March 24, 2015 / 8:01 PM / 4 years ago

PM Stubb sees risk of another lost decade for Finland

HELSINKI (Reuters) - Finland’s economy could flatline through the 2020s if politicians fail to curb taxes and government debt, Prime Minister Alexander Stubb said before a general election next month.

Finland Prime Minister Alexander Stubb listens during the Europe's Twin Challenges: Growth and Stability event in the Swiss mountain resort of Davos January 22, 2015. REUTERS/Ruben Sprich

After boasting of its tight fiscal policies during the euro debt crisis, Finland has stumbled through three years of economic contraction and its debt ratio is now close to the European Union limit.

Fitch Ratings last week cut its outlook on Finland’s triple-A credit rating to negative in what Stubb said should be a clear message for politicians gearing up for April 19 election.

“We need to build a society where working and employing pays off,” Stubb told Reuters. “I’m in favor of a Nordic welfare society, but it needs to be accompanied by a market economy and reforms which will not be easy.”

Finland’s gross domestic product is not expected to return to 2008 levels until 2018.

Stubb said: “I’m afraid that if we can’t launch significant moves, we could have another lost decade ahead of us, just like the one we are experiencing now.”

Finland’s jobless rate rose to 9.2 percent in February. Critics say a 44 percent tax ratio deters investments and job creation.

Stubb’s fractious left-right government, initially led by Jyrki Katainen, is widely seen as Finland’s least successful coalition ever after it failed to push through its original plans to reform health care and local government budgets, and canceled some spending cuts.

“The parties clearly had different views of the economic situation from the beginning (in 2011),” Stubb said, referring to Social Democrats who chose former union boss Antti Rinne as their leader last year.

Stubb’s National Coalition Party has proposed deep cuts in spending such as unemployment benefits and development aid, and lower income taxes for individuals and companies.

Other parties, including the Social Democrats - the second biggest government party - and the opposition Centre Party have proposed more moderate cuts, flat or moderate increases in taxes and public investment to stimulate the economy.

Polls give the Centre Party around 25 percent with National Coalition, the Social Democrats and The Finns Party each with 14-17 percent.

Finland’s economy flourished until the financial crisis but was among the worst hit when demand across Europe slumped. It has struggled with high labor costs, a decline in the paper industry and the demise of once-dominant mobile phone maker Nokia NOK1V.HE. Sanctions against Russia have deepened the pain.

Editing by Simon Johnson and Ruth Pitchford

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