Stubb starts talks to form next Finnish government

HELSINKI Wed Jun 18, 2014 1:19pm BST

Alexander Stubb, new chairman of the National Coalition party, celebrates after his election in the party's congress in Lahti June 14, 2014.  REUTERS/Jussi Nukari/Lehtikuva

Alexander Stubb, new chairman of the National Coalition party, celebrates after his election in the party's congress in Lahti June 14, 2014.

Credit: Reuters/Jussi Nukari/Lehtikuva

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HELSINKI (Reuters) - Alexander Stubb, set to become Finland's new prime minister began talks on Wednesday on forming a coalition government, which is likely to comprise the same five parties as the outgoing one.

Stubb, new leader of the centre-right National Coalition party, is set to succeed Jyrki Katainen, who is seeking a high level job in the European Union. Katainen handed in his resignation on Monday and is expected to step down next week.

British and U.S. educated Stubb, 46, wants to cut taxes and take his neutral country into NATO but with just 10 months to go before a general election the new government is unlikely to introduce such major policy changes.

Instead, the five parties involved in the coalition talks, which are expected to last two days, will agree a "mini government programme", Stubb said.

"Stress is on the word mini," he was quoted as saying in daily Helsingin Sanomat.

Defence Minister Carl Haglund also said policies implemented by Katainen's government would not be overturned.

"We will not open Pandora's box in these negotiations, but will stick to earlier agreements," Defence Minister Carl Haglund told Reuters, adding he expected the talks to wrap up by Thursday.

The incoming government, however, will have to address a weak economy, which has contracted for the past two years and many economists doubt the outgoing government's forecast for growth this year of 0.2 percent.

Stubb was tasked with forming the next government on Monday after winning the leadership of the National Coalition party, Finland's biggest political party, on Saturday, succeeding Katainen.

Katainen was nominated on Wednesday as Finland's candidate to replace EU Economics Commissioner Olli Rehn, who moves to the European Parliament.

The two biggest parties in the coalition both have new leaders. The Social Democratic Party chose Antti Rinne as their new leader in May, and he became finance minister this month. Rinne is seen continuing in that role in the new government.

The main issue in the coalition talks is how much money to put into short-term economic stimulus measures.

Stubb has said that his government will not reopen the budget framework agreed by the Katainen government in March. That plan includes 600 million euros in new stimulus spending. Rinne favours more.

"We aim to find new money for stimulus," Rinne told Finnish broadcaster MTV3 on Tuesday, while also playing down differences on fiscal policy.

"We are working together in a good cooperative spirit."

Finland is one of the few remaining triple-A rated countries in the euro zone, and the Katainen government had agreed to cut spending and raise taxes by 7 billion euros to keep deficits in check.

At the end of last year, Finland's public debt stood at 57 percent of gross domestic product, up from 33.9 percent at the end of 2008. The finance ministry sees it breaching the EU's 60 percent limit this year.

(Editing by Susan Fenton)

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