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Finland's debt to breach Maastricht limit

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(HELSINKI) - Finland said on Monday it would breach the Maastricht criteria -- which state that public debt must not exceed 60 percent of GDP -- for the first time next year.

The Nordic country's debt as a ratio of economic output will reach 60.7 percent next year and will rise to 62.0 percent in 2015, according the government's presentation of next year's budget.

The export-reliant nation has been battered by the crisis as sectors such as technology, paper, steel and metal face headwinds.

According to the government's forecast, the economy will shrink by 0.5 percent this year, which would be the second annual contraction in a row.

Finland has been held up as a model of fiscal discipline by other eurozone members as well as by its own lawmakers during the economic crisis and breaching the criteria will be an embarrassment.

Ratings agency Moody's said in May Finland was the only government in the European Union that had never breached any of the Maastricht fiscal criteria.

But analysts downplayed the significance. "Exceeding 60 percent is less important than the fact that Finland for a long time has been able to show that faced by a crisis, government parties can find a credible solution together," Mika Maliranta, director of the Research Institute of the Finnish Economy, told AFP.

The government said public finances would stay in the red "in the years to come" as structural problems in some of Finland's key sectors -- such as paper and pulp -- are coupled with "a difficult economic context."

Helsinki predicts the eurozone, its biggest trading partner, will exit recession this year, allowing Finland to post 1.2 percent growth in 2014.

Growth potential was limited since many companies had reduced production capacity and investments during the downturn, it said.

In August, Finland's broad coalition government, which includes right and left-wing parties but not the eurosceptics and the centre, announced a slew of measures to reduce public spending.

These included spending cuts at local authorities and programmes to help unemployed people return to the job market, as well as raising the age of retirement.

Finland's position "could weaken only if you could attribute the country's debt to mismanagement by the government," said Teija Tiilikainen, director of the Finnish Institute for International Affairs.

The solution to the crisis wasn't "in Finland's hands," she noted, but added that the country's credibility now hinged on how it managed the current situation.

"All countries in the eurozone are now in the same boat (and) all eyes are on the way in which Finland tries to restore its finances," she said.

The technology sector has been especially hard hit, with Nokia, once the world's leading mobile phone maker, announcing the sale of its handset business to Microsoft earlier this month.

Still, the country prides itself on being one of just four eurozone states to have maintained a top triple-A classification with all three major global credit rating agencies.


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