page_title: Early 1990s depression in Finland
section_title: Causes
hierarchical_section_title: Early 1990s depression in Finland / Causes
caption_attribution_description: English: UPM-Kymmene paper and cellulose factory in Jakobstad, Finland. Suomi: UPM-Kymmenen paperi- ja sellutehdas Pietarsaaressa
context_page_description: The early 1990s depression in Finland was one of the worst economic crises in Finland's history, even worse there than the 1930s Great Depression.
  The depression of 1991–1993 had a deep effect on the economy of Finland throughout the 1990s, especially in terms of employment but also in culture, politics and the general sociopolitical atmosphere. The gross national product decreased by 13%, and the unemployment rate rose to 18.9% from 3.5%.
  Since then, despite an overall recovery, unemployment has been persistent, and Finland has never returned to the state of nearly full employment that had existed before the crisis.
context_section_description: An underlying cause was the economic policy of the 1980s. Finland experienced a strong economic boom throughout the 1980s that dragged on and "overheated" the economy, leading to the corrective contraction of the depression. One reason was a change in Finnish banking laws in 1986 to allow Finnish companies to seek credit more easily from foreign banks, which was considerably less expensive than Finnish domestic credit. That led to a large-scale search for foreign loan sources, which helped to undermine the strength of the Finnish central bank. Additionally, consumer credit regulation was drastically relaxed, and the consumer loan portfolio increased dramatically, at times by more than 100% per year. Those factors led to the strong short-term growth and in turn unsustainably increased both commercial and residential property values as well as the amount of money in the national economy. Stock and real estate bubbles created an environment in which large short-term profits were posted, leading to an artificially-inflated appearance of great wealth in the economy. The term "casino economy" was used to describe the use of loans to get very rich very quickly on paper by exploiting those bubbles.
  The huge devaluation that occurred in November 1991 increased the debts of Finnish companies holding foreign loans in foreign currencies. They did not properly scale with the devaluation that the Kouri–Porter model had shown as early as in 1974. It was not followed in Finland in connection with the freeing of money market. However, foreign currency loans were only 15% of all loans.
  The collapse of the Soviet Union also played an important role, as it had represented 15–20% of Finland's foreign trade. Thus, a key Finnish export market disappeared nearly overnight. The rising price of oil in 1973 and 1979 and the increase of car use in Finland had also raised the level of the bilateral trade with the Soviet Union. Oil itself often had been used as currency for international trade between the two countries.
  Furthermore, political decisions based on the strength of the Finnish mark weakened the international competitiveness of Finnish industry. In particular, much of the Finnish economy was reliant on the paper industry, which also experienced an overproduction worldwide.
caption: A market "bubble" was created by the paper industry in Finland in the late 1980s, the collapse of which was a contributor to the 1990s recession. This picture shows a paper factory in Jakobstad.
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