CRISIS IMPACT: Nordic welfare state coping well, so far

(repeats story first issued on June 16)

* Welfare systems helping to sustain economies

* Crisis produces little political backlash

* Few question Nordic economic model

* But fiscal deficits widening, may become serious

By Wojciech Moskwa

OSLO, June 16 (Reuters) - Fancy pocketing as much as $41,000 annually for the next couple of years? Lose your job in Norway.

With unemployment benefits like that, Norwegians and their Nordic cousins face less anxiety than most other Europeans during the global credit crisis.

Norwegians, Swedes, Danes and Finns have been paying the world's highest tax rates for decades, and now they're seeing the pay-off. While their welfare systems were designed to foster egalitarian societies, the financial crisis has shown they also serve as a kind of insurance policy for the broad economy.

This has so far limited the political backlash against Nordic governments during the crisis. But in all the countries except oil-rich Norway, it comes at the cost of soaring budget deficits and debt, which could become dangerous if the crisis continues. (for a factbox on major issues for investors in the region, click [ID:nLG571416])

During the crisis, "there has been remarkably little in terms of fundamental changes in views about the welfare model, the economy and globalisation," said Christian Ketels, an economist at the Harvard Business School and the Stockholm School of Economics.

"There is also a bit of a 'We told you so' attitude, as the Nordic model is more stable."

The world's financial woes have reinforced Nordic scepticism over the Anglo-Saxon economic model associated with lower taxes, smaller government, freer markets and a smaller welfare state.

As the Nordic region's four export-oriented economies have slid into recession, the welfare state's "automatic stabilisers" have provided public transfers to a growing number of jobless, sustaining consumption and keeping some air in the economy.

Despite the stimulus, Denmark's gross domestic product is expected to contract by 4.5 percent this year, Sweden's 5 percent and Finland's nearly 6 percent. Norway, buoyed by a huge offshore oil sector, is set to shrink about 1 percent. The four economies grew by a weighted average of 2.8 percent in 2007.

The Nordics' social safety net provides high unemployment benefits -- in Norway, two-thirds of an employee's last salary for two years -- plus hands-on help in job training and counselling, including crash courses on job interviews.

"Even in these times of crisis, most unemployed find jobs after three months or so, with some assistance from us," said Erik Oftedal, director of the labour and programmes department at NAV, Norway's labour and welfare office.

CRISIS MANAGEMENT

Generous benefits and affordable healthcare make Nordic citizens reluctant to protest, either on the streets or in voting booths.

In stark contrast to political instability in much of the rest of Europe, support for governments in Oslo and Stockholm has rebounded during the crisis, and both now have a chance of winning elections due in September in Norway and next year in Sweden.

The reputation of the region's ruling parties may have been enhanced because financial regulatory regimes have worked relatively well, and since many people see the economic crisis as something imported, not born at home.

"There is an opportunity for these governments to demonstrate stewardship and lead through the crisis," said Adam Strangfeld from Control-risks, a risk consultancy in London.

In contrast to past Nordic crises, which were more local in origin, governments this time have not shown much appetite to nationalise industry. Ownership changes would not affect the root cause of the economic slump -- falling demand in foreign markets.

Sweden's export-led auto industry is a case in point. The government has refused to take stakes in car firms but is trying to help them survive with bridge financing and by finding new investors.

In Finland and Denmark, where elections are further in the future, governments have raised the retirement age and pressed powerful trade unions for concessions on benefits and training programmes.

SWELLING DEFICITS

Unlike many other European countries, the Nordics had largely completed budget reforms when the crisis hit, so they entered it with fiscal surpluses that provided room to boost spending during the downturn.

But governments quickly shelved even modest efforts to reform weaker aspects of the Nordic policy model, such as low incentives for private entrepreneurship and uncompetitive internal markets in products and services.

And analysts say the crisis may do long-term damage to public finances, which were for years buoyed by extraordinary revenues from the financial sector and a housing boom.

If the eventual recovery of the global economy is slow and constrained by a more conservative, more tightly regulated financial sector, higher unemployment could become entrenched in Nordic economies, making higher welfare spending a permanent feature of budgets.

The budget balances of Sweden, Denmark and Finland are set to deteriorate by about 10 percentage points of GDP from 2007 to 2010, SEB bank said in a recent research note. If recovery fails to materialise next year, 2011 deficits will be even bigger.

"Strong stabilisers mean that finances have and will deteriorate quite a lot. Looking ahead, fiscal consolidation will be a major concern, perhaps bigger than people expect," said Henrik Braconer, a senior economist at the Organisation for Economic Co-operation and Development. (Additional reporting by Simon Johnson in Stockholm and Eva Lamppu in Helsinki; Editing by Janet McBride and Andrew Torchia)