Finland: The world's happiest nation faces a glum winter

Finns have many reasons to feel content, but the country's debt pile is not one of them. Russia's war in Ukraine has added to the fiscal burden. So can the Nordic nation absorb another shock?

There's an uneasy mood in Finland — the country ranked the world's happiest for nine consecutive years. A colder-than-usual winter is on the way and so is the toughest austerity budget in years.

With an election due in April, the argument is no longer how much to cut, but which services, benefits and pensions will face the biggest cuts.

Finland's debt and deficit levels are in their worst state since the 1990s, when a banking crash and the collapse of the Soviet Union — a key export partner — pushed the Nordic nation into its own Great Depression.

Last month, Statistics Finland confirmed that the national debt had reached 90.3% of gross domestic product (GDP) in the second quarter. Before the pandemic, that figure was about 65%.

Trouble to the east is, again, part of the reason. Finland ramped up defense spending after joining NATO a year after Russia’s full-scale invasion of Ukraine. Helsinki, which used to rely on Moscow for about a third of its energy, also faced much higher costs as it transitioned to other suppliers.

Yet, the Finnish government has spent more than it earns since the 2008/9 Global Financial Crisis, partly due to an aging population and sluggish economic growth. Last month, the State Treasury projected the fiscal deficit would reach 4.2% of GDP in 2026.

Brussels has piled pressure on Helsinki to bring down the borrowing gap, as European Union rules require member states to stay below 3% of GDP. In January, the European Council opened an excessive deficit procedure and gave Finland until the end of 2028 to reach the desired target.

Prime Minister Petteri Orpo’s government, which took office in June 2023, said it would aim to save about €9 billion ($10.1 billion) during this parliamentary term. But whoever wins the next election will have to cut much deeper, economists warn.

"The amounts currently estimated range from €8 to €11 billion," Jarkko Kivisto, an advisor to the Bank of Finland's Monetary Policy and Research Department, told DW.

Earlier this year, all but one political party agreed to support a debt brake, where the next government commits to tightening the country's deficit to at least 2% of GDP by 2031.

Orpo's center-right National Coalition is the only party to date to promise a further €9 billion in cuts, if he wins a second term. As well as further savings from health, social care and welfare, Orpo also plans to target workplace pensions, without reducing current payouts.