Finland, one of six AAA rated euro countries, may face a similar fate to junk-graded Portugal in the next decade unless it finds new growth industries soon, said Timo Tyrvaeinen, chief economist at Helsinki-based Aktia Oyj. Mobile-phone maker Nokia Oyj (NOK1V) has announced 1,900 job cuts in Finland since last year, or 10 percent of its local workforce, as its market value plunged almost 50 percent since January. Without growth, Finland must raise debt to pay for Europe’s fastest-aging population.
The number of workers for every pensioner will drop to three from four by 2015. That’s about five years earlier than in the rest of Europe, Luxembourg-based Eurostat estimates. Debt will swell in 2011 to more than 50 percent of gross domestic product from 34.1 percent three years ago, according to the European Commission.
Specter of Ireland
“The growth of debt must be stopped,” said Jan von Gerich, chief analyst at Nordea Markets in Helsinki. “Ireland had a AAA rating, a lower debt level than Finland and a surplus in its public sector, but then the crisis hit and the situation changed rapidly.” Moody’s Investors Service cut Ireland to junk on July 12, arguing the euro member’s 85 billion euro ($119 billion) bailout may not be enough to keep it afloat.
While Ireland’s plight was linked to over-leveraged banks, its example remains relevant for economies where growth can’t keep pace with government spending, von Gerich said.
Europe’s debt crisis has shown that failure to tackle fiscal weakness in time can force governments to impose severe austerity measures later. Finland risks having to “take emergency action” to fix its finances if the country’s budget drain isn’t fixed “promptly,” Bank of Finland Governor Erkki Liikanen said on June 15.
Educated Population
Finland can also fall back on the industrialized world’s second-best educated population afterSouth Korea, according to the Organization for Economic Cooperation and Development. And the government has stepped up support for entrepreneurs.
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