Finland's SDP ousts finance minister, sets off government turmoil

SEINAJOKI, Finland Fri May 9, 2014 10:49am EDT

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SEINAJOKI, Finland (Reuters) - Finnish Social Democrats on Friday narrowly voted to replace their leader, Finance Minister Jutta Urpilainen, with a left-leaning candidate in a move that could complicate government efforts to curb debt and may lead to early elections.

The proposed new leader, 51-year-old Antti Rinne, is a critic of the government's austerity measures who in recent years has led the country's biggest white-collar workers union, Pro. He is known for feisty negotiation tactics, as well as favoring state-led economic growth.

Rinne received 257 votes in the party congress election against 243 votes for Urpilainen, who said she will also step down as finance minister.

Rinne said he could take over the role but said the decision is up to party council, which is due to discuss the issue in the coming weeks.

The biggest of the ruling parties, the conservative National Coalition, is also due to get a new leader next month, who will then become prime minister after Jyrki Katainen's early departure. Rinne said the two changes provide a chance to revise government's plans for its final year in the office.

"The SDP's policy will change to emphasize economic growth and employment," he said in a news conference after the vote. "We will revise some policy stances to seek a new boost for the economy."

Rinne added that he would try to block some already-agreed austerity measures and offer new stimulus, setting up a possible conflict with the conservatives, who have emphasized the need to curb public borrowing.

Some analysts said Rinne, who is remembered for making stark strike threats as a union leader, may end up pushing the country into early elections.

"If he strongly demands the coalition to open up agreed measures, that could create a crisis and even early elections are possible," said Lauri Karvonen, professor of politics at Abo Akademi University.

LIGHT VERSION OF SOINI

The government has during its term agreed to cut public spending and implement tax hikes worth around 7 billion euros ($9.7 billion). Long-term plans have been laid to reform healthcare and social welfare.

Credit-rating agency Standard & Poor's last month noted political risks in implementing the steps, cutting its outlook on Finland's triple-A credit rating to negative.

Finland is one of only a handful of countries in the euro zone with the top rating, but weak European demand has hit its exports, employment rate and consumption, triggering a two-year recession. Its debt-to-GDP ratio is seen reaching the EU limit of 60 percent this year as unemployment rises to 8.4 percent.

Since Urpilainen took over the party leadership in 2008, support for the Social Democrats, the second-biggest party in parliament, has fallen from 21 to 15.5 percent, weakening its chances of retaining Cabinet posts after the general election next year.

Rinne's supporters accused Urpilainen of doing too little to protect jobs and not looking harder at avoiding some spending cuts.

"The mood is very bad towards the SDP in the factory halls. The party is leaning too much to the right," said Timo Suhonen, a paper mill worker from central Finland. "We will need the labor unions and the party to be hand in hand again."

The decline in SDP's support is largely due to the opposition party The Finns, led by Timo Soini. His fiery anti-euro and nationalistic rhetoric struck a chord with voters a few years ago.

The Finns emerged through the euro zone debt crisis from a small party to true competition for the established parties. In recent polls, it stood second after another opposition party, the Centre.

Male factory workers in particular left SDP for The Finns. Rinne looks like a bid to win them back with old-fashioned views on a state-led economy, the analyst Karvonen said.

"Are they looking to create a light version of The Finns?" Karvonen said. "Now when the party organization is dramatically split from the middle, it is likely that also many supporters look elsewhere."

Rinne told Reuters he also aims to discuss with the government a change in the European Central Bank's mandate. He wants the ECB to allow it to directly buy government bonds to moderate debt yields. He would also add employment and growth as a new ECB monetary policy target.

Urpilainen was known for taking a hard line on euro zone bailouts and demanding collateral for loans. Rinne instead said he would cut interest and lengthen maturities on Greece's loans to help the troubled economy grow. ($1 = 0.7214 Euros)

(Reporting By Jussi Rosendahl Editing by Jeremy Gaunt, Larry King)

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