| HELSINKI, March 24
HELSINKI, March 24 Russia's takeover of Crimea
has put Europe in an economic quandary, and Finland may be
getting squeezed the hardest of all western European countries.
Finnish politicians support Europe Union unity in action
against Russia in its conflict with Ukraine. But they are
uneasily aware of how sanctions would backfire against Europe's
and especially Finland's economy.
A tenth of Finnish exports are sold to Russia, and they were
already slipping as Russia's economy slowed and the rouble
weakened. Now fears abound that harsh EU sanctions would hit the
Finnish economy hard when it can least afford it.
"Russia will certainly respond to sanctions, which would
have a major impact on Finnish companies and economy," President
Sauli Niinisto recently told Finnish media.
Bank of Finland Governor Erkki Liikanen sang from the same
sheet, saying that the Finnish economy had already been hurt and
that sanctions should affect all EU countries the same.
Finland and Russia share a 1,340-km (840-mile) border and a
long, contentious history. Russia ruled Finland from 1809 to
1917, and the countries fought two wars within World War II.
They negotiated an armistice in 1944 and a final peace treaty in
1947. Finland maintained a cordial - and largely profitable -
relationship with Russia throughout the Cold War.
Now Finland is one of just three euro zone economies to keep
a triple-A credit rating, but it has recorded a trade deficit
for the past three years, after 20 consecutive years of
surpluses. Europe's downturn has weighed on exports from its
machinery, paper and shipping industries.
The economy suffered a further blow as Nokia lost
its dominance of the mobile-phone market. Last year, it agreed
to sell its phone business to Microsoft.
Russian consumer wealth provided a rare bright spot for many
Finnish companies, until last year. Then the Russian economy
took a turn for the worse and the rouble weakened, discouraging
Russians from buying Finnish products. The Crimean crisis could
make things a lot worse.
"For the Finnish economy, this uncertainty is arriving at a
very bad time," said Danske Bank economist Pasi Kuoppamaki. He
has trimmed his forecast for Finland's 2014 growth to 0.5
percent from 1.1 percent previously.
In 2009, Finland's exports to Russia were cut nearly in half
by the global financial crisis. Those exports were worth around
5.5 billion euros last year, and falling demand could reduce
them by a quarter this year, economists say.
"An escalating crisis would cut Finnish export growth by 3
percentage points and gross domestic product growth by 0.8
percentage points in 2014," Liikanen told a government briefing
Mere uncertainty has made exporters jittery.
"Sanctions, if they concerned our sector, would cause huge
problems for us," said Jens Osterberg, the chief at family-held
Petsmo Products, which sells machinery for making animal feed.
Adding to export woes, fewer Russians are likely to visit
Finland as the weak rouble erodes their buying power. Russians,
by far the biggest group of tourists to Finland, brought 1.2
billion euros into the country last year.
"Business has slowed, that is clear. There seem to be less
Russian customers," said Sergey Ananiev who heads retailer
Rajamarket which caters mainly to Russian tourists. "The
exchange rate has had an impact."
The weakened business prospects add to the problems of
Finland's six-party government, which on Monday began talks on
its budget for the next three years.
INVESTMENTS ON HOLD
Many Finnish companies have sought Eastern growth by
stepping up investments. Russian business has also expanded in
State-owned Rosatom recently agreed to build a nuclear
reactor in Western Finland and take a stake in the 4 billion to
6 billion-euro plant.
In another high-profile deal, Gennadi Timchenko and Boris
Rotenberg - both close allies of President Vladimir Putin and
targets of recent U.S. sanctions - last year bought a sports
arena in Helsinki and a 49 percent stake in an ice-hockey team.
Any new projects are now expected to be put on hold.
"Large investments in both directions will be put on ice,"
said Kari Liuhto, an expert at Russian business at the
University of Turku. "Business executives do not want to do
anything before Russian political risk is clearer."
Companies with the biggest Russian exposures, such as
utility Fortum and tyre maker Nokian Renkaat
, have already been hit on the stock exchange.
Retailer Stockmann hinted it could change its Russia strategy.
For now, Finland seems certain to lose from the conflict.
"One can only hope that the situation gets resolved in a
peaceful manner," Rajamarket's Ananiev said. "One can only
(Editing by Larry King)