There's an uneasy mood in Finland, the country that's ranked the world's happiest for nine consecutive years.
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that → be → years
With an election due in April, the argument is no longer how much to cut, but which services, benefits and pensions will face the biggest cuts.
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services → cut → cuts
Finland's debt and deficit levels are in their worst state since the 1990s, when a banking crash and the collapse of the Soviet Union — a key export partner — pushed the Nordic nation into its own Great Depression.
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crash → push → Depression
Finland's debt ratio climbed sharply since the COVID-19 pandemic
Last month, Finland's national statistical institution confirmed that the national debt had reached 90.3% of gross domestic product (GDP) in the second quarter.
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debt → climb → quarter
Finland ramped up defense spending after joining NATO a year after Russia's full-scale invasion of Ukraine.
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Finland → ramp → Ukraine
Helsinki, which used to rely on Moscow for about a third of its energy, also faced much higher costs as it transitioned to other suppliers.
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it → use → suppliers
The Finnish government has spent more than it earns since the 2008/9 global financial crisis, partly due to an aging population and sluggish economic growth.
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it → spend → population
Last month, the State Treasury projected the fiscal deficit would reach 4.2% of GDP in 2026.
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deficit → project → 2026
EU scrutiny over growing deficit
Brussels has piled pressure on Helsinki to bring down the borrowing gap, as European Union rules require member states to stay below 3% of GDP.
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rules → grow → GDP
In January, the European Council opened an excessive deficit procedure and gave Finland until the end of 2028 to reach the desired target.
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Council → open → target
Prime Minister Petteri Orpo's government, which took office in June 2023, said it would aim to save about €9 billion ($10.1 billion) during this parliamentary term.
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it → take → term
But whoever wins the next election will have to cut much deeper, economists warn.
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economists → win → election
"The amounts currently estimated range from €8 to €11 billion," Jarkko Kivisto, an advisor to the Bank of Finland's monetary policy and research department, told DW.
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Kivisto → estimate → DW
Earlier this year, all but one political party agreed to support a debt brake, where the next government commits to tightening the country's deficit to about 2% of GDP by 2031.
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government → agree → 2031
National Coalition rules out tax hikes
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Coalition → rule → hikes
To date, Orpo's center-right National Coalition is the only party to promise a further €9 billion in cuts if he wins a second term.
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he → promise → term
, Orpo also plans to target workplace pensions, without reducing current payouts.
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Orpo → plan → payouts
While the Social Democrats plan to split the reforms between spending cuts and tax hikes, Orpo plans to achieve his target without raising taxes — meaning public services will bear the brunt.
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services → plan → brunt
Kivisto, however, cautioned: "The deficit is so large that it would need a package that includes tax increases and expenditure cuts."
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that → caution → increases
In August, Finland's jobless total stood at 10.3%, just above Spain's 10%, according to Eurostat, the bloc's statistics agency.
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total → stand → Eurostat
Youth unemployment reached 23.3%, against an EU average of 15.4%.
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unemployment → reach → %
With household spending already falling, Lauri Holappa, director of the Finnish Centre for New Economic Analysis, warned that a new round of austerity would be a hard blow for the domestic economy.
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round → fall → economy
"More than a quarter of the population works in the public sector, so if those workers face the threat of being sacked, the savings rate will rise and private spending will drop again," Holappa told DW.
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Holappa → work → DW
Successive pressures ranging from the COVID-19 pandemic, higher interest rates and the global financial impact of two current wars have hurt efforts to cut the growing gap between income and borrowing.
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pressures → range → income
The 2027 budget proposal still counts on a spending gap of €12.4 billion.
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proposal → count → billion
Finland rearms after Russia's full-scale invasion
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Finland → rearm → invasion
Before the Ukraine war, Finland had already committed to buying 64 F-35A fighter jets from the United States, in a deal worth about €8.4 billion.
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Finland → commit → deal
During more than four years of Russia's war in Ukraine, the Nordic nation raised military spending from $4.5 billion to over $8 billion per year, according to the Stockholm International Peace Research Institute (SIPRI).
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nation → raise → Institute
In April, the government said it would further increase defense spending to 3.2% of GDP, close to NATO's 3.5% target.
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it → say → target
With oil prices remaining close to $100 a barrel due to the Iran war, the government has so far resisted pressure to increase fuel subsidies.
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government → remain → subsidies
That's despite the Bank of Finland recording a 50% rise in the cost of imported energy in the early months of the Iran war.
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Bank → record → war
While Finland’s shift to renewables, along with the opening of the Olkiluoto 3 nuclear power plant in 2023, has helped avoid a worse energy crisis, the central bank warned this summer that sustained high oil and gas prices would mean "lower economic growth and higher inflation" next year.
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prices → help → growth
On another positive note, parts of Finland's export sector are booming, thanks to strong metal and shipbuilding orders, which Holappa described as strong as "the boom years of Nokia," when the once market-leading phone maker carried Finnish economic growth.
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maker → boom → growth
"There is a possibility that the export sector can steer us out of this recession," he told DW, as long as demand from the rest of Europe remains strong.
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demand → be → Europe
Markets give Helsinki time to reform
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Markets → give → time
Despite the multiple roadblocks to bringing down the deficit, market reaction to Finland's debt woes has, so far, been muted.
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reaction → bring → woes
Rating agencies have kept the country's outlook stable, apart from S&P, which turned negative in April without cutting the rating.
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which → keep → rating
On October 6, the premium the Finnish government pays over Germany to borrow for 10 years was 38 basis points.
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government → pay → years
That compares to 128 for France and 107 for Italy.
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That → compare → Italy
In other words, investors still treat Finnish debt as among the safest in Europe.
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investors → treat → Europe
…and 3 more, not listed.
The Aporia
