Luxury of a Welfare State Falls to Hard-Knocks Reality

LOCAL media dubbed it the "Rainbow Cabinet." But Finland's new coalition government needs more than a fancy slogan to combat rising unemployment and slash its debt over the next four years.

The broad government, which was elected in March and includes both former Communists and conservatives, is facing a legacy of problems inherited from its predecessor. Finland is struggling to emerge from its worst recession since World War II.

Economic production has plummeted by 15 percent, exacerbated by the collapse of Finland's huge Soviet neighbor and bilateral trade links.

Unemployment is now at a high of 18 percent. With imports up and exports way down, many businesses have gone bankrupt.

"The recession has not been beaten, when nearly a fifth of the work force is out of a job and when a third of government spending is covered by loans," President Martti Ahtisaari told Parliament before the elections.

To save this troubled economy, Paavo Lipponen, the new Social Democrat prime minister, has promised a series of welfare cuts to put industry back on track. But some say the Rainbow Cabinet will work only if compromise, not austerity, becomes the key word.

"Nobody knows what will happen with the new Cabinet," says Pekka Ervasti, a political commentator for Helsinki's respected Ilta-Lehti evening newspaper. "But someone will have to get rid of his principles to stay in it."

The previous coalition government, led by former Prime Minister Esko Aho of the conservative Center Party, was thrown out following four years of welfare cuts that made him hugely unpopular with voters.

But Mr. Lipponen has said he will slash a total of 20 billion markkaa ($4.6 billion) from the budget over the next four years. Those cuts will primarily be from child allowances, pensions, unemployment benefits, and agricultural subsidies. They are intended to both reduce unemployment and slash the state debt of 355 billion markkaa ($82.5 billion).

Budget cuts are the only way Finland can manage its deficit and spur industrial production, says Pekka Tsupari, special adviser on economic policy for the Confederation of Finnish Industry and Employers.

"Finnish markets believe in the new government. They see it as very positive for Finland," he adds. "We accept those cuts here in society as a whole, because we understand that the Finnish situation is a special one and that we need to make cuts. We've had criticism, but not much."

Prior to the government's agreement on the new coalition, some left-leaning forces and Green Party members threatened to pull out in protest over the austerity proposals.

"The government is trying to make these cuts fairly," government spokesman Kauko Holopainen says in defense of the tight scheme. "The government members say that the former government made unfair cuts, that the farmers, for example, paid nothing, and they are now trying to be as fair as possible and make cuts across the board."

FINLAND'S welfare benefits are among the highest in Europe. The state gives all mothers up to $100 monthly per child, regardless of income. Education is free, and unemployment benefits and agricultural subsidies have stayed high.

Lipponen's Social Democrat Party, now the largest party with 63 seats in the 200-member parliament, was the primary opposition leader during Mr. Aho's reign.

Now for the first time, the multiparty government includes both the Left-Wing Alliance of former Communists and the Conservatives, working alongside the Social Democrats, the Swedish People's Party, and the Green Party. Its 18-member Cabinet has seven women and the first Green minister in Europe.

Some say such a record of consensus-building can bear the weight of current challenges. "It's not very unusual in Finland to have a coalition government, as we've had one since 1937," says Antti Kuosmanen, deputy head of Finland's European Union secretariat.

"We have a tradition of a coalition government, which crosses ideological borders from the nonsocialists to the socialists, although with the Social Democrats in Finland, socialism is in a mild form," he says.