ray ban for cheap Finland loses one of euro zone s last top credit ratings
By By Jussi Rosendahl | Reuters Fri, Oct 10, 2014
By Jussi Rosendahl
HELSINKI (Reuters) - Finland dropped out of the small group of euro nations with a full set of top credit ratings on Friday as Standard & Poor s cut it to AA+ from AAA , citing persistent economic growth problems.
Finland has yet to return to its 2008 economic output levels after exports dwindled due to the euro zone crisis, problems at its mobile phone and paper industries and the crisis over Ukraine.
The S&P cut leaves Germany and Luxembourg as the only euro states with a full set of top-grade ratings from all three main rating agencies.
Finland s downgrade reflects our view of the risk that the Finnish economy could experience protracted stagnation because of its ageing population and shrinking workforce, weakening external demand, loss of global market share... and relatively rigid labour market, S&P said in its report. It gave a stable outlook for the new rating.
Finland had taken pride in its top ratings. During the euro zone debt crisis, Alexander Stubb, now prime minister, said in 2011 that Darwinian principles should apply and the strongest economies in the currency bloc should have the leading say in how it is run.
However, this year, Finland has taken additional economic hits from the Ukraine crisis and Russia s slowdown: its eastern neighbour is one of its main trade partners.
Its flagship company Nokia , once global market leader in handsets, struggled to compete in smartphones with Apple and Google and finally sold its entire phones business to Microsoft in April. Meanwhile, the digital shift from print to online cut Europe s paper demand, leading to heavy restructuring at firms such as UPM-Kymmene and Stora Enso .
Finnish exports have underperformed world trade since 2008, which we interpret as a sign of lower competitiveness, rendering an export-driven recovery unlikely, S&P added.
The two other main rating agencies, Moody s and Fitch, recently left their triple-A ratings for Finland untouched.
S&P noted that despite Finland s weak economic performance, labour costs increased by over one-fifth between 2007 and 2013, well above the euro zone s average of one-eighth.
It is clear the (Finnish government bond) yields will jump somewhat on Monday, said chief economist Aki Kangasharju from Nordea Markets, referring to the higher returns investors will expect for the increased risk of holding the bonds. The downgrade came sooner than expected.
He estimated the downgrade would add around 20-30 million euros (15.71 million pounds-23.57 million pounds) to Finland s borrowing costs.
While this extra expense is minor relative to a central government debt burden that is set to reach 100 billion euros next year, the downgrade is a knock to the prestige of a government which has sought to protect the credit ratings with austerity measures. It faces a general election in April.
Finance minister Antti Rinne, a Social Democrat, said the downgrade did not call for a review of fiscal policy.
Our growth outlook has deteriorated, the reasons are known and we have already taken measures to address them, he said in a statement.
The quarrelsome left-right coalition has since 2011 agreed to spending cuts and tax hikes worth around 6.5 billion euros by 2018, but has been slow to step up measures intended to make the economy more competitive and rein in long-term public spending.
Political tensions have resulted in multiple changes in the make-up of the government. Its original prime minister, centre-right Jyrki Katainen, left his role early to seek a post in the European Commission.
Last month, Finland s unions and employers struck a long-awaited deal to gradually raise the minimum retirement age from 63 to 65. But the government s plans to revamp healthcare and extract savings from local governments have made little progress so far.
S&P, like most forecasters, expects Finland s gross domestic product (GDP) to shrink for the third consecutive year in 2014 and to show only a tentative recovery in 2015.
(1 US dollar = 0.7925 euro)
(Editing by Ruth Pitchford)
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