Finnish prime minister Mari Kiviniemi compares the Irish collapse to a similar crisis there in the 1990s

IN TIME, we will get over this period of gloom and, according to the Finnish prime minister, we may even learn to forgive the banks for the misfortune they have rained down on the economy.

The theory may be hard to stomach amid mounting Irish gloom, but Mari Kiviniemi is relatively convincing when she suggests that we will eventually move on.

In town last week for a chat with Taoiseach Brian Cowen, Kiviniemi has good credentials when it comes to passing judgment on the Irish situation. Her country has travelled through, and survived, an economic crisis very similar to the current Irish disaster.

In the late 1980s, Finland boomed on the back of surging timber and paper industries, free-flowing bank credit and reliable oil-for-exports inflows from the Soviet Union. It’s all too familiar but it didn’t last: in summary, the domestic bubble burst, forced by the banks, and the Soviet Union five-year plans died overnight.

GDP contracted dramatically for three years in a row and unemployment hovered close to 20 per cent.

Bankruptcies soared and house prices plummeted, as huge cutbacks punished the population, which is similar in size to that of Ireland.

The measures the Finnish government took to haul itself out of the ditch cost about 9 per cent of GDP, although the price eventually fell to 5 per cent as some money was recouped. In the Republic, the proportion is likely to be closer to one third although, again, there is some potential for money to come back.

From the Irish perspective, the most interesting aspect of the Finnish experience was the establishment of a bad bank, seen by many as a model for Nama. The remaining Finnish banking sector was also massively overhauled, leaving what Kiviniemi acknowledges is a “conservative” financial system.

It has clearly paid off, with the prime minister repeatedly citing the fact that Finland has had no need to bail out any of its banks during the most recent global financial crisis, despite suffering an economic downturn like the rest of the world.

Kiviniemi, now 42, was a university student when the 1990s Finnish downturn hit, but her political activisim made her more aware than her peers of what was going on. For most people her age, she says, the collapse meant there were no summer jobs for about three years in a row. On a more serious social level, the economic problems reached such a depth that bread queues were to be seen on Finnish streets.

“Yes, there are a lot of similarities,” says Kiviniemi of the Irish Finnish collapses, who believes the Irish Government is on the right track in its handling of this downturn, including inviting Finnish former senior civil servant Peter Nyberg to head the official inquiry into the Irish banking collapse.

“We used about the same measures as were used here, she says, noting that “our banks and also the Finnish companies learned their lesson”.

Alongside the bailout strategy, the Finns forced themselves to look ahead.

“The government’s strategy was to create export-led growth, and also we put a lot of money into research and development,” says Kiviniemi.

The plan was successful, most notably in guiding the rise and rise of telecoms giant, Nokia. Kiviniemi says it still took about a decade for Finland to rise from the ashes;

with unemployment stubbornly failing to decline.

Every Finn felt the pain during the years of transition: schools, which traditionally bought books for their pupils, were unable to do so, teachers were made redundant and hospital budgets were constrained.

So did this lead to resentment as the government pumped cash into research and development?

“It was not easy but I think that many people accepted the strategy and also, Finnish people have always thought it’s good to put money into education and also RD and, in that way to create new jobs,” says Kiviniemi, adding that the very visible expansion of Nokia and a larger ICT sector helped in digesting the medicine.

“In that sense, it has been very easy for Finnish people to accept that we put so much into research and development.”

Last year, this figure amounted to about €7 billion, with €2 billion provided by the government and the remainder by the private sector. Funding is split between universities and private companies, which must compete for grants.

“I think the best way to get out of the recession is to try to create new jobs and to create growth. To make that happen, you have to create an environment for companies where they can be innovative and competitive,” says Kiviniemi.

The prime minister’s visit coincided with the launch last week of the Innovation Ireland Fund, which will attract €250 million in public funds and which the Government hopes will generate an additional €250 million in private investment. She approves of the plan.

Like Ireland, Finland is an open economy, with exports (primarily to Germany, Sweden and Russia) accounting for about half of GDP. Unlike Ireland, however, foreign direct investment (FDI) in the Finnish state is minimal and exports are thus almost entirely indigenous.

Conscious of the dangers cheaper economies might pose to Finland’s paper and pulp industries, Kiviniemi says she would like to see more FDI as the pressure to grow GDP remains strong.

Finland’s economy fell back by 7.5 per cent last year but is on track to grow by up to 3 per cent this year and next. It is a picture many countries would envy but Kiviniemi is concerned about keeping the deficit down.

“We have a bit of a feeling like, why us? We didn’t do anything. It came from abroad. We didn’t have any housing bubble,” she says in reference to the measures her government needs to take to deal with current constraints. Unions are involved in discussions about raising the average retirement age from 59, while spending cuts and new taxes are on the way in an already high-tax economy.

On top of that, Kiviniemi, who took up her office just this summer, faces an election next year. Still, as the Taoiseach knows too well, it could be worse.

“I do think that the Irish Government is on the right path,” she says, adding that she is “impressed” by the measures already taken.

“It seems very obvious that you’re going to manage.”

Kiviniemi says the Taoiseach showed in his conversations with her that he is very aware of how Finland dealt with its problems.

He is also presumably aware that the Finnish government (including Kiviniemi’s Centre party) that took the tough measures in the 1990s subsequently lost its mandate and was in the electoral wilderness for eight years.

“Everything depends on world economic growth,” says Kiviniemi of Irish chances of avoiding the arrival of the International Monetary Fund, admitting that she can’t say what will happen in Finland next year, never mind Ireland.

She is confident however, that this time will pass and that eventually Irish people will forget the grimness.

“In Finland, we had quite the same feeling in the 1990s but gradually the situation improved and after a couple of years it improved even more. And then after some time, it was difficult to remember the hard times,” says Kiviniemi, adding that people are even happy enough with the banks in Finland these days.