Deja vu in Finland: new Russia-West sanctions war brings back old memories

Finland has never been able to extricate itself economically or politically from the mood swings of the giant next door, and it's already taking a hit from the latest crisis.

An air of dejection hangs over the sprawling Valio dairy plant here. Until earlier this month, the factory operated two shifts to process and pack cheese, butter, and other milk products mostly destined for Russia. 

But virtually all workers on the single remaining shift now clock off by mid-afternoon, leaving behind a vast, refrigerated warehouse stacked with pallets stamped "for Russia" that have nowhere to go. 

"We really hope this doesn't last too long," says plant director Heikki Makela, a tall, taciturn Finn who firmly declines to express any political opinion about the escalating sanctions war between Russia and the West that has engulfed his company, and his country. "I can only say that we work hard here to make good products, and that's what we like to do."

Valio is Finland's hardest-hit company by Russia's ban on food imports from the European Union, designed to retaliate for the EU's adoption of third-stage sanctions over the Kremlin's Ukraine policies. If the blockade goes on for an extended period, the company will need to find alternative markets for the almost 250 million euros ($330 million) worth of goods it sold to Russia last year, representing 20 percent of net sales. 

Valio's predicament is a familiar one for Finns. Part of the Russian Empire until 1917, Finland has never been able to extricate itself economically or politically from the mood swings of the giant next door. And once again it's being tugged between its economic ties in the East and its political affiliations with the West.

Deja vu

In the cold war era, Finland was the subject of a special arrangement between East and West, known as "Finlandization," under which a democratic Finland was allowed to keep its independence, but was required to remain militarily neutral and follow a pro-Soviet foreign policy. Those days are gone, most Finnish experts stress. Today Finland is still neutral, but it takes its foreign policy cues from the EU.

Just a hint of Finland's former "special relationship" with Moscow was on display Friday, as Finnish President Sauli Niinistö met with Vladimir Putin in his Sochi vacation home to urge greater efforts toward peace in Ukraine. "I have a feeling that we’re on the brink of cold war," Mr. Niinistö told journalists in Helsinki, adding that urgent steps must be taken "to bring this terrible spiral of mistrust to an end."

Finland has been down this track before. After the demise of the USSR in the early 1990s, cross-border trade almost totally collapsed. Finland went from sending 25 percent of its exports to the Soviet market to a mere 3 percent, plunging the Finns into deep recession and spiking unemployment to almost 20 percent.

"After that experience it was decided that never again could Finland allow itself to be so dependent on any one country," says Teija Tiilikainen, director of the Finnish parliament's Institute of International Affairs in Helsinki. "We have since diversified, we've joined the EU, and only about 10 percent of Finnish exports go to Russia today. But we still have a longer common border with Russia than all other EU states combined, and we have a lot of other connections. You can't ignore such a big neighbor."

As a result, the drop in Russian trade isn't as painful as in the '90s. But it comes at a bad time for Finland, two years into a sharp recession brought on by a general slump in exports, the decline of its former national champion – the mobile phone pioneer Nokia – and the rising costs of an aging population.

"You hear a lot of people saying pretty glum things, but in fact only a small percentage of our exports are hit by the sanctions so far," says Iikka Korhonen, head researcher for the Bank of Finland's Institute for Economies in Transition. "Consumer confidence is slumping all over Europe. Russia is our third-biggest trading partner, after Germany and Sweden, and our trade with Russia has fallen by 14 percent, year-on-year, even before these sanctions kicked in. It's not simply about the sanctions."

Seeking a middle ground

A survey of Finnish businesses by the Chamber of Commerce last week found that nearly half of them were being hit, directly or indirectly, by the sanctions. But about two-thirds of the respondents supported the sanctioning of Russia over the Ukraine crisis, while just a quarter disapproved.

Despite Valio's woes, Finland has not fared as badly from the Russian food ban as countries such as Poland, Lithuania, Germany and the Netherlands. 

"Nobody likes sanctions, but I think that people understand that if key principles of international law and commitments are violated, the EU had to react," says Markku Keinanen, head of the Finnish Foreign Ministry's department for external economic relations. "A rules-based world is very important for small nations. However, Finland is always for a negotiated solution to this crisis."

On the sanctions debate, Finland has not sided either with the hawks in Europe, such as Poland and Britain, nor the handful of countries such as Hungary and the Czech Republic, that have begun publicly to express misgivings over EU sanctions policy. 

Russian experts say that even if the Ukrainian crisis abates countries like Poland, which led the charge on amping up sanctions against Moscow, will likely find Russia's door remains closed to their produce. 

"Finland has always adopted a realistic attitude about Russia. We know that our geographic location isn't going to change, nor will our basic economic interests. Certain economic relations between Finland and Russia make a lot of sense, and we're pretty sure that will continue to be the case," says Mr. Korhonen.