Finland’s Nail-Biter Election Sets Stage for Tough Talks

(Bloomberg) -- Finland has had its closest election result in 60 years, handing victory to the Social Democrats with a margin of just 6,813 votes over the nationalist Finns Party. The conservative National Coalition came in a close third, while the Green League posted its best result ever.

The outcome sets the stage for tough talks on forming a viable coalition, with compromises necessary across the political spectrum.

1. How are the seats divided?

The Social Democrats got 40 seats, the Finns Party 39 and the National Coalition 38. The race was tight to the very end, with the Social Democrats winning by a narrower margin than polls suggested and the anti-immigration group posting a surprisingly strong showing. Outgoing Prime Minister Juha Sipila’s Center Party was punished by voters, and Blue Reform, the more moderate faction that splintered from the Finns in 2017, was wiped out. Other winners included the Greens and the Left Alliance.

Finland’s Nail-Biter Election Sets Stage for Tough Talks

2. What happens next?

The result is so close that a recount may still change the allocated seats. A final result is expected to be published by the Justice Ministry on Wednesday. Talks are set to officially kick off on April 25 when parliament convenes for the new term. Traditionally, the leader of the party with the most seats gets the mandate to try to form a government.

3. What coalitions are realistic?

The main scenario is for a coalition led by the Social Democrats that includes the National Coalition, the Greens and the Swedish People’s Party, for political balance. The Left Alliance also has a strong claim to join the cabinet, though it could find it hard to agree on economic policies with the center-right. The Center Party’s election drubbing will likely mean it will seek to remain in opposition, though outgoing Prime Minister Juha Sipila has so far left all his options open.

4. What’s the deal with the nationalists?

They’re unlikely to join the government, but they won’t be ostracized either. While most of the biggest parties said before the election they’d find it difficult to work with the Finns, the rhetoric softened on election night. The nationalist group has said it won’t compromise on tougher controls on immigration and could demand to ease climate policy, but it’s flexible on economic policy and a proponent of fiscal restraint.

5. What’s the timetable for the next steps?

After a leader is appointed for government talks, he will put out feelers to find common ground and sound out the biggest sticking points. He’s then likely to invite his preferred partners for the actual talks on the common platform, slated to run from May 6 to May 17.

6. What about the European parliament elections?

The vote to the European Union legislature takes place May 23 to 26 and could throw a spanner in the works. With the parties finishing neck-and-neck in the national vote, they could be reluctant to be seen compromising amid a campaign for the EU vote.

7. How long will the talks last?

Antti Rinne, who leads the Social Democrats, said that if he runs the talks, a realistic timeline is for a coalition to be formed by the end of May. But it could drag on longer. A cautionary example is how it took 10 weeks from Election Day for former Prime Minister Jyrki Katainen to forge his six-party cabinet in 2011. Even so, Finland is used to forging coalitions and is also due to assume the rotating EU presidency on July 1, so it needs a functioning cabinet as soon as possible.

8. What’s the impact on markets?

As a member of the eurozone, Finland is shielded from much of the direct impact that political uncertainty could bring. While analysts see downside risks for Finnish bonds, no major immediate market moves were on the cards. Pragmatic and prudent fiscal policy tends to be the norm in Finland, though a rapidly aging population is putting a strain on government coffers and slowing economic growth is adding to the urgency of reforms.

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