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Finnish report
by Euro Reporter
2015-09-17 11:09:10
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Finland’s farmers lose €400 million due to Russian food embargo

finland_400_01Finland’s farming industry has already lost €400 million due to a food embargo imposed by Russia last year in response to Western anti-Russian sanctions, according to a report by MTK, the Central Union of Finnish Agricultural Producers. According to Eurostat data, Finland was ranked fourth among European countries affected by the embargo and its dairy industry was ranked second. "After Russia imposed the food embargo our dairy industry lost €200 million, 20 percent of its incomes. As a whole, the country’s agricultural industry lost €400 million," the report read. Recently, the European Union agreed to unveil €9 million to Finnish farmers as compensation. However, MTR insisted that the sum was not enough.

According to the Union, the European Commission does not realize the impact the Russian embargo has had on the Finnish farming industry. Instead, Finnish farmers demand that the EU distribute financial aid according to the losses and the market situation, taking into account all the industries and production sectors. The EU aid package is €420 million, and most of the money will be spent to support the dairy industry of the largest European agricultural producers. "It looks like the EU provides financial aid to the largest producers mostly taking into account their production capacities but not the problems created by the embargo," Antti Sahi, chief of MTK, said.
What is more, the €400-million loss covers only direct damages from the decline in export volumes. It does not include the losses of financial organizations working with the industry as well as losses in taxes, and the rise in unemployment. Moreover, after Russia imposed its food ban the Finnish market was oversupplied with potato, dairy and meat products which dropped prices by 5-12 percent. On September 7, dozens of Finnish farmers participated in major protests in Brussels over the EU policy in the agricultural market. Now, MTK also plans to stage several farmers’ protests in Finland.


The trouble with Finland’s treble coalition

There was a coup in Finland earlier this month. A media coup, that is. Prime Minister Juha Sipilä announced, on the eve of parliament’s new term that he would open up one of his homes to Syrian refugees. Since Sipilä remains modest, quiet and a rather unknown quantity to many Finns, it was something of a surprise to see him generate effusively positive headlines. News of the PM’s generous offer — the house is reportedly big enough for 20 refugees to live in — went from state broadcaster YLE to Reuters’ wire, and onward to the Huffington Post, Daily Mail and all points in between. It was, frankly, the most international media coverage Sipilä has received, including when he won the election in April.

The trouble with Finland’s treble coalition, however, is that there are two much stronger personalities also vying for attention, with party policies that sometimes align, but often differ greatly. So while Juha Sipilä made a momentary headline splash, his coalition partners are both politically larger-than-life and made for media. And that could be problematic as parliament gets back to work after the long summer — the first full term since the government was formed.

Let’s start with the foreign minister. The Finns Party’s Timo Soini is the unlikely diplomatic face of Finland — a Euroskeptic bruiser of a man who has toiled at the coal face of politics most of his life. His party’s stance on immigration, Europe and the euro means he’s been welcomed at both British Conservative Party and UKIP conference events; in between dodging sharp questions from domestic media about his MPs who make wildly racist remarks, write anti-Islamic blogs that secure them convictions for hate speech, or who appear to support Nazi groups. Soini himself has said Finland should give priority asylum to Christians first, before other religious groups.

Next, there’s Alexander Stubb, the finance minister. Unlike Soini, he is ardently liberal and boundlessly pro-European — and sometimes known more for his lifestyle tweets than his policies. There’s a joke among Helsinki political journalists (recycled from the old quip about U.S. Senator Chuck Schumer) that the most dangerous place in Finland is to stand between Stubb and a TV camera. Nevertheless, he somehow manages to wrestle his party’s unwieldy base of dyed-in-the-wool conservatives more or less into line with the immigrant-friendly, pro-gay marriage, younger tranche, which is the public face of the National Coalition Party Stubb wants the world to see.

Still, the three parties will have to find common ground if they are to pull Finland out of the economic doldrums over the course of the next four years, as well as tackle ongoing issues like relations with Russia, the problems with the eurozone, or crises that flare up and demand urgent, cohesive action at national level like the migrant situation unfolding farther south in Europe.

