Early 1990s recession in Finland

The early 1990s depression in Finland was one of the worst economic crises in Finland's history, even worse there than the depression of the 1930s.

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. During this period the gross national product decreased 13% and the unemployment rose to 18.9% from 3.5%. Since then, despite overall recovery, the unemployment has been persistent, and Finland has never returned to the state of near full employment that existed before the crisis.

Underlying the depression of the 1990s was the economic policy of the 1980s. Finland experienced a strong economic boom throughout the 1980s which dragged on and "overheated" the economy, leading to the corrective contraction of the depression. One reason for this was a change in Finnish banking laws in 1986 which allowed Finnish companies to more easily seek credit from foreign banks, which was considerably less expensive than Finnish domestic credit. This led to a large-scale search for foreign loan sources, which helped to undermine the strength of the Finnish central bank. Additionally, regulation of consumer credit was drastically relaxed, and the consumer loan portfolio increased dramatically, at times by more than 100% per year. These factors led to the strong short-term growth which in turn raised commercial and residential property values, and increased the amount of money in the national economy in an unsustainable manner. 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 using loans to get very rich very quickly on paper through exploiting these bubbles.

The big devaluation that was made in November 1991 increased the debts of Finnish companies holding foreign loans. The loans that were taken in foreign currencies did not properly scale with the devaluation which the Kouri–Porter model had shown as early as in 1974. This model was not followed in Finland in connection with the freeing of money market. However, the number of the foreign currency loans was only 15% of the whole loan stock.

The collapse of the Soviet Union also played an important role, as it had represented 15–20 per cent of Finland's foreign trade, the so-called bilateral trade. Thus a key Finnish export market disappeared nearly overnight. The rising price of oil during the years 1973 and 1979 combined with the advent of Finland becoming much more "motorized" had also raised the level of the bilateral trade with the Soviet Union. During this period, oil itself often was used as currency for international trade between the two countries.

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