Aus­ter­ity ex­poses strains on Fin­land's con­sen­sus model

The Pak Banker - - MARKETS/SPORTS -

If one fist bump could en­dan­ger Fin­land's in­creas­ingly stressed tra­di­tion of con­sen­sus pol­i­tics, then Prime Min­is­ter Juha Sip­ila and a cab­i­net col­league may just have achieved this du­bi­ous distinc­tion.

In a nod to pop­u­lar cul­ture, a smil­ing Sip­ila and his finance min­is­ter Alexan­der Stubb punched each other's fist to cel­e­brate a break­through in ne­go­ti­at­ing one of Fin­land's tough­est aus­ter­ity deals in decades with trade unions.

The unions, whose mem­bers face de facto wage cuts in the name of re­viv­ing eco­nomic growth, were deeply unim­pressed by the pub­lic show of ex­u­ber­ance ear­lier this month. "Mem­bers were very up­set. They thought that they were mock­ing work­ers, say­ing some­thing like: ' now we can drive them into the ground'," said PAM union leader Ann Selin, who rep­re­sents 232,000 work­ers.

The fist bump wasn't a first in in­ter­na­tional pol­i­tics. Barack and Michelle Obama ex­changed one at the Demo­cratic party con­ven­tion be­fore his elec­tion to the U.S. pres­i­dency in 2008. But Sip­ila and Stubb are hardly the golden cou­ple of Fin­nish pol­i­tics. Be­fore be­com­ing prime min­is­ter, Sip­ila was a mil­lion­aire busi­ness­man while Stubb has the im­age of a jet set­ter with a lik­ing for fine suits. This made the ges­ture all the more dif­fi­cult to stom­ach for union lead­ers af­ter what was only a pre­lim­i­nary deal, with a de­tailed agree­ment still to be ham­mered out in the com­ing months. "It did not help at all," said Selin.

Unions were out­raged at politi­cians who ap­peared out of touch, un­der­ly­ing the fragility of the Nordic model un­der which par­ties of the cen­ter-right and cen­ter-left, or­ga­nized la­bor and busi­ness strive to reach con­sen­sus deals with­out con­flict.

The danger is that the pre­lim­i­nary ac­cord may still col­lapse as the Fin­nish con­sen­sus is tested by ris­ing debt, un­em­ploy­ment and lengthy eco­nomic stag­na­tion.

Re­ly­ing on tra­di­tional con­sen­sus pol­i­tics, Sip­ila wants to per­suade the unions to cut la­bor costs by 5 per­cent. It is part of his push to raise the com­pet­i­tive­ness of the Fin­nish econ­omy af­ter three years of re­ces­sion with some of the deep­est aus­ter­ity and wel­fare since World War Two.

With un­em­ploy­ment at 9.4 per­cent, Stubb in­sists the fist bump was to cel­e­brate the new jobs that he be­lieves the re­forms will cre­ate. He has her­alded a Fin­nish spring of "three big de­ci­sions that need to be taken to change the course of the coun­try" - the la­bor deal, a par­lia­men­tary vote on bud­get cuts and re­forms to cut the cost of health care.

At stake is the con­sen­sus that has grown across the high-cost Nordic wel­fare states out of the re­al­iza­tion that small, ex­port­de­pen­dent economies can ill af­ford po­lar­iza­tion and pol­icy stag­na­tion.

Nowhere is that con­sen­sus un­der such risk as in Fin­land, called "the sick man of Europe" by Stubb and now fac­ing the same dilemma as many other euro zone economies of how to pro­mote growth while also pur­su­ing fis­cal aus­ter­ity.

Hav­ing long lec­tured south­ern Euro­pean coun­tries such as Greece on tack­ling their prob­lems, Fin­land is be­lat­edly com­ing to re­form it­self.

The demise of Nokia's phone busi­ness and the elec­tron­ics in­dus­try has shaved 3 per­cent off Fin­nish gross do­mes­tic prod­uct since 2007, with the shrink­ing wood in­dus­try cutting an­other 0.75 per­cent, ac­cord­ing to OECD econ­o­mists.

Eco­nomic cri­sis in neigh­bor­ing Rus­sia, a close trade part­ner, has cut an­other 1.5 per­cent off Fin­nish out­put in the last three years, they say.

This year, Fin­land has lost its triple-A credit rat­ing. The Euro­pean Com­mis­sion has warned Helsinki about its ris­ing debt and bud­get deficit, al­though last year the short­fall was equal to 2.7 per­cent of GDP, within the EU limit.

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