Fist-bump austerity exposes strains on Finland's consensus model

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[March 28, 2016]  By Alistair Scrutton and Jussi Rosendahl

HELSINKI (Reuters) - 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.

GRAPHICS:

Finnish unit labor costs: http://reut.rs/1MEkDb9

OECD comparison - state spending, job creation:

http://tmsnrt.rs/1px9zHv

Comparison - euro zone growth forecasts:

http://reut.rs/1mfTMe6

Comparison - euro zone unemployment rates:

http://link.reuters.com/tev79v

 

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 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.

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 party leadership.

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 University.

(Additional reporting by Tuomas Forsell; Editing by David Stamp)

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