The 15th of May 2022 could mark a historic turning point in European security as Finland and Sweden decide whether they will join the Nato alliance. Up until the 11th hour, fierce arguments have, and are, being made in support of both countries joining or remaining on the sidelines, so what will ultimately happen is anyone’s guess. Whatever the choice, an enormous geopolitical gamble is being taken.
Decades of neutrality to be reversed?
Finland and Sweden have maintained their Nato-neutrality for some 75 years, all throughout the Cold War and beyond. Before Russia’s war on Ukraine, public opinion in both countries remained strongly in favour of non-alignment.
In fact, so established and sacred was this pillar of foreign policy that the term ‘Finlandisation’ arose, many decades ago, as a description of when a country is induced to favour, or refrain from opposing, the interests of a more powerful country, despite not being politically allied to it.
Vladimir Putin’s war on Ukraine, however, has called everything into question. An opinion poll in early May put support in Finland for joining Nato at 76%, with 12% against, a big shift towards membership since before the invasion.
Finnish and Swedish politicians have been less gung-ho. While in early May it looked as if both countries’ leaders were leaning towards neutrality, Finland’s president called, on 12 May, for the country to apply for Nato membership “without delay”. Russia has said it will be forced to take “retaliatory steps” if Finland goes forward with this.
In a public statement, Russia described Finland’s move as “a radical change in the country’s foreign policy…Finland’s accession to Nato will cause serious damage to bilateral Russian-Finnish relations and the maintaining of stability and security in the northern European region.
“Russia will be forced to take retaliatory steps, both of a military-technical and other nature, in order to neutralise the threats to its national security that arise from this.”
For critics of Nato enlargement, this statement is further proof that a bigger Nato will only antagonise the Kremlin, thereby escalating the Ukraine conflict and increasing the likelihood of a wider war with just Ukraine. On the other hand, supporters of Nato enlargement say that Putin’s bullying will only amplify if appeased, meaning Nato must grow stronger in order to deter his belligerence.
This is a no-win situation for economic stability
The security dilemma surrounding the Nato question is a very real one, hence it being so very divisive. The choice is neither obvious nor easy, with both options entailing serious risks.
One thing does seem clear, however: Putin’s decision-making is extremely unpredictable, and even more so as the war in Ukraine drags on and daily evidence is produced that his ‘liberation’ of the country from ‘Nazis’ has been an abject failure.
So, whatever Finland and Sweden decide, it will be followed by weeks and months of apprehension as the dust settles and Russia’s next move is determined. The uncertainty will be particularly disruptive for prospective foreign investors to the Nordic region, many of whom may fall into wait-and-see mode.
When foreign companies set up brand new operations in a country, it is with a very long-term view. For some of those currently considering Finland or Sweden, the decision to join (or not to join) Nato may be a deal-breaker for those boardrooms that have a strong opinion on the matter.
Of course, Finland is set to lose the most from the aforementioned uncertainties and risks since it actually shares a 1,300km border with Russia (whereas Sweden shares no land border whatsoever).
The coming months will show just how disruptive, or disastrous, the Nato decision will be for the Finnish and Swedish economies. The black swan event is military escalation, but what is more likely is the continuation of high-alert geopolitical tensions that will, unfortunately, impact investor confidence in the region.
Nato countries that neighbour Russia directly, such as Finland, Latvia, Lithuania and Estonia, will be especially vulnerable to this economic fallout, since all four countries benefit significantly from the arrival of new foreign companies.