of them wishes to lose potential votes before the election.
Some voters will always blame the country’s problems on the current government—this is what the National Coalition Party is suffering from, having obtained the positions of both prime minister and president following the last election. The party’s leader, prime minister Alexander Stubb, is in the same league as Jürgen Ligi, participating in marathons and triathlons and engaging actively in social media. The only difference is that Stubb is slightly younger and more careful with his words.
The popularity of the party leading the country has decreased in recent years, partly because of the failure of domestic reforms; the National Coalition Party has also lost supporters as a direct result of the situation in Russia. The Russian attack on Ukraine and the subsequent sanctions have paralysed the export sector, which depends on Russia, and the fact that security policy has found a way into news headlines has decreased support for the most NATO-minded of the four large parties. The National Coalition Party is not pushing Finland to join NATO, but it has consistently demanded that the possibility be considered.
From the Estonian perspective, Finns’ attitude towards NATO is relatively strange. A deep devotion to the east during Soviet times and the trauma of having been left alone during the Winter War have left a deep mark on the Finnish psyche. The train of thought runs as follows: “We managed to stand up to Russians in the Winter War and during the Soviet period on our own and we can do it now. Russians would not approve of us joining NATO and this could affect our security.”
Stubb’s government, led by Jyrki Katainen in its early years, is generally regarded as the worst in decades, since it failed in both implementing planned national health system reform and changing the financing system of local governments, as well as pushing through some planned budget cuts. Since its formation, the current government’s work has been thwarted by the radically different views of the central parties—the National Coalition and the Social Democrats—over the state of the economy.
The state’s budget has been looked after by the leader of the Social Democrats and Minister of Finance Antti Rinne; this makes the Social Democrats’ predictions of economic growth—supposed to be faster than what was promised by the ministry—even more unusual.
In recent weeks, Rinne has been at the centre of media attention in Finland, but mainly for his recipe for bacon pasta. Some publications have even deemed it the most notable text in the elections: 800 grams of bacon, one and a half red bell peppers, 6 large garlic cloves, 1 teaspoon of ground black pepper, 800 grams of grated cheese, 500 grams of spaghetti, 6 dl of cream and 5 tablespoons of olive oil. The Green League’s newspaper calculated that the dish creates a larger carbon footprint than driving 100 kilometres in an SUV. Newspapers’ political desks added up the calories: 10,053.
The Minister of Finance’s conversation topic quickly turned from boring economic figures to something more relevant to the general public—what to eat, whether it is rude to keep track of other people’s food intake, and how much pasta Rinne can cook in a week before his family members suffer a heart attack.
The Finnish economy has been showing signs of poor health for some time and at the beginning of April the Ministry of Finance added more fuel to the fire by publishing its most recent analysis, which stated that the economic situation is not likely to improve any time soon, lowered the prognosis for economic growth for 2015 to a mere 0.5%, and announced that private-sector investment has been in decline since last year. Economic growth of 1.4–1.5% has been predicted for the next two years, although international risks may lower it. By 2018 Finland’s GDP will rise to the same level as it was in 2008.
Reforming the welfare state and combining it with the market economy is a big challenge for the next government. “We need to build a society where working and employing pays off,” Stubb recently said in an interview with Reuters. “I’m afraid that if we can’t launch significant measures, we could have another lost decade ahead of us.”
Small-scale economic growth does not help the state treasury, and Finland’s deficit exceeds the European Union’s Stability and Growth Pact limit of 3% of GDP again this year; the country’s debts are also about to exceed the limit of 60%.
Finland has been the eurozone’s favourite for years, but now its economy has reached a situation in which it would have never been allowed to join in the first place. Even though the fiscal vocabulary and views of Finnish heads of government mostly resemble those of Germany, the country’s economy is instead starting to look a lot like that of Greece.
The roots of the problems with the Finnish economy lie in the previous financial crisis, which was relatively detrimental to our northern neighbours because it coincided with a decline in the paper industry and the demise of Nokia. The situation became even more severe due to the expensive euro and high prices for raw materials, as well as trade unions negotiating a substantial pay rise for themselves just before the financial crisis, which became expensive for employers.
“Finnish trade unions simply killed their companies,” concluded an acquaintance who runs an Estonian building company about competition in the Finnish market. While Estonian companies cut the wages of both employees and—often—executives during the economic crisis, the wage levels and increases prescribed by Finnish trade unions made it impossible for domestic building companies to compete with Estonian builders even in Finland.
The biggest concern for the Finnish economy in the next few years is the decrease in the working-age population, which started as early as 2009. Finland has two groups whose contribution to economic development is notably smaller than in other comparable countries. Men over 57 years of age are often transitioning to retirement and the working contribution of women of childbearing age in Finland is as much as 20% less than in Sweden, as women often spend three years away from work with each child. In many western European countries, maternity leave is counted in months rather than years.
In addition, in other northern countries it is immigrants who are central to solving this problem: for instance, in Norway, immigration is behind almost half of the growth in the workforce. In the run-up to the Finnish election, one can definitely look forward to juicy statements from the Finns Party on the topic. They are already happily making announcements about Finland being a better country if there were fewer immigrants. The suggestions by Finland’s largest daily newspaper on how ryssä (Russian) Estonians are can be considered laughable in comparison.

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