UPDATE 3-True Finns set for govt, challenge EU bailout

Mon Apr 18, 2011 11:21am EDT

Related Topics

* National Coalition party wins by narrow margin

* Populist True Finns surge to be third biggest party

* Govt of Nat'l Coalition, SDP, True Finns likely -Katainen

* True Finns leader criticises rescue for Portugal

(Updates with likelihood of three-way coalition)

By Terhi Kinnunen and Jussi Rosendahl

HELSINKI, April 18 (Reuters) - The True Finns, the anti-euro party voted into a powerful role in the Helsinki parliament at the weekend, expect the European Union to change plans for a bailout of Portugal, its leader said on Monday.

The True Finns' hostility to the bailout is the biggest hurdle in talks that begin this week, when the right-leaning National Coalition will reach out to the populist party and opposition Social Democrats to form a majority government.

"Of course there will have to be changes," Timo Soini said of the Portugal package, a day after the party more than quadrupled its share of the vote to turn Finland's pro-EU politics on their head.

True Finns came third in Sunday's election with 19 percent of the vote, raising its number of seats in the 200-strong parliament to 39 from 5 in the 2007 election.

Finland's parliament, unlike others in the euro zone, has the right to vote on EU requests for bailout funds.

Rising political populism around Europe, driven by public anger over the impact of the financial crisis, may well make deals on solving euro zone debt woes increasingly difficult.

The National Coalition, which won the election with 20.4 percent, will launch government formation talks under its leader, outgoing Finance Minister Jyrki Katainen.

Katainen said the new coalition, expected to be formed by mid- to late May, will likely include the three biggest parties: the National Coalition, Social Democrats and True Finns.

"We have to get a majority for the parliament, and programme issues have to be agreed upon," Katainen was quoted as saying by the Finnish news agency STT. But political commentators said the government formation talks could be the most difficult in decades, because the three parties are so far apart on the bailout and other key economic policies such as corporate taxes and pension reforms.

And even if such a coalition could be formed, analysts said it would have a difficult time agreeing on policy.

"It would be a very heterogenous, very difficult coalition," said Sixten Korkman, managing director at the Research Institute of the Finnish Economy. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For reaction from analysts, click on [ID:nLDE73H0G3]

For a Breakingviews column on the fallout [ID:nLDE73H0NW]

For a story on the euro zone, click on [nLDE73H0IC]

For more stories on election impact, click [nLDE7350WP]

For an analysis on populism and EU bailouts [nLDE73H0DZ]

For a graphic link.reuters.com/ner98r

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POPULISM BOOM, DEBT WOES

Katainen has stressed that whatever the makeup of the next government, it will remain pro-euro and supportive of the bailout plans. The European Commission said it expected Finland to honour its commitments to the euro zone bailout fund.

Representatives of the commission, European Central Bank and International Monetary Fund were meeting Portuguese officials in Lisbon on Monday to set the terms for the bloc's third rescue in a year after bailouts for Greece and Ireland.

However, there is growing speculation that Greece will restructure its debt and there is increasing pressure on other so-called euro zone peripheral countries, with Spanish 10-year bond yields pushing towards record highs near 5.6 percent.

In Finland, support for the True Finns reflects public frustration about footing the bill for weaker economies such as Greece, Ireland and Portugal, and anxiety over unemployment and pension cutbacks.

Finland's rebound from the global financial crisis has done little to increase the number of jobs. Its flagship company, Nokia, is struggling to compete with Apple Inc and Asian handset makers, and is expected to shed jobs soon.

"Finland has neglected many domestic issues in all this EU twaddle. Of course the troubled countries should be helped somehow, but the terms have to be tight," said a public servant, 37, who gave his name as Jari. He voted for the True Finns.

Some voters also cited a distrust of incumbent politicians. Prime Minister Mari Kiviniemi's Centre Party, hit by a political funding scandal, suffered the biggest setback, losing 16 of 51 seats in parliament. She said it would go into opposition. While it remains unclear whether the True Finns will grab influential posts in the new cabinet or succeed in blocking the bailout, analysts say the party is sure to gain a bigger say.

Saxo Bank chief economist Steen Jakobsen said a coalition with the Social Democrats and/or True Finns would make it hard for the government to fully support the Portugal bailout without a schedule for how Greece is to restructure.

The Social Democrats support the EU but have criticised the bailout, saying private investors and banks should shoulder more of the responsibility.

Analysts also say the new government will need to take into account strong voter discontent and take a harder line against Brussels. "In terms of European Union policies, Finland will become a more difficult partner," said Korkman. (Additional reporting by John Acher; Writing by Ritsuko Ando; Editing by Janet Lawrence and Mark Heinrich)

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