Italy, which has recorded no economic growth since 1999? Cyprus, which is still reeling from its financial sector collapse in 2012-13? Or some other hard-pressed southern European nation? No. In all probability, the sick man of the eurozone will be Finland.
The Finnish economy is in its third consecutive year of contraction. Any growth in 2015 will be not much bigger than a snowflake. The country will hold a general election in April. The question is whether the dark outlook will benefit The Finns, a populist-nationalist party which was known as the True Finns when it shocked Europe by coming third in the 2011 election with 19 per cent of the vote. The case of Finland is a striking example of how prejudices and oversimplifications fail to capture the complex economic realities of the eurozone.
After the Greek debt crisis erupted in 2009, pundits divided the region into two parts: a northern bloc of creditor countries supposedly characterised by economic efficiency, fiscal rigour and respect for the law; and a southern bloc of debtor states supposedly distinguished by economic weakness, profligate public finances and artful rule-bending. Geographically and culturally speaking, Finland is as northern as they come. Even more than Germany, Finland insisted on tough conditions for the European component of Greece’s EU-International Monetary Fund financial rescue.
Meanwhile, its own economy was sliding into trouble. Now output is shrinking, business confidence is low and – horror of horrors – public debt is going up. Alexander Stubb, prime minister, suggested in August that Finland, like Japan in the 1990s, was in the middle of a “lost decade”. When Finland lost its triple-A credit rating from Standard & Poor’s in October, he told Finns that their “golden era” – lasting from 2000 to 2008 – was over and that they needed “to build a new Finland”.
Some causes of Finland’s difficulties are easy to identify. One is the decline of Nokia, the mobile phone company that contributed about a quarter of Finland’s economic growth between 1998 and 2007. Another is the slump in Finland’s pulp and paper industry. Finland’s manufacturing sector lost 76,000 jobs in the six years up to 2012 – a big number for a nation of only 5.4m. A third factor is the accelerating economic weakness of Russia, driven by falling oil prices and symbolised by its tumbling rouble. Russia is Finland’s largest trading partner, but Finland has signed up to EU sanctions imposed on Moscow over its actions in Ukraine. According to Finland’s central bank, a 25 per cent fall in Russian imports amounts to a 0.9 percentage point drop in Finnish economic growth.
But there are other factors at play. Finland’s image as a lean, mean economy, innovative and internationally competitive, is deceptive. Its public expenditure is one of the world’s highest – equal in 2013 to 57.8 per cent of gross domestic product, according to Eurostat, the EU statistical agency. In the private sector, companies that were a roaring success a few years ago – such as Rovio Entertainment, maker of the Angry Birds mobile phone game – have found it hard to fend off competition and have started to lay off staff. It all points to electoral defeat for Mr Stubb’s centre-right National Coalition party.
In contrast to 2011, however, The Finns are struggling to exploit the government’s unpopularity. A November 21 opinion poll placed the party fourth with 16.2 per cent of the vote, well behind the opposition liberal Centre party, one of Finland’s traditional parties, on 24.5 per cent. Unlike in Greece, Spain and even France, Finland’s mainstream politicians seem to be holding back the populist tide. This is no small achievement. It offers hope that, once the April 2015 election is out of the way, Finland will lay the groundwork for a new “golden era”, making sure that it keeps its well-deserved reputation for creativity and cool-headed competence.