Katainen’s Unexpected Withdrawal Sparks Finnish Premier Race

Finnish Prime Minister Jyrki Katainen’s unexpected decision to resign lifted Economy Minister Jan Vapaavuori to among the favorites to become the next premier as the ruling parties see no need for early elections.

Vapaavuori, 49, may compete for the top job with Petteri Orpo, who heads the National Coalition Party’s group in parliament, according to Erkka Railo, researcher at the Center for Parliamentary Studies at the University of Turku.

“The party is doing quite well, so one could imagine they’ll select a person who brings continuity,” Railo said by phone yesterday. “They will probably go for someone whom everyone can like a little bit -- the least-hated one. Orpo and Vapaavuori are strong in this respect.”

Katainen’s successor will need to prepare for elections in April next year while keeping a five-party coalition together that has lost favor with voters as it struggles to revive economic growth. The Left Alliance last week quit in protest over deepening austerity measures designed to halt debt growth. The premier has fought to maintain Finland’s AAA rating throughout the region’s debt crisis.

International Job

The resignation “increases uncertainty over whether the decisions the government has made can be implemented,” Jan von Gerich, chief analyst at Nordea Bank AB in Helsinki, said by phone today. Even so, “it doesn’t seem likely that the government would drastically change policies with a year to go before the election.”

The change will have a limited effect on Finnish bonds, given the buffers protecting Finland’s AAA credit rating, von Gerich said.

Finland’s 10-year bond yields were 27 basis points higher than similar-maturity German debt, unchanged from April 4, as of 10:42 a.m. in Helsinki.

Katainen, 42, said he resigned to make himself available for a career abroad as the European Commission is set to change composition later this year. He plans to step down after the National Coalition picks a new leader at a June 13-15 meeting. He ran the party for 10 years, propelling it to to become the country’s largest in the 2011 election for the first time since Finland’s independence in 1917.

“This can’t be a total coincidence,” said Railo. “I feel that he must know something about the selection process that he or no one else has disclosed yet.”

‘Careful Contemplation’

Early elections are rare in Finland and cabinet changes last resulted in a premature vote in 1975, according to state broadcaster YLE. Premier Matti Vanhanen resigned in 2010 after three years, handing the job to Mari Kiviniemi for a year.

Vapaavuori’s more prominent public profile and visibility in the capital region may give him an edge, Railo said. No party members have yet publicly announced their candidacy.

“My name has been strongly present in early estimates,” Vapaavuori said on his Facebook page yesterday. “The issue requires careful contemplation, which I have done today and will continue to do for a while yet.”

The Helsinki native has served as housing minister in a previous government. He has a law degree and also studied economics at Stockholm School of Economics. Orpo, 44, is a second-term member of parliament, who has never been a government minister.

SDP Leadership

Social Democrat Finance Minister Jutta Urpilainen is also facing a leadership challenge within her party, the second-biggest in the government. Early polls show larger support for trade-union leader Antti Rinne ahead of a vote in May.

Urpilainen said on April 5 that while decisions have been “tough” and “heavy” and there have been disagreements, she and Katainen had done a lot “to benefit Finland.”

Changing the top ministers may put the governing coalition at risk if ideological differences widen, Railo said.

“It’s possible that the SDP will get a leader more ferociously on the left and the National Coalition will be led by a vehement right-winger, making the next budget talks very painful,” he said.

Early elections can’t be ruled out, according to Timo Soini, leader of the opposition “The Finns” party.

“It’s one thing if the prime minister leaves,” he said in a televised debate on YLE yesterday. “It’s another if also the finance minister gets booted out by her own people.”

Austerity Measures

The government has agreed to 6.6 billion euros ($9.05 billion) of spending cuts and tax increases, equal to about 3 percent of gross domestic product, to cut budget deficits as the economy struggle to expand. The government last week lowered its economic growth forecast for 2014 to 0.5 percent from 0.8 percent, in part as sanctions against Russia are now threatening the recovery.

Finland remains committed to austerity, Katainen said yesterday.

“We’ve been held hostage by the world economy and we’re in the middle of an unforeseen structural shift in industries,” he said in a radio interview. “We’ve had to renew this country more than a few previous governments combined.”

The Odds

National Coalition voters so far are largely buying the premier’s argument, even as the government as a whole has lost popularity. A poll commissioned by YLE showed the National Coalition was backed by 20.3 percent of voters, largely level with the opposition Center Party’s 20.9 percent support. The Social Democrats were backed by 15.5 percent and the euro-skeptic “The Finns” party by 17.8 percent. The Taloustutkimus Oy poll was conducted from March 5 to April 1.

Other potential candidates to succeed Katainen are Europe Minister Alexander Stubb, Local Government Minister Henna Virkkunen and Social Affairs and Health Minister Paula Risikko.

Unibet Group Plc said today it will pay 2.1 times the money if Vapaavuori is selected as party chairman, versus 2.25 for Orpo, 4 for Virkkunen and 6 times the money for Stubb.

“I’m not irreplaceable and Finland is not adrift,” Katainen said, adding the he first contemplated resigning from the party leadership four years ago. “I would love to find a task where I can contribute to building a better Europe.”

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