Finland is emerging as the European Union’s weakest economy because of its failure to build a competitive labor market, according to Finance Minister Alexander Stubb.
The economy of the northernmost euro member is set to contract for a fourth consecutive year, Stubb said at a conference of Finnish diplomats in Helsinki. He described the development as “worrying”, Bloomberg reported.
The government has so far failed to persuade Finns to accept pay cuts it says are necessary to compete with its trading partners. Stubb warned today that the nation’s economic plight is not only linked to market shocks but is structural, meaning only a program of reform can jolt the nation out of its sclerosis.
Aktia, a Finnish bank, estimates gross domestic product will contract 0.5% in 2015, after shrinking every year since 2011. Both exports and investments are seen contracting, according to the bank. Any reform program should target bringing about “quick relief” for an economy that has been hobbled by its lack of competitiveness, Aktia said.
Finland, which has stood shoulder-to-shoulder with Germany through the darkest hours of Europe’s debt crisis to advocate the wisdom of austerity, now risks seeing its own ratings tarnished by its economic decline. Moody’s Investors Service, which still rates Finland Aaa, said last week the country’s weak economic prospects were “credit-negative.” Standard & Poor’s stripped Finland of its top rating in October.
Prime Minister Juha Sipila said at a press conference in Helsinki Monday that the government is preparing a proposal to improve competitiveness that will be presented by the end of September. If the nation had its own currency, a devaluation would now be considered, he said.
