For Finland, the Euro Means Longer Hours and Lower Pay

  • Government rejects call for tax cuts, needs to limit deficit
  • Unions say labor pact is `dramatic' choice for workers

Few Finns probably thought that adopting the euro would mean more work for less pay.

Yet the country’s powerful trade unions have now signed off on a deal that will cut workers’ income and raise working hours. Unveiled last week, it’s designed to boost competitiveness as the Nordic nation struggles within the constraints of the euro zone.

The board of Finland’s biggest union confederation, SAK, was the last to endorse the plan on Monday, with 14 of its members, representing about 60 percent of the total, agreeing to it after a meeting in Helsinki.

SAK’s blessing should favor the completion by June of a reform kicked off by Prime Minister Juha Sipila after he took power in May. But the refusal by SAK’s most militant members to endorse it does not bode well for the outcome of future negotiations, according to the other side of this social contract -- the Confederation of Finnish Industry.

"This pact will not erase the Finnish competitiveness problem, but it is a step in the right direction," said Lauri Kajanoja, an economist at the Bank of Finland.

Completing the deal won’t be easy. Monday’s was "a decision of principle," SAK leader Lauri Lyly said. Now talks have to be held on how these reforms will be implemented in contracts.

"In June we will make our final assessment,’’ Lyly said, "that’s when we’ll know if a labor pact will come true.’’

Changing Direction

The pact involves making Finns work 24 hours more a year without extra pay, cuts in holiday bonuses for government workers, and a shift of some payroll taxes to workers. Coupled with a union commitment to zero wage increases next year, these measures should lower Finnish labor costs by about 4 percent by 2019 -- slightly below the 5 percent reduction demanded by Sipila -- and create 35,000 jobs by 2020. 

“For decades we have shortened the time we work,” said Jyri Hakamies, leader of the Confederation of Finnish Industries EK, in an interview on Thursday. “Now we’ve changed direction.”

Finland has been rocked by the slump of its paper industry, the demise of Nokia Oyj’s mobile phone business and a decline in trade with its struggling neighbor, Russia. The competitiveness gap with Germany has widened to at least 15 percent, and Finance Minister Alexander Stubb now refers to his country as the “sick man of Europe."

Non-euro neighbor Sweden, by contrast, has seen growth surge ahead at its fastest pace in five years as the central bank was able to drive down its currency by cutting rates well below zero.

While Sipila has applauded the deal, saying it will go a long way in restoring competitiveness, it has proved hard to swallow for unions.

Some of SAK’s most influential members, among them the transport union, said "no" to a deal.

Tax Cuts

Sture Fjader, who heads the second-biggest union, Akava, has backed the deal but says workers should now be compensated for their loss in purchasing power. Akava is calling for a 1 billion-euro ($1.1-billion) tax cut. SAK also wants a tax cut.

That’s a non-starter for now, according to Economy Minister Olli Rehn. The government is seeking to limit its deficit, which is estimated by the European Commission at 2.8 percent this year and 2.5 percent the next.

“We can’t afford massive tax breaks because of the situation in public finances,” Rehn said in an interview Friday. The government will only look at cutting taxes if the country moves ahead with more local setting of working conditions and wages and a stricter focus on using the export sector as a base case in the collective bargaining process, he said.

"The ball is now in the court of labor unions and industries," Finance Minister Alexander Stubb told Bloomberg TV in Brussels after the SAK vote.

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