June 27, 2012 / 6:07 AM / 5 years ago

Finns get tougher on Europe as crisis drags on

7 Min Read

HELSINKI (Reuters) - Finnish Prime Minister Jyrki Katainen sounded almost apologetic a year ago when he demanded collateral in exchange for bailout funds for Greece.

It was the first time the Finns, who have prospered as EU members since 1995, shedding the shadow of historically dominant neighbors Russia and Sweden, had joined Europe's awkward squad.

Attaching strings to aid was a condition set by the Social Democrats, his conservative party's coalition partners, and Katainen's aides privately worried about being troublemakers in Europe's moment of need.

It took weeks of tortuous negotiations to satisfy Helsinki's demands, compounding financial market jitters.

Twelve months on, with the euro zone still in turmoil and Greece nearer to the brink, Katainen no longer sounds sorry for demanding austerity from other member states or for opposing major steps towards closer integration that Finland considers too risky or irresponsible, such as common euro bonds.

"Too many countries have gotten too many loans too cheaply for too long," Katainen told Reuters this month. "We don't want to institutionalize this unless we know everybody will follow the rules, which hasn't been the case before."

The Finns were also quick to oppose giving the newly-elected Greek government more time to meet fiscal targets.

Katainen's National Coalition party is the polar opposite of the anti-euro Finns Party which rose from obscurity in the 2011 election to finish a close third, yet he too is now calling for more fairness and fiscal responsibility in the euro zone.

Finland has dutifully obeyed the EU's fiscal criteria and is one of the few remaining countries in the euro zone with a triple-A credit rating from all major rating agencies.

Asked whether he would have supported Finland's entry into the euro if he had known how the crisis would unfold, Katainen responded with a qualified "yes".

"We would also have been stricter on how the member countries fulfill the criteria and follow the rules," he said.

Government officials have mixed views on the latest push for a tighter fiscal and banking union. They say a stronger central authority could speed up decision-making and help the EU gain credibility in financial markets, but they are reluctant to give up more sovereignty to Brussels.

The Finns Party's charismatic leader, Timo Soini, says Katainen would be wrong to give away more parliamentary power.

"The bailouts were philosophically wrong, deeply morally wrong. Now they want to make those rules prevail in a banking union, with eurobonds and more power to Brussels," he told Reuters in an interview. "No way."

We Did It, Why Can't You?

At the root of Finland's self-righteous stance is its own experience of having recovered from a major banking crisis.

The Nordic country plunged into a deep recession in the early 1990s after an asset price bubble burst. The economy shrank by 10 percent, bankruptcies soared and unemployment reached around 20 percent.

Finland, with a history of self-reliant struggle, managed to recover without help from the International Monetary Fund (IMF). But harsh austerity and punishing years of debt repayments are fresh in the minds of ordinary Finns as well as policymakers.

Olli Rehn, the European Commission's Finnish top economic official, has stark memories of his time as special adviser to then Prime Minister Esko Aho from 1992 to 1993.

He recalled starting his mornings in the spring of 1993 by nervously checking share prices and bond yields.

"I called the Treasury to ask, 'do we still have cash to pay the bills and salaries?' The IMF was a few weeks away. We had to take action and modernize the welfare state," he said at an IMF panel discussion in Riga.

President Sauli Niinisto, who as finance minister led the country's entry into the euro, says he feels Finland is wrongly viewed as a wealthy nation reluctant to help others.

"I want to break a myth, which is that rich Finland is very capable of giving help to poor countries," Niinisto said. Instead, he said, the country was merely "well managed".

Nokia Anxieties

Recent opinion polls suggest Euroscepticism is no longer rising, but it is still strong enough to keep Katainen wary.

Popular support for the Finns Party, which won 19 percent in last year's parliamentary election, is now around 15 percent, according to the daily Helsingin Sanomat. The decline follows a string of gaffes and racist comments by Finns Party lawmakers.

Another poll in tabloid Ilta-Sanomat showed the number of Finns who think abandoning the markka for the euro was a mistake fell to 32 percent in May from 37 percent in December.

Analysts say an economic slowdown and further chaos in the euro zone could easily stir resentment and help the Finns Party regain momentum.

There's already a worry that this small economy faces tougher times ahead, with flagship technology firm Nokia bleeding market share to rivals like Apple and Samsung.

The Finnish mobile phone maker announced a new round of layoffs this month to preserve cash. Of the 10,000 extra job cuts, around 3,700 will be in Finland.

Traditional manufacturing sectors like paper and pulp are also struggling to compete with more nimble Asian rivals, and Soini said Finland's membership of the strong euro was hurting rather than helping domestic manufacturers.

"Foreign exchange, the euro, has destroyed the forest industry," he said.

Finland posted a current account deficit of 1.3 billion euros in 2011 due to slower export growth, and the central bank expects the deficit to continue for another few years.

With the competitive decline of once-mighty export manufacturers and a rapidly ageing population, economists say the 5.4 million Finns may need to prepare for later retirement or lower pensions.

Matti Vanhanen, prime minister from 2003 to 2010, said it was understandable for Finns to resent bailouts but they should look beyond that and embrace policies such as liberalized labor that will help Europe --and Finland-- regain competitiveness.

"With globalization and the rising powers of Asia there is the fear that in Europe we will not temporarily but permanently lose our standard of living. We should realize this," he said. "The lack of competitiveness --that's the basic reason for the crisis."

Additional reporting by Eero Vassinen in Helsinki and Balazs Koranyi in Oslo; Editing by Paul Taylor and Philippa Fletcher

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