Finland’s decisions on public finances should not be postponed

“The parliamentary consensus reached on debt sustainability is a significant turning point that strengthens confidence in Finland’s public finances both domestically and internationally,” says Governor of the Bank of Finland Olli Rehn. “Maintaining this confidence requires not only a medium-term plan, but also concrete decisions, and these should not be postponed. Fiscal adjustment at a steady pace will produce better results than an abrupt adjustment dictated by necessity,” says Rehn.

A gradual recovery in the Finnish economy will start to bolster the public finances, but an expansion in defence spending will hamper the fiscal adjustment process in the coming years. Achieving results that will endure requires time and the use of the entire fiscal toolkit. Expenditures must be cut and reallocations made, but there must also be a focus on the revenue side. Structural reforms that support growth must be continued. There must also be a readiness to strengthen fiscal buffers when the economy is doing better.

“The revised national legislation on fiscal policy will support a decision-making culture that takes a longer term view. But this alone will not be sufficient. The functioning of the Parliamentary Working Group on Fiscal Policy will be put to the test early next year, when it starts to prepare goals for the coming years,” says Governor Rehn.

Inflation is at around the European Central Bank’s target

The Governing Council of the European Central Bank (ECB) decided yesterday to keep its policy interest rate unchanged at 2%. According to the ECB’s new projections, inflation will stay at around the 2% medium-term target. “It’s good news that inflation in the euro area is still at around our target. There are still risks to the inflation outlook in both directions, meaning a risk of lower or of higher inflation than forecast,” says Rehn.

The economic growth outlook for the euro area has improved slightly and employment has remained robust. According to the new Eurosystem projections, growth in the euro area economy will be 1.4% for the full year 2025, 1.2% for 2026 and 1.4% for each of 2027 and 2028. Growth will still be services led, while the situation in manufacturing is more challenging.

“Although euro area growth has shown resilience and persistence, it could be more dynamic. The euro area must focus on strengthening its competitiveness on many fronts,” says Rehn.

Presentation 19 December 2025, Governor Olli Rehn (in Finnish)

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