Bordered to the north and west by Norway and Sweden, and to the east by Russia, Finland is a low-lying country of forests and 187,888 lakes. Politics are based on consensus, and the country has been stable despite successive short-lived coalitions. Russia annexed Finland in 1809, ruling it until 1917, and subsequently Finland accepted a close relationship with the USSR as the price of maintaining its independence. It joined the European Union in 1995 and, despite popular suspicion of Brussels bureaucracy, Finland was among the 12 EU states to adopt the euro from 2002.

Most Finns are of Scandinavian–Baltic extraction. Finnish belongs to the small Finno-Ugric linguistic group and is a legacy of the country's early Asian invaders. These tribes integrated with local and surrounding European peoples, but preserved their distinct language. Sami, also a Finno-Ugric language, is spoken by the small Sami population, who live above the Arctic Circle. Around 6% of the population speak Swedish, most of whom live in the southwestern coastal regions and on the Åland Islands.

More than 50% of Finns live in the five southernmost districts around Helsinki. Families tend to be close-knit, although divorce rates are high. The sauna is an integral part of everyday life; there are 1.5 million saunas among 5.2 million Finns.

Finnish women have a long tradition of political and economic participation. They were the first in Europe to get the vote, in 1906, and the first in the world able to stand for parliament. Almost 50% of women now work outside the home, and the president and one-third of the cabinet are female.

Strengths

Industry export- and quality-oriented. Large high-tech sector, especially Nokia mobile phones and Internet services. World leader in pulp and paper. Exports quick to recover from recession. Low inflation, averaging about 2% a year. Improved foreign investment incentives. Gateway to Russian and Baltic economies. Membership of eurozone. Strong recent economic growth. Finland named as world's most competitive economy by World Economic Forum in 2001.

Weaknesses

Severe recession in 1991–1993 when real GDP declined 15%. Rapidly aging population and low retirement age. High level of public and foreign debt. High unemployment. Small domestic market. Peripheral position in Europe.

Profile

Finland is a wealthy market economy. In the early 1990s it experienced the worst recession in 60 years, chiefly as a result of the collapse of the former Soviet Union. Russia took only 4% of Finland's exports in 1999, compared with over 25% to the Soviet Union before 1990.

A rapid rise in unemployment and business failures after 1990 pushed up government spending. The floating of the markka in 1992 and austerity measures improved competitiveness, overturned substantial fiscal deficits and allowed tax cuts in 2002. Unemployment has fallen, but is still around 10%. Rapid growth in 2000 was followed by a slowdown in 2001. Finland was one of the 12 EU countries fully to adopt the euro in January 2002.

Finland's constitution combines parliamentary government with a strong presidency. The external territory of the Åland Islands, inhabited by Swedish-speakers, has internal self-government.

Profile

Proportional representation has led to government by coalition, usually dominated by the SDP or KESK. The emphasis on consensus has favored stability but resulted in slow decision-making. The current "rainbow" coalition comprises parties from across the political spectrum.

Main Political Issues

EU membership

Finland joined the EU in 1995, many Finns supporting entry as a way of identifying with western Europe. The small but influential farming community was hostile to membership. Others feared that welfare cuts would be more far-reaching if the economy was liberalized in line with EU expectations. In the event, after a dose of austerity, EU membership became associated with greater prosperity from the late 1990s. Finland's decision to join the eurozone in January 1999 contrasted with the nonmembership of its closest EU neighbor, Sweden.

Unemployment

The victory of SDP candidate Martti Ahtisaari in the 1994 presidential election was a sign of discontent with the conservative coalition then in power, whose handling of the recession resulted in record unemployment levels and welfare cuts. The 1995 general election led to the return of an SDP-led coalition which continued many of the previous government's austerity policies. Unemployment has since been substantially reduced.

After carefully balancing its relations with the USSR and the West during the Cold War, Finland has now decided that its national interest lies within western Europe. In addition to joining the EU, it has observer status at the WEU. However, acknowledging historical and geographic realities, the government is also keen to maintain a special relationship with Russia.

Finland is a neutral country. Its armed forces, the majority of whom are conscripts, are backed up by 500,000 active reservists and 3400 border guards. Russia's instability has reinforced concern about border security, the main defense issue. Finland participates in NATO's Partnerships for Peace program and has WEU observer status. Military service lasts for up to 12 months.

Finland's trees are its prime natural resource. Commercial forests cover 65% of the land, and wood products account for 30% of exports. Finland has no oil, but has significant hydroelectric resources. Industry's high energy demands are met chiefly by thermal and nuclear power. A fifth nuclear power plant was approved in 2002. Oil import costs have risen since 1990, when the collapse of the USSR ended a 42-year agreement on the exchange of Finnish manufactures for Soviet oil.

Finland has strict laws on industrial emissions. Energy efficiency is a priority; nearly half of all homes are connected to district heating systems. Although there is opposition to the fifth nuclear plant, proponents argue that it will help the country meet its target emissions for greenhouse gases. The government is funding nuclear safety programs in Russia. Rising levels of pollution in the Baltic are of concern.

