ABSTRACT
In the early 1990s, Finland experienced a dramatic financial and economic crisis. Finnish GDP shrank in each year between 1990 and 1993, reducing per capita GDP by nearly 15 percent. The crash was even more pronounced in the domestic job market. Between 1990 and 1994, Finnish unemployment grew an astonishing 418.75 percent, increasing from 3.2 percent to 16.6 percent. This chapter focuses on Finland’s crisis and tries to explain how such a profound economic downturn could strike such an affluent country in the Organization for Economic Cooperation and Development (OECD). Simply stated, a period of financial deregulation led to a credit-fueled asset bubble that ran headlong into an external shock—the stunning and unexpected end of the Soviet Union. The collapse of the Soviet Union disrupted longstanding and highly significant trade relations for Finland. For the country of five million, the combination of damaging external events and unstable internal practices formed a perfect storm that sank much of the banking system and swamped the economy with corporate bankruptcies. Unemployment spiked, and large fiscal deficits created fears that the hitherto stable Nordic country might be forced into a sovereign default.
