The Finnish state currently carries around 137 billion euros in debt and that figure will likely grow. National debt has risen quickly in recent years and grew even more robustly at the beginning of this year.

The finance ministry is starting to prepare next year's government budget this week.

Like many countries, Finland's debt grew substantially during the Covid crisis. Then, when Russia attacked Ukraine, the state borrowed more funding for defence purposes.

The finance ministry estimated last spring that it would end up spending around 700 million euros on interest costs alone. However, due to rising rates, it appears the state will shell out about 1.2 billion euros in them this year.

However, among experts and business leaders, opinions differ about what the biggest economic threat facing Finland is.

Aki Kangasharju, an economist and CEO of think tank the Research Institute of the Finnish Economy (Etla), said that Finland had a misconception about low interest rates for far too long.

"Above all, this [situation] proves that it was ridiculous populism to have claimed as recently as a year ago that we had entered a new era in which debt is irrelevant," he said.

"We're going to have to start saving"

Jenni Pääkkönen, Senior Financial Adviser at the Ministry of Finance, acknowledged that interest rates have fluctuated more than usual recently.

"For decision-makers, the most important takeaway is that the era of zero-interest rates is over and the fact that debt does carry a cost again," Pääkkönen said, adding that Finland's increasing debt should be curbed to prevent interest costs from excessively devouring public funds.

Etla's Kangasharju noted that Prime Minister Sanna Marin's (SDP) government took on nearly 10 billion euros in debt for future investments, saying that those expenditures were supposed to be temporary but became permanent.

"It's good that more teachers were hired at vocational schools, but we can't give every ministerial branch this much extra money, because we're going to have to start saving at some point," Kangasharju said.

However, the think-tank chief added that he does not want to declare a dire emergency during this or the next government.

"But if the spending levels in recent years continue for a few more government administrations, then a debt crisis situation will certainly be possible," he said.

LNG cutoff would impact Finland

Meanwhile, Risto Murto, CEO and president of pension insurance firm Varma, said he does not think that rising interest rates pose a major threat because, while rates are growing, inflation is too, which helps to eat up that debt.

Additionally, he said that a rise in interest rates will have less of an impact than if Europe's liquid natural gas supply (LNG) is cut off.

Unlike other EU countries, Finland is not dependent on Russian LNG. However, if gas cutoffs do prompt Central European countries to fall into recession, the reverberations will soon be noticed in Finland's economy.

"If the gas supply is completely shut off and the economies of Germany and Italy are in recession, it will inevitably also affect Finland," he explained.

Finland's economy has experienced a unique period in recent years. When interest rates were below zero, the state has occasionally even received money for borrowing money.

"The interest rate that the state pays for its debt is still exceptionally low. It is particularly low when you take into account our inflation rate," Murto said.

Sustainability gap

Another threat posed to Finland's economy is the country's ageing population, and going forward there will be increasingly less taxpayer funds available to pay off the national debt, according to Murto.

"It is a structural problem that is a bit like Italy, which has a similar population structure. It will be difficult to get rid of this debt," he explained.

That situation is known as a sustainability gap, where public coffers are increasingly financed by debt, while spending amounts increase as the population ages.

Etla's Kangasharju said he thinks the attitude of "not needing to do anything about it now, we'll take care of it later," is strange, adding that Finland should address its debt now, before a crisis hits.