Cracks emerge in Finland's 'Triple A' image
By Raine Tiessalo, AFPHELSINKI -- Finland's image as an island of fiscal virtue in an ocean of European profligacy has eroded to the point that many ask if it can keep its stellar credit rating.
October 28, 2013, 12:02 am TWN
Fitch confirmed Finland's top “AAA” rating on Thursday, but warned that it could be lowered in the future, in case, for example, of a “failure to tackle the trend decline in potential growth.”
The Nordic eurozone member has long prided itself on the extremely strict fiscal management that has allowed it to avoid ever breaking EU fiscal rules.
The budget deficit has consistently remained below three percent of gross domestic product, while public debt has been held within 60 percent, as required by the Maastricht Treaty.
Strict fiscal management has allowed Finland to remain the only country in the eurozone with a “triple A” rating and a stable outlook from all three major credit rating agencies Standard and Poor's, Moody's and Fitch.
Even Luxembourg and Germany, the eurozone's other two paragons of fiscal virtue, can no longer boast that.
Finland lost its top rating in the 1990s but regained it in 2002. Since then, the ratings agencies have regularly praised the country for its well-functioning political system, based on a tradition of political consensus and moderate spending.
A Struggling Economy
But the economists have their doubts if Finland is really as strong as it used to be.
“The rating agencies have been lagging behind,” warned Aki Kangasharju, the chief economist at Nordea Bank Finland, telling AFP that in his view Finland no longer deserves the highest rating.
“The country's industrial base has collapsed in a way never seen before, and the tradition of political consensus is in tatters,” he said.
Two pillars of the modern Finnish economy, the forest industry and electronics, are in serious difficulties.
A drop in the demand for paper, caused by a growing conversion away from traditional print media towards electronic media, has forced many factories to close down.
Meanwhile, the dramatic decline of Nokia from the position of global leader in mobile phones has broken the momentum in a sector that had been driving growth for more than a decade.
Finland's exports were virtually stagnant last year from the year before. But wages still rose 3.5 percent in nominal terms, draining competitiveness.
“There is no area that could be an engine of growth,” said Fitch analyst Enam Ahmed.
He justified the “AAA” rating with a reference to its finances, which he described as “robust,” saying they “give Finland a certain margin to absorb unexpected shocks.”
The credit ratings sector's optimism may not last if the economy continues to sink.