A Nordic Euro Member Is Losing Its Fight to Regain AAA Status
A Nordic Euro Member Is Losing Its Fight to Regain AAA Status
(Bloomberg) --
An outspoken proponent of austerity during Europe’s debt crisis is now struggling to defend its own credit rating.
Finland, the only Nordic country that’s in the euro zone, had hoped to regain its AAA rating this month. But instead of being reinstated, Fitch Ratings Inc. cut the outlook on its AA+ rating to stable from positive on Friday.
The question now is whether more downgrades will come. Jan von Gerich, chief analyst at Nordea Bank Abp in Helsinki, says S&P Global Ratings, which currently has a stable outlook on its AA+ rating of Finland, may follow Fitch as soon as March.
“That could wake up some international investors” to risks in Finland, von Gerich said by phone.
After failing for the past decade to revamp its health-care system, Finland’s reputation for making tough decisions across political divides now lies in tatters.
Von Gerich says that Finland’s “consensus-based system no longer exists to the same degree it used to” and as a result, “political decision-making has become more challenging.”
The current prime minister, 34-year-old Sanna Marin, took office last month after her predecessor was ousted amid a disagreement over how to run the state postal company. The last Finnish government to serve a full term ruled in 1999 to 2003.
Meanwhile, the rise of the anti-immigration Finns Party has made it more difficult for governments to get broad backing they need to push through reforms.
Von Gerich says “Finland appears to need a crisis of some sort to provide impetus to taking decisions.”
Kit Yeung, the primary rating analyst for Finland at Fitch, also pointed to the fractious environment around policy making.
“Finland’s political landscape has become more fragmented, and this has slowed momentum” for the social and health-care reform, Yeung said in an emailed response to questions.
According to Fitch, Finland’s old-age-dependency ratio to the working-age population is the third highest in the world after Japan and Italy.
Marin, who has floated a four-hour work week as a way to achieve a better work-life balance, has to rein in a five-party coalition in order to reach agreement on anything. That might make it difficult for her to bring about structural reforms, according to von Gerich.
“Finland still has time for the reforms, but one day that time will run out,” he said. “If they wait until a crisis hits, the reforms need to be done much faster and at much greater expense than if they’re done in a more front-loaded and gradual way. I would hope decision makers would target a return to the AAA club.”
To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net
To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net
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