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Finnish report Finnish report
by Euro Reporter
2012-03-18 10:27:20
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Finland shakes up Finnair board to defuse governance scandal

The Finnish government Thursday said six of eight board members of Finnair Oyj (FIAS.HE) must quit after they concealed a EUR180,000 sign-on bonus for its chief executive, whose future at the state-controlled airline remains uncertain as police investigate a property deal involving him and one of the airline's major shareholders. "Finnair faces serious challenges and needs a determined [and] uninterrupted management to be able to continue forging its strategy and implementing necessary structural changes," Finnish Minister of Development Heidi Hautala said Thursday. Hautala is responsible for overseeing the government's 55.81% holding in Finnair, which reported a wider net loss of EUR32.6 million in 2011 from EUR5.7 million the year before.

"I learnt about this yesterday," Hautala said, referring to the bonus payment. She said the six board members who approved the bonus cannot credibly serve as Finnair board members in the future. The government said the future of Finnair CEO Mika Vehvilainen and Chairman Harri Sailas will be assessed after a police investigation into a deal in which Finnair's fourth-largest shareholder, Finnish pension insurance company Ilmarinen, purchased the private home of Vehvilainen for EUR1.8 million before renting it back to him as part of his remuneration package. Sailas is also president and CEO of Ilmarinen. The government's dramatic intervention in the listed company's affairs follows a report in Finnish newspaper Helsingin Sanomat Thursday.

The newspaper reported that Vehvilainen secured a sign-on bonus of EUR180,000 when he took up the post in 2009 after quitting his position as chief operating officer of Nokia Siemens Networks (NOK, SI). The property transaction allegedly took place at the same time as Finnair agreed a separate deal with Ilmarinen to build Finnair's new headquarters, according to Helsingin Sanomat. News about the secret sign-on bonus came just days after Finnish police started an investigation in the property deal. Finnair has confirmed the investigation is underway. Vehvilainen issued a statement Thursday saying he was sorry for the embarrassment the property deal had caused Finnair customers and employees. "I am convinced that I have done the right thing, both when it comes to the company's processes and in accordance with the law, even though--as I've stated earlier--I would have acted differently and more openly in the light of current knowledge," Vehvilainen said. Vehvilainen declined to comment further when contacted by Dow Jones Newswires. Sailas wasn't immediately available for comment. Officials at Ilmarinen weren't immediately available for comment.


PM says won't hurt growth with budget reforms

Finland's Prime Minister Jyrki Katainen said on Wednesday the government would avoid hurting the economy with drastic budget cuts over a single year, instead phasing in fiscal reforms over several years. The government has been locked in negotiations over fiscal reforms for the past few weeks and is due to announce a future budget framework by the end of the month, seeking to protect Finland's triple-A credit rating. Finance ministry officials recommend 5 billion euros ($6.6 billion) in cuts over the three years from 2013 but Katainen said nothing had yet been decided, and analysts and lawmakers say he is unlikely to insist on fully meeting such a target.

"It is true that spending cuts and tax hikes will curb growth in the short term," he said in a speech. "That is why the government will time the actions for the next three years so they do not interfere with growth that right now is weak." Katainen's conservative party supports drastic reforms but has made no specific commitments, wary of hurting the economy. It is also under pressure from left-leaning coalition partners to scale down any cuts or major welfare changes. The small Nordic economy has one of the strongest balance sheets in Europe, with public debt forecast at 49 percent of gross domestic product (GDP) at end-2011. Yet economists say weak economic growth and a fast-ageing population make it a fiscal time bomb.

While ratings agency Standard & Poor's left Finland as one of just four AAA-rated euro countries when it downgraded others in the bloc in January, it still has a negative outlook on the country, meaning a cut is possible this year or next. The popularity of the eurosceptic Finns Party in last year's elections forced Katainen's National Coalition party to form a government of six parties, including the Social Democrats. "Considering the wide political range of the government, it is difficult to see that 5 billion euros (in cuts) would be the end result. It seems it was more like a starting point of the negotiations," said Handelsbanken economist Tuulia Asplund. She also said tax revenues may not be declining as much as some economists had estimated a few months ago when the euro area debt crisis was at its worst - meaning the government may have a slightly easier time balancing its budget.


Does Finland even want a Guggenheim?

A survey published in the Finnish newspaper Helsingin Sanomat has revealed that a whopping 75 percent of Helsinki's inhabitants are against the construction of a new Guggenheim in their city. The project, which would cost an estimated €140 million ($184 million) to build and require more than €14.5 million ($19 million) running costs per year, is seen as inappropriate by the practical Finns, considering the city's economic situation. Helsinki has until the end of April to announce an official decision.

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