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
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
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
Finnish unit labor costs: http://reut.rs/1MEkDb9
OECD comparison - state spending, job creation:
Comparison - euro zone growth forecasts:
Comparison - euro zone unemployment rates:
NOT VERY FINNISH
At stake is the consensus that has grown across the high-cost Nordic
welfare states out of the realization that small, export-dependent
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
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,
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.
Still, public spending is 58 percent of GDP, the highest in the OECD
group of developed economies. Exports remain 20 percent below their
peak reached in 2007 before the global crisis erupted.
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Resistance to austerity is considerable. In the last few months,
parts of Helsinki have been brought to a standstill by protesting
farmers driving tractors, while thousands of pensioners and students
have also taken to streets.
Selin described the preliminary labor deal as "the lesser of two
evils", but said: "I have never seen the consensus model under such
pressure. I have never seen so many demonstrations."
"It's not very Finnish," she added.
NO REVOLUTION - YET
Stubb acknowledges no one wants to bear the brunt of the reforms.
"There is consensus in Finland that we need to turn the tide of
debt, but there's clearly no consensus on where we do those cuts,"
he told Reuters.
He made clear the government dislikes "revolution" - forcing through
reforms that could polarize society. "We decided that we'll go
through evolution, a bit by bit. But ... you have to be pretty sure
that you meet those targets, otherwise at the end of the day you'll
have to go for the revolution."
Planned budget spending cuts would save 4 billion euros ($4.5
billion) by 2019, equal to 2 percent of GDP. Social and health
reforms would cut 3 billion euros, or 1.5 percent of GDP, according
to the OECD.
Stubb has warned that if the labor reforms are watered down when
unions and employers negotiate the final deal, the government could
try to force through more radical cuts.
Sipila and Stubb have to walk a political tightrope on each of the
three reforms, facing infighting within the three-party center-right
coalition government and voters' anger with planned spending cuts
from education to child benefits.
Critics say Stubb is part of the problem. Many Finns are wary of the
extrovert and social media-savvy politician, mistrusting his image
as a right-wing ideologue. He even faces a possible challenge to his
Stubb's cherished labor deal cuts to the heart of Finnish welfare.
If he gets his way, employees may work an extra 24 hours a year for
no extra pay but with increased pension contributions. Beloved
benefits, such as a 50-percent bonus on monthly pay in the summer
holidays, may be trimmed.
CLUELESS ON GROWTH
"Finland has lost its values," said Arto Annila, a physics professor
who was among 75 academics at Helsinki University to be made
redundant. Aged 53, it was the first time he has lost his job.
"Before you had a sense these were jobs for life."
Anger with these cuts - altogether about 980 jobs are going from the
university's staff - has helped the opposition center-left Social
Democrats rise to top in polls.
They advocate less austerity and more investment. "Europe has
generally done too much cutting," said Sanna Marin, 30-year-old SDP
vice-chairwoman, who warns the coalition could fall before its term
ends in 2019.
Her hometown suffers 18 percent unemployment. "I think we have the
fiscal room to invest," she said.
However, few economists see any magic wand to boost growth, given
how few new industries are making up for weakness of Finland's
electronic and forestry exports.
"We are all clueless on how to get long term economic growth," said
Markus Jantti, a professor of public finances at Helsinki
(Additional reporting by Tuomas Forsell; Editing by David Stamp)
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