For quite some time now, the political fringes have been gaining in strength in the elections in Europe. This trend is also very evident in Finland, where the Social Democratic Party (SDP) won the general election and is therefore the strongest party in parliament for the first time since 1999. It was followed closely in second and third place respectively by the right-wing populist Finns Party and the conservative National Coalition Party. The Centre Party of Finland of the (as yet) incumbent Prime Minister Sipilä is now only expected to be parliament’s fourth strongest party in the future, so that Sipilä clearly is the loser of this election. The Greens and the Left Alliance also made significant gains. The results reflect very strongly the topics that dominated the election campaign: aside from the Sipilä government’s strict austerity policy of reforms as well as higher levels of immigration in recent years, social and migration issues in particular took centre stage. Although the right-wing populists are the second-strongest party in parliament, the centre-left parties are the clear winners of this election – a political shift to the left!
Overall, rather lengthy exploratory and coalition talks are anticipated. On the basis of the preliminary results, the social democrat chairman Antti Rinne is now expected to be given the mandate to form a government. The SDP will most likely hold exploratory talks first of all with the Green League and the Left Alliance. However, the three-party alliance is short 25 seats for an absolute majority. Although some constellations are arithmetically possible, we believe the social democrats will likely negotiate with the National Coalition Party. On the night of the election, both parties did not explicitly rule out a cooperation.
The new Finnish government, which clearly leans to the left, will probably not pursue the previous very strict austerity policy structure as rigorously and will focus more on the welfare state. However, the consequences of this change of policy are only expected to lead to marginal reduction in debt and not to another rise in the deficit. There is broad consensus in Finnish politics for deleveraging in general. The country’s very high public debt ratio by EMU standards will limit the expansion of the welfare state. A return to the AAA segment should therefore continue to be attainable in the medium to long term.