Finland: The world's happiest country has a debt problem it can no longer ignore

Finland, the world's happiest country for nine straight years, now faces an austerity budget unlike any in recent memory. With an election looming in April, the question is no longer "how much to cut" but rather "which services, benefits and pensions will take the biggest hits." The nation's debt and deficit levels have hit their worst point since the 1990s, when a banking crisis and the collapse of the Soviet Union, a major export partner, plunged Finland into a modern-day Great Depression.

In the second quarter of this year, the national debt reached an alarming 90.3% of gross domestic product (GDP), up from about 65% before the pandemic. This surge is partly attributed to the country's increased defense spending following its NATO membership and Russia's invasion of Ukraine, which also drove up energy costs as Finland transitioned to new suppliers.

However, the Finnish government has consistently outspent its income since the 2008/9 Global Financial Crisis, largely due to an aging population and sluggish economic growth. The State Treasury now projects a fiscal deficit of 4.2% of GDP for 2026. Brussels has put pressure on Helsinki to reduce the borrowing gap, as EU rules require member states to keep borrowing below 3% of GDP.

Prime Minister Petteri Orpo's government, which assumed office in June 2023, aims to save around €9 billion during its term, but economists warn that whoever wins the next election will need to cut much deeper, with estimates ranging from €8 to €11 billion. Orpo's center-right National Coalition party is the only one so far to pledge further €9 billion in cuts, which would likely affect health, social care, welfare, and workplace pensions without reducing current payouts.