Finland is the latest nation to show centrists the door

Finland held general parliamentary elections on Sunday, and preliminary results confirmed a victory for socialist parties, greens and populists, while the ruling conservative coalition lost its majority.

Prime Minister Juha Sipilä from the Centre Party had to admit massive defeat, even if he can claim some credit for lifting the Finnish economy from an unusually long recession after the financial crisis.

{mosads}Sipilä quoted Jean-Claude Juncker, the president of the European Commission and former Luxembourg prime minister, saying: “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”

The Social Democratic party (SDP), the main opposition party, became the largest party with 40 seats in the 200-seat parliament. SDP in Finland does not historically hold as significant a role as its sister-party in Sweden, but it has been a major party during the 101 years of Finnish independence.

SDP Chairman Antti Rinne, who’s been called “the toughest labor market gangster” by those who have faced him at the negotiating table, has the first attempt to form a government and become his party’s first prime minister in 16 years.

Rinne shoots from the hip in political debates, not always on target, and seems to favour higher social transfers financed by higher taxes. The Green Party also won, becoming the largest party in Helsinki, the hipster (and literal) capital of Finland.

Despite a clear improvement in economic outlook and a surge in jobs, the ruling coalition failed to finish a key reform in health care and was hurt by a public uproar on dismal care at private elderly care homes. These failures and the austere fiscal policy run by the government raised a backlash from the left.

However, the biggest conservative party, National Coalition, won a defensive victory and gained one more seat. Their supporters apparently accepted the need for reforms. Now the National Coalition stands as the champion to defend recent pro-market policies in the face of pressure from the left.

The clear, final-hour winner of this election was the Finns Party, a populist party whose program has a strong focus on nationalism and economic conservatism. They became the second-largest party by being able to rally people who fear immigration, dislike the idea of making tiny Finland a front-runner in climate-change mitigation and distrust in traditional parties.

Like in Sweden, populism is rising despite strong economic performance and good employment. The Finns Party was split into two wings two years ago, and the more-moderate Blue Reform participated in the government coalition.

Elections swept the Blue Reform away from the parliament, and their future is obscure. It is unlikely that the Finns Party would be included in future government coalitions because their current agenda is incompatible with other parties.

Government formation will probably take a lot of time. None of the parties gained more than one-fifth of the seats, which means that a majority requires several parties. This is not necessarily a big problem because Finnish government has traditionally been a coalition of many parties.

Finland will hold the six-month rotating presidency of the Council of the European Union starting July 1. Social Democrats want to form the government, but they need backing from more than the left. The conservative National Coalition Party could join the government but not without promises to maintain business-friendly policies.

Finland is sometimes seen as socialist economy with sky-high taxation that is void of opportunities for entrepreneurial individuals. This is a false picture, although the welfare system requires high taxes and business regulation is traditionally fairly intensive.

Beside big government, however, there exist a vibrant market economy that is exposed to tough global competition. These elections gave a boost to big government and require a defensive stance from the liberal market politicians.

There are some policies most parties agree on. Nearly all parties would like to invigorate the economy by investing more in education and training of individuals who might’ve been displaced by structural changes in the economy.

Except for the Finns Party, winners in this election also favor active climate-change mitigation and see a need for an aging Finland to accept more immigration.

Pasi Kuoppamäki is the chief economist of Danske Bank A/S Finland branch and a recent visiting scholar at the Wilson Center.