Finland faces mounting pressure from the European Union for its rising public debt level. According to the EU’s strict criteria, Finland’s public debts are poised to breach levels that might invite the EU to take disciplinary measures against the Nordic nation. According to the finance minister, Riikka Purra, Finland might soon come within the EU’s Excessive Deficit Procedure in the initial months of the approaching year. Finland has all along been one of the most frugal countries in the European region.
European Commission forecasts paint an alarming debt picture
According to the latest economic forecasts by the European Commission, the fiscal outlook for Finland worsens as the country is projected to surpass the 90% GDP threshold for public debt by 2026. Finland’s debt-to-GDP ratio is projected to reach 92.3% by 2027, possibly classifying the country among the top six most indebted nations in the EU. Such estimates are quite different from the past behavior of Finland in the field of fiscal policy.
“It is very serious,” Finance Minister Purra said in her parliamentary speech. She also noted that the Excessive Deficit Procedure “looks very clear on the numbers.” From the commission’s outlook, Finland is experiencing stagnation in its economy. Additionally, the pace at which the country’s debt is rising is unsustainable. Finland’s stagnation in its economy is set to worsen the problem the country faces in its finance department.
Structural problems blamed for widening fiscal gap
According to Purra, the problems in the Finland economy are more structural in nature. Finland’s finance minister does not accept defense expenditures as the primary reason for the economy’s condition. He brings out the fact that the rate of revenue increase is low compared to the rate of increase in expenditures. Social welfare expenditures are on the increase.
What the minister is saying in his analysis is that the problem lies in the fact that the government’s revenues do not grow in line with the government’s mandatory spending. This is particularly the case in terms of social programs. This means that the problem in Finland’s economy cannot simply be addressed through short-term solutions based on economic growth.
EU Reporting Obligations Are Likely To Escalate for Finland Amid its Efforts towards Meeting the Country’s Debt Reduction Targets. This is because the EU mechanism calls for the preparation of plans by the EU countries in order to rectify the problem of fiscal imbalances through alignment with EU Fiscal Rules. Reputational Sanctions Rather than Direct Penalties Are Likely by the EU.
Government seeks solutions amid mounting pressure
At the same time, the government faces the challenge of European budgetary rules on the one hand and political demands at home on the other while designing its plans to handle the debt crisis. Initial summer forecasts indicated that Finland was expected to sidestep the Excessive Deficit Procedure because of its higher military expenditures. However, recent events tend to undermine the optimism in the initial forecasts. The finance ministry is expected to provide its own economic projection before Christmas.
After undergoing the process, Finland must reduce its debt ratio by at least one percentage point per year. This means that the government must make significant adjustments to its expenditures. It is particularly tough for the government to undertake cutbacks in spending while maintaining the support of the people. Such a condition is expected to influence the government’s programs in many sectors.
Finland’s possible course in the EU’s Excessive Deficit Procedure would represent a watershed in the fiscal policy of the country. However, the problem also illustrates the impact of structural risks being compounded by external pressure on the economy of certain countries. Finland must make concerted efforts in order to increase its revenues without simultaneously allowing its expenses to increase.
