Bloomberg
Helsinki



The “sick man of Europe” — the epithet Finland’s finance minister uses to describe his country — may be about to encounter a new hurdle.
While the government’s reform agenda has won praise from rating companies and economists, its slowness in moving forward with concrete measures is starting to unsettle businesses, according to some economists.
“The government has been hesitant in its reforms,” Juhana Brotherus, an economist at housing-credit institution Hypo in Helsinki, said by phone. “I am hearing many comments from small and medium-sized companies that they are freezing investments because they don’t know how reforms that are under way will influence the cost of labour.”
Prime Minister Juha Sipila — a self-made millionaire with a background in engineering — and his finance minister, Alexander Stubb, have made it a priority to boost competitiveness in Finland. To do that, they’re trying to persuade Finns to produce more without earning more. Needless to say, the proposals aren’t proving popular and labour unions have already rejected a plan to cut wages by 5% through 2019.
Disagreement over where to squeeze out the extra productivity is making it hard for the government to push ahead with its reforms. So far mostly smaller, symbolic moves have been agreed. These have included a government plan to cut its own pay, while parliament has been urged to follow. The coalition also wants to cut some public holidays and a tax on the wealthy is set to be extended.
Finland’s economy has already contracted for three consecutive years. Stubb says it probably won’t grow in 2015 while Moody’s Investors Service predicts another year of contraction.
The government lost its AAA credit rating at Standard & Poor’s in October last year. Fitch and Moody’s still give it the highest grade, but all three companies have negative outlooks on their ratings. The issue isn’t so much the level of public debt, which Stubb says may exceed 60% of gross domestic product this year, as it is the government’s ability to revive the economy.
“Finland’s near-term challenges are not connected to the rising debt level of the public sector but more to the lack of growth,” Brotherus said. “The government’s targets are right, because it intends to boost cost competitiveness and exports.” And there have even been “some cautious positive signs in the air,” he said. “But industry and business confidence indicators tell us that we can’t expect any rapid growth.”

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