The transportation system is well integrated. The railroad connects with the Swedish and Russian networks. There are frequent air services to most neighboring states, and links with Baltic states are being expanded. With one of the densest domestic networks in Europe, internal air travel is important, particularly north of the Arctic Circle.

With 187,888 lakes and a major river network, Finland has Europe's largest inland waterway system. It still carries freight, but is now used mainly for recreation. Finland's international ports handle around 70 million tonnes a year. Kotka is the chief export port. Helsinki, with five specialized harbors, handles most imports.

14% of total government expenditure is spent on Finland's well-developed health system. Every Finn is legally guaranteed access to a local health center which is staffed by up to four doctors, as well as nurses and a midwife. Most non-hospital medical costs are covered by national health insurance; hospital fees are moderate. Diabetes and osteoporosis are increasing, and obesity is a growing health problem.

Compulsory education, introduced in 1921, lasts from seven to 16 years of age. By 1977/1978 the whole country had transferred to a new comprehensive system. Almost all children receive preschool education and also go on to three years of upper secondary education. Tough examinations mean that only 35% of entrants qualify to attend one of the 20 universities.

The jump in unemployment in the early 1990s was seen as one of the causes of rising crime. There is concern about links with organized crime in Russia.

Income disparities are more marked in Finland than in other Scandinavian countries. However, the economic boom and labor shortages of the 1980s led to a sharp rise in all living standards. Personal consumption reached Swedish levels, and many families were able to take two vacations a year. Social security benefits were extended.

During the deep recession which began in 1990, this improvement was reversed. Wealth disparities widened and expenditure cuts led to lower social security benefits for the jobless. Those in work had to accept lower pay rises and higher taxes. Average real disposable incomes dropped sharply. The situation started to improve in 2000, with a temporary downturn in 2001.

Estonian immigrants form the poorest group in Finnish society.

The scenery of the southern lakes and the vast forests of its Arctic north are Finland's main attractions. Helsinki is an important cultural center and hosts an annual arts festival. There are many first-class restaurants and its opera house has an international reputation. Most tourists try a sauna, a Finnish invention, and the local vodka, which is reputedly among the world's finest.

Visitors come largely from neighboring Sweden, the Baltic states, Russia, and the UK. By 2001 Finland emerged as the seventh most popular European destination for employers offering vacations as an incentive to their workforce.

Finland's history has been closely linked with the competing interests of Sweden and Russia.

• 1323 Treaty of Pähkinäsaari. Finland part of Swedish Kingdom.
• 1809 Treaty of Fredrikshamn, Sweden cedes Finland to Russia. Finland becomes a Grand Duchy enjoying considerable autonomy.
• 1812 Helsinki becomes capital.
• 1863 Finnish becomes an official language alongside Swedish.
• 1865 Grand Duchy acquires its own monetary system.
• 1879 Conscription law lays the foundation for a Finnish army.
• 1899 Czar Nicholas II begins process of Russification. Labor Party founded.
• 1900 Gradual imposition of Russian as the official language begins.
• 1901 Finnish army disbanded, Finns ordered into Russian units. Disobedience campaign prevents men being drafted into the army.
• 1903 Labor Party becomes SDP.
• 1905 National strike forces restoration of 1899 status quo.
• 1906 Parliamentary reform. Universal suffrage introduced.
• 1910 Responsibility for important legislation passed to Russian Duma.
• 1917 Russian revolution allows Finland to declare independence.
• 1918 Civil war between Bolsheviks and right-wing government. Gen. Gustav Mannerheim leads government to victory at Battle of Tampere.
• 1919 Finland becomes republic. Kaarlo Ståhlberg elected president with wide political powers.
• 1920 Treaty of Tartu: USSR recognizes Finland's borders.
• 1921 London Convention. Åland Islands become part of Finland.
• 1939 August, Hitler–Stalin nonaggression pact gives USSR a free hand in Finland. November, Soviet invasion; strong Finnish resistance in ensuing Winter War.
• 1940 Treaty of Moscow. Finland cedes a tenth of national territory.
• 1941 Finnish troops join Germany in its invasion of USSR.
• 1944 June, Red Army invades. August, President Risto Ryti resigns. September, Finland, led by Marshal Mannerheim, signs armistice.
• 1946 President Mannerheim resigns, Juho Paasikivi president.
• 1948 Signs friendship treaty with USSR. Agrees to resist any attack on USSR made through Finland by Germany or its allies.
• 1952 Payment of $570 million in war reparations completed.
• 1956 Uhro Kekkonen, leader of the Agrarian Party, becomes president.
• 1956–1991 A series of coalition governments involving SDP and Agrarians, renamed KESK in 1965, hold power.
• 1981 President Kekkonen resigns.
• 1982 Mauno Koivisto president.
• 1989 USSR recognizes Finnish neutrality for first time.
• 1991 Non-SDP government elected. Austerity measures.
• 1992 January, signs ten-year agreement with Russia which, for first time since World War II, involves no military agreement.
• 1994 SDP candidate Martti Ahtisaari elected president.
• 1995 Finland joins EU. General election returns SDP-led coalition under Paavo Lipponen.
• 1999 General election returns Lipponen's coalition to power.
• 2000 Tarja Halonen elected as first woman president.
• 2002 Euro fully adopted.