VZCZCXYZ0000
RR RUEHWEB

DE RUEHHE #0045/01 0371406
ZNR UUUUU ZZH
R 061406Z FEB 09
FM AMEMBASSY HELSINKI
TO RUEHC/SECSTATE WASHDC 4793
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCNMEU/EU INTEREST COLLECTIVE

UNCLAS HELSINKI 000045 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN FI PREL
SUBJECT: FINLAND:  GOVERNMENT UNVEILS 2 BILLION EURO 
STIMULUS PACKAGE 
 
¶1.  Summary:  The Government of Finland (GOF) agreed on a 
stimulus package January 30 which is expected to have an 
overall impact of EUR 2 billion.  The package was presented 
to parliament on February 3 as part of an overall 
supplementary budget request, the primary objective of which 
is to promote employment by making investments in transport 
infrastructure, construction, education and research. 
Additionally, the package seeks to lower companies' labor 
costs by removing the national pension contribution paid by 
employers. GOF Finance Ministry officials told econoff 
February 4 that while the package was solid, Finland will 
carefully monitor the amount of debt needed to pay for the 
stimulus.  Sami Ylaoutinen, Director of the Stability Unit at 
the Finance Ministry, underscored to econoff the GOF's 
interest in crafting a responsible stimulus that would not 
risk putting the long-term sustainability of public finances 
in jeopardy, given the impending decline in the working-age 
population that will be responsible for paying off the larger 
debt. 
 
¶2.  Politically, each of the four parties in the current 
coalition government is able to claim credit for various 
provisions.  The Swedish People's Party, for example, pushed 
for EUR 30 million for the refurbishment of the Swedish 
Theater in Helsinki.  The deficit created in the public 
finances due to the abolition of the social insurance 
contribution will be mainly financed by increasing energy and 
environmental taxes for industry and commerce, a key demand 
of the Green Party.  The rise in popularity of the National 
Coalition Party has led the ruling Center Party to to make 
the occasional dig at the popular NCP Finance Minister Jyrki 
Katainen, who has been rated by the Financial Times as the 
most effective Finance Minister in Europe.  End Summary. 
 
Finnish Economic Situation Deteriorating Rapidly, But Remains 
Sound 
--------------------------------------------- ----------------- 
 
¶3.  In Finland, the impact of the economic downturn is most 
acutely felt in central government finances.  The GOF Finance 
Ministry predicts that the National Accounts deficit will be 
-2.3 GDP in 2009 and local government finances will also slip 
into deficit this year.  The budget surplus that has made 
Finland the envy of Europe will melt away in 2009 and with 
the supplementary budget, Finland will face a -0.4 percent 
deficit.  Public debt, which in 2008 stood at the 
comparatively low level of 33 percent of GDP is also expected 
to rise sharply in 2009 and government forecasters predict 
that the public debt to GDP ratio will climb by at least 5 
percentage points to 38 percent.  (One risk scenario posits a 
rise to 60% in the next four years if there is no change in 
the economic situation.) 
 
Government Agrees on Stimulus Measures 
-------------------------------------- 
 
¶4.  The stimulus package adopted by the Finnish government on 
January 30 will weaken the balance of central government 
finances by EUR 912 million in 2009.  Added to measures taken 
separately to boost financial markets, the total impact of 
the stimulus measure amounts to roughly 1.7 percent of GDP. 
In addition to the investments noted in para 1, the package 
includes provisions to lower labor costs by removing the 
national pension contribution paid by employers.  This 
reduction is intended to be permanent.  Finance Minister 
Katainen has stated publicly that since Finland is such a 
relatively small economy, whatever it does will not change 
the global economic situation.  According to a press release, 
through this packgage the government hopes to "minimize the 
number of people who, as a result of the international 
economic downturn, have become affected by cyclical 
unemployment, and to carry them over the hard times."  Over 
the next month, Parliament will debate the stimulus package, 
but since the government has endorsed it, parliament is 
expected to pass it with only minor changes. 
 
Politics and Economics 
---------------------- 
 
¶5.  The Finnish government justifiably prides itself on a 
collaborative approach to government decisionmaking. 
According to Ylaoutinen, given the reality of the economic 
downturn, the government was under pressure to make the 
package appear generous.  In a recent survey, the Center 
Party of Prime Minister Vanhanen polled an unprecedented 5 
percentage points below the conservative National Coalition 
Party (NCP).  Fighting for his party and struggling to 
demonstrate leadership, in mid-January PM Vanhanen proposed 
the initiation of a massive decade-long investment program, 
worth tens of billions of euros.  Saying that he was 
 
"disappointed" with unbridled economic liberalism, Vanhanen 
said that the government needs to assume a stronger role 
under all circumstances, not just crises.  Although he 
admitted that his proposal was "just a loose vision", its 
timing and scope was intended to contrast sharply with that 
presented by NCP Finance Minister Katainen, who in December 
2008  called for a 100 million euro stimulus package, a 
measure that in comparison with Vanhanen's proposal, seems 
already outdated. The opposition Social Democrat Party (SDP) 
has criticized the government (and the current stimulus 
package) for doing too little, too late, but it has been 
unable to put forward viable alternatives or translate its 
criticism into increased support. 
 
¶6.  At the forefront of all politicians' minds is the Finnish 
experience in the early 1990s when a severe recession 
crippled the economy and destroyed families.  Against this 
backdrop, the supplementary budget was quietly developed 
under the leadership of Ministry of Finance State Secretary 
Raimo Sailas who consulted with the Prime Minister and with 
all coalition parties.  Despite the rising popularity of the 
junior coalition partner NCP, the process ran smoothly and 
swiftly.  The consensus is that all governing coalition 
partners got something. 
 
 
 
 
 
BUTLER