Summer of Finnish discontent: Is Greek crisis distracting from Finland's woes?

Finland has been among the harshest critics of Greece's financial dealings. But it's not just about being frugal – once cutting-edge Finland is in the midst of its own recession.

Two weeks ago, when Finland signed on to a third bailout deal for Greece, many Finns were surprised when the foreign minister did not withdraw from the government.

After all, Timo Soini is not just the most hawkish member of a strongly pro-austerity Finnish government. He is also head of the nationalist Finns Party, which is vociferously opposed to both the EU and offering foreign aid.

But Mr. Soini opted to stay put, at least for now. “We want to spend the next four years getting Finland into shape,” he declared, quoting the slogan used by Prime Minister Juha Sipila’s Center Party in its successful campaign in April, while supporting the government’s continued hard-line on Greece.

That decision speaks as much to Finland's own dire economic state of affairs as to the crisis presented in Greece. While many Finns still debate the Greek situation, others are more worried about their own deepening recession, which has seen the unemployment rate reach a 15 year high of 10 percent while economic growth remains static.

Summer of discontent

The severity of the crisis was underlined by Microsoft’s shock announcement last month that it was cutting 2,500 jobs – a serious blow for a nation of 5 million – and shuttering its loss-making phone development unit, which it purchased from Nokia last year, in the southwestern city of Salo.

The closure of the Salo unit, at the site of one of the fallen mobile behemoth's first factories, seemed the coup de grâce for Finland’s once thriving tech sector.

The foundering of that economic and spiritual pillar has coincided with tough times for Finland’s once dominant paper and forest industry and Finns are deeply worried about the future. One can see it in the listless looks in the packed Helsinki bars popular with young Finns, one in five of whom are now unemployed. One can sense it walking along Helsinki’s still tidy streets: this is the summer of Finland’s discontent.

Physicians say that they are seeing the impact of the slump in their examination rooms. “My colleagues and I are definitely seeing an increase in stress-related conditions like high blood pressure and sleeplessness in both the unemployed and employed,” says Ron Liebkind, a doctor and medical entrepreneur with practices in Helsinki and Stockholm. “There is a great deal of angst about where the country is headed.”

It was this anxiety, as well as an increasing skepticism about the European project – a July 19 poll by leading daily Iltalehti indicated that only half of those polled favored remaining in the euro – which Soini’s Finns Party tapped into in the last election.

False hope for a new Nokia?

How Soini's U-turn on the Greek bailout plays out politically will likely be seen next month when Finns return from their long summer vacation. Mr. Sipila, a millionaire entrepreneur who campaigned on a pro-business platform, saw fit to interrupt his vacation to visit Salo, where unemployment is now expected to rise to 20 percent. Amongst other things, he suggested replacing unemployment benefits with start-up grants.

Some residents told reporters that they hoped that Nokia, which is considering returning to phone manufacturing, would again set up shop in town.

This sort of chimerical thinking riles Finnish business experts like Matti Apunen, managing director of EVA, the Finnish Business and Policy Forum. “We keep wishing upon a star, for a new Nokia that would keep milk, honey, and tax money flowing,” says Mr. Apunen, a former newspaper editor. He also sees the current economic recession, which some are predicting will last longer than the Great Depression of the early '90s, as the inevitable result of the “overstretch” of the Finnish welfare state.

So does Aarne Hallama, former CEO of the Kamp Group hotel chain. “Ten years ago, we still had a strong electronics industry dominated by Nokia and a strong forest industry. Now those industries have downsized and our small and mid-sized companies are not able to fill the gap,” says Mr. Hallama, while not discounting the “bad luck” of Russian sanctions. “And of course we can’t devalue the way we could after the ['90s depression].”

He also criticizes what he and other businessmen consider the defective Finnish economic modus operandi, particularly the national wage and salary agreements by which organized labor and industry decide on income contracts for virtually the entire Finnish work force, a legacy from World War II.

“The agreements from five years ago particularly hurt us,” he says. "Salaries rose 2.4 percent while our average inflation has been only 1.6.  These increases have been among the highest in Western Europe resulting in a weakening competitiveness of our industry."

Labor advocates politely disagree – the tone of political debate in this civic-minded country continues to be civil, in contrast to the scenes of parliamentary mayhem from Greece carried nightly on Finnish TV – and point to the modest 0.4 percent increase (20 euros a month) of the last contract as proof of labor’s reasonableness.

Hallama sees the focus on Greece and its problems as a distraction. “I and many people think that this issue is out of control and that too much time is being spent on this issue. We all fear that the reforms needed [in Finland] are too big for this generation to handle.”

'Labor vs. capital'

Although no one would accuse the diligent Finns of being lazy and irresponsible – as some Finns (including Soini) have loudly accused Greece of being – Hallama and others assert that they are intransigent in their thinking.

Ilkka Ranta-aho, a veteran journalist, agrees that Finland is in need of structural, and perhaps cultural reform. “Finland is one of the last of the western industrialized nations that cling to the old Labor vs. Capital dichotomy. Now unions are spineless and old industries are diminishing rapidly.”

He agrees that Finland needs to adapt its modus operandi in order to get its entrepreneurial groove back, “There is a new economy, fast and nimble, building flexible networks. Most European countries have learned to embrace this economy and benefit from it. Not Finland.”

At the same time, Mr. Ranta-aho does not want to cashier Finland’s welfare system. “Finnish people have often been asked in polls whether they would like to have lower taxes. The answer has always been that Finns are willing to pay even more taxes, if that is the only way to maintain the present level of social equality. But that does not mean that we can’t adjust it a bit.”

Meanwhile Prime Minister Sipila’s suggestion about replacing unemployment benefits with start-up grants received a mixed reception in Salo. “After all,” one unimpressed resident remarked, “we can’t all be entrepreneurs.”