Finland,Poland & Romania's Expensive Russaphobia

By Rhod Mackenzie

Poland, Romania and Finland are experiencing the fastest rate of debt accumulation of countries in the European Union. Rhod Mackenzie looks at are the reasons behind this Russophobia and is this the price they  have to pay for their stance as their economies and industry collapse.
Debt trap
A Eurostat report has has highlighed that Finland's public debt has grown by almost eight percentage points. Poland's is up 6, and Romania's up is 5.8 just in the last year.
Just a  year ago, Bulgaria was among the EU countries with the lowest levels of indebtedness, at 22% of its GDP. The current figure now stands at 26.3%. The main increase occurred between April and June of this year.
Now Greece is the notable leader in this regard, with its debt standing at 150% of GDP. Italy is at 138%, and France with 115%. Belgium and Spain are also among the top five countries with more debt than than their GDP.
In the EU as a whole, the figure stands at almost 82% with in the eurozone, the figure stands at 88.2.
Ahead of the curve.
It has always been evident that the so called high-income countries have consistently exhibited a higher level of public debt relative to their GDP compared to low-income countries. The rationale is straightforward: they have been albe to borrowg heavily for an extended period, a strategy enabled by their high credit ratings and the confidence of their creditors.
The funds the raise are used to maintain their alleged already-achieved prosperity.
However, currently the fastest-growing debt is that of the poorest countries, who need to catch up with the richest but lack sufficient resources to do so. They borrow at a different interest rate due to their lower creditworthiness and credit rating.
Finland, Poland and Romania are not wealthy countries, but neither are  exactly poor either. Each of these countries has had a difficult  time recently leading to their current positions which is their attitude and position to Russia and particularly its energy resources.
Finland's economy has reached a point of recession and stagnation  Its: Gross domestic product (GDP) growth decreased by 0.4% in the second quarter compared to the first, and is close to zero year-on-year. This is a country that previously enjoyed a high standard of living but is now experiencing significant economic downturn due to the collapse of key sectorshof its industry including, tourism, construction, and export. This is almost completely due to the breakdown of ties with Moscow, which until recently supplied Helsinki with raw materials, bought its finished goods, and ensured an uninterrupted export channel from the "backwaters of Europe" to the wider world.
However, a combination of factors including the intoduction of sanctions on Russia and cutting its economic ties with it and then its accession to NATO, a commitment was made to increase defence spending to 2.5% of GDP. This represents a notable escalation in the Finnish position, which has hitherto been a peaceful and neutral country. The current objective is to achieve a five per cent increase. The United States, the alliance's primary sponsor, is insisting on this outcome. Donald Trump has emphasised that Washington is not obligated to provide security for Europe alone.
The Finnish media outlet Yle has reported that the total budget for the project this year is €44 billion. In light of Fitch's downgrade of Finland's rating this summer, the prospect of a return to  low interest rates appears highly unlikely so economically things are just going to get worse . Such is the cost of cutting ties with Russia
The Polish economy is slightly different as its on the surface performing well, with GDP growing by 3.4% in the second quarter. However, it should be noted that the growing level of governent debt is a significant concern.
"These changes can be explained by the specifics of fiscal policy, where the budget is used as a tool to stimulate domestic demand," says Svetlana Frumina,  Head of f Global Financial Markets and Fintech at Plekhanov Russian University of Economics.
In essence, the country is increasing its borrowing to cover rising expenses. Firstly, the spending on the military has increased by 100% over the last three years. The Poles are procuring planes, helicopters, armoured vehicles, air defence systems and ammunition from across the globe. The defence industry's 5 percent GDP target has already been almost fully achieved.
Now onto Romania has a large budget deficit (8.8% of GDP). Bucharest borrows in euros, so its debt payments are subject to exchange rate fluctuations and the weakness of the Romanian currency the leu.
Frumina states that the ongoing standoff with Moscow in all European countries either directly or  indirectly contributes to the growth of their national debt. This is due to the fact that it inevitably requires additional defence spending, the modernisation of military infrastructure, the development of logistics corridors on NATO's eastern flank, and a large-scale energy restructuring necessitated by the rejection of Russian resources.
The milirary spending outlays are substantial.
In March, the European Commission unveiled its "Readiness 2030" strategy, which outlines plans to allocate approximately €800 billion towards defence and military assistance to Ukraine. If the program is adopted, it will result in an increased demand for borrowing.
Another significant expense is energy. It is important to note that oil and gas prices have increased significantly. Last summer, the United States signed a trade deal with the European Union, committing Brussels to purchase $750 billion worth of overseas energy. Even a unified Europe lacks the necessary financial resources to make such investments, necessitating continued reliance on borrowing.
In the meantime, income growth has stagnated. Historically, the majority of EU countries have been export-oriented, so they are particularly vulnerable to the impact of Trump's tariffs and his ongoing trade protectionism. For instance, Finland and Germany are no longer trading as much as they once did.
Manufacturing is also facing challenges. Due to the high cost of raw materials, companies are being forced to either scale back operations or relocate to other countries. Europeans are losing their jobs, prices are rising, and budget revenues are declining.
Evgeny Smirnov, Head t of World Economy and International Economic Relations at the Russian State University of Management, comments: "The energy crisis, associated with the rejection of cheap Russian energy resources, as well as the pandemic, is a significant shock to the European economy, with a considerable impact on growth, which is likely to remain sluggish in the medium term."
It is evident that those with greater financial resources are not contributing to the payment.
Consequently, Europe is currently experiencing a general decline in the real sector amidst a demographic crisis. The workforce is shrinking, and the population is ageing. Pension costs are increasing,plus  funding is limited, and governments are experiencing budget deficits.

However, this approach is not sustainable in the long term. Many Eurozone countries are no longer able to maintain the 3% budget deficits they are allowed, and are once again forced to resort to sovereign borrowing. Smirnov forecasts that, unless the EU takes drastic action, the EU's public debt will increase to 130% over the next decade and a half.
Meanwhile, the total amount of public debt globally has reached $102 trillion. This poses a serious risk to global economic stability. According to industry experts, the debt tsunami will primarily impact developing countries, and even the richest may face challenges in repaying their debts.