Thus far, Finland has been one of the few euro-area countries that has been able to maintain its debt-to-GDP ratio below the 60% threshold. Prime Minister Jyrki Katainen (NCP) and Minister of Finance Jutta Urpilainen (SDP) commented on the state of the public economy in a news conference during the framework session on 24 March. Having ardently called for the adoption of stricter austerity policies, honour student Finland can no longer adhere to the fiscal rules of the European Union, indicates an economic survey published by the Ministry of Finance on Thursday.

The structural deficit of Finland, the survey shows, is set to pierce the threshold set by the European Union, albeit only marginally and temporarily. As a result, the EU is not expected to take action.

The fiscal rules of the EU prescribe that the structural deficit of its member states should not exceed 0.5 per cent of their gross domestic product. In Finland, the structural deficit is expected to creep up to 0.7 per cent of GDP, according to the Ministry of Finance.

In effect, however, the EU is unlikely to take action unless the deficit exceeds 1.0 per cent of GDP.

In the years to come, the structural deficit of Finland is expected to recover, first to 0.1 per cent and push into surplus in 2017.

The structural deficit differs from the standard deficit in that it does not account for economic fluctuations, such as the ongoing downturn. This year, the standard deficit of the public economy in Finland stands at 2.4 per cent, chiefly due to the hapless economic situation.

Instead, the structural deficit highlights the extent of any persistent problems in the economy. However, due to it being a theoretical calculation, the deficit can only be determined accurately in hindsight.

In addition, the survey indicates that the Finnish public debt is set to increase to 61 per cent of national output next year, thus breaching the 60 per cent debt-to-GDP threshold prescribed by the EU. Hitherto, the country has been one of the few euro-area countries to successfully maintain its public debt below the threshold.

Although the violation does in theory enable the EU to impose penalties on Finland, it is not expected to do so.

One mitigating factor is the fact that the Finnish debt-to-GDP ratio would not breach the threshold had Finland not contributed toward the bailout packages of crisis countries. Moreover, several other euro-area countries have previously pierced the threshold but avoided repercussions.

The third rule, in turn, stipulates that the deficit of a public economy shall not exceed 3.0 per cent of national output. Finland is not expected to violate this rule, not even in theory.

“In regards to all three rules, the situation is thereby safe and clear. There is to be no intervention by the EU,” assures Mikko Spolander, the director of the Stability Unit at the Ministry of Finance.

In its new, more cautious, survey, the Ministry of Finance projects that the Finnish economy will expand by 0.5 per cent this year and by 1.4 per cent next year.

Piia Elonen – HS
Aleksi Teivainen – HT
Photo: Antti Aimo-Koivisto / Lehtikuva