“Balancing government finance is the core of the cabinet program and needs constant attention,” says Lauri Karvonen, professor of political science at Finland’s Åbo Akademi. “The [National Coalition Party] and the Centre Party under Sipilä share the view that government expense needs to be cut down. The [Finns Party] are more cautious in this regard. The original balance between the three was struck so that NCP and Centre Party would get a comprehensive policy on limiting spending, while the Finns Party would be given some symbolic leeway in voicing anti-EU and anti-immigration sentiments,” explains Karvonen. The coalition faces the prospect of an autumn of discontent, with a widespread strike expected Friday over government plans to cut sick pay benefits, reduce public holidays and slash the amount of annual leave workers currently enjoy. Two officials from Soini’s party have already quit in protest over support for these, and other, austerity measures.

Before the summer, the trio hit their first obstacle, when Soini found that the business of being in government was much more problematic than being in opposition. He’d promised his supporters during the campaign that there would be no more bailouts for Greece, but had to backtrack when it came to a crunch vote. Now, government austerity measures and the migrant crisis in particular will be the next tests for Soini’s control over his party, especially when Prime Minister Sipilä is opening up his own home and urging Finland to welcome more refugees. “There is a real danger that the Finns Party will split over these issues, thus endangering the parliamentary support of the Sipilä cabinet,” warns Karvonen. “All in all, it is the internal situation of the Finns Party that will form the biggest obstacle to cabinet cooperation.” Disunity within the Finns Party is, of course, a common topic for discussion in the halls of parliament. Soini leads the more moderate wing of his party, but there is also a more radical wing which could split off from the main parliamentary group.

“This refugee crisis and, broadly, migration policy matters could also challenge internal cohesion of the Finns Party. Soini needs to not only [seek] balance with the other government parties, but also with his own party MPs and voters,” says Miika Raudaskoski, a political researcher at the University of East Finland. “There are very critical and notable figures inside the party, not only [MEP] Jussi Halla-aho, but many others like Speaker of Parliament Maria Lohela and Party Secretary Riikka Slunga Poutsalo who signed the so-called ‘Passive Manifesto’ in 2011 calling for more rigid immigration policies. It is extremely interesting to see how Soini can deal with his double role as minister of foreign affairs and as party leader,” he adds. One of the other main policy areas that will test government unity is the EU and relations with Russia. The Finns have always walked a tightrope between East and West. But sanctions against Russia, once Finland’s main trading partner, have put a significant and damaging dent in the country’s economy. “The Finnish government backs EU sanctions and the common EU policy towards Russia, but some criticism has been raised in Finland, especially among Centre Party members,” says Raudaskoski.

Centre Party MEP, former foreign minister and old warhorse Paavo Väyrynen has been the most forthright about this issue, arguing that Finland should prioritize bilateral relations with Russia, ahead of common EU policy on sanctions. Tied in with Russia is defence policy and NATO membership. On this issue, Sipilä’s Center Party and Soini’s Finns Party agree with the majority of Finnish voters, that the country should not join NATO. Stubb on the other hand is openly pro-NATO. “For the Finns Party, the most important security matter is to strengthen independence defence, and the [Finns Party’s] Minister of Defence recently wrote a column that said the country should strengthen its defence forces despite the country’s economic problems,” Raudaskoski explains. With so many policies, and personalities, seemingly at odds with each other, can the Sipilä-Soini-Stubb coalition last, or can it even be truly effective in government? Raudaskoski thinks that a position in government is too important for Soini to quit over policy differences, even if his party does break up. “Foreign and security policy are traditionally very consensus-seeking matters in Finland, and in the end the parties can find a compromise,” he hedges. “The unity and internal discipline of the Finns Party is the key issue,” says Karvonen. “Soini is getting weaker in his party… [but] I do not think that there is a great deal of problems getting him to cooperate with Stubb and Sipilä. It is more a question of what the rest of his party will do.”


Debt grows while Finland struggles to reform

The Finnish economic outlook has weakened once again. GDP growth of 0.2% in Q2 was the slowest among euro area economies. Exports are taking longer than expected to resume growth and rising unemployment and public expenditure cuts limit domestic demand. We have revised our forecast down and expect Finnish GDP to be flat in 2015.

Fitch has Finland up for review on 18 September. The new budget and reform plans may have bought Finland time but, in our view, Fitch is likely to strip Finland of its AAA rating. Despite a potential downgrade, we expect steady performance in Finnish government bonds going forward, as the RFGB market continues to be one of the biggest beneficiaries of the ECB QE programme.


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