In government, Fagerholm was one of the chief executors of the neutralist Scandinavia-orientation, which had increasingly been seen by Conservatives and Socialists in the 1930s to be Finland's deliverance from the danger of Soviet expansionism.

When the Winter War broke out, suspicions against Finland's "hazardous foreign politics" remained strong, most importantly among leading Social Democrats in Sweden.

As the Soviet Union's disapproval ended the discussions on a Swedish-Finnish defence co-operation in 1940, the Scandinavist line had run into a blind alley; and Fagerholm had no more say in the policy discussions that ultimately led to close dependency of Nazi Germany, German troops on Finnish soil, revanchism and to co-belligerence in the Continuation War.

After the Battle of Stalingrad, when it increasingly became obvious that Nazi Germany was about to be defeated in World War II, the Cabinet of Edwin Linkomies was appointed to seek peace with the United Kingdom and the Soviet Union.

By inciting strikes and other disturbances at moments critical for scheduled delivers, the Soviet Union tried to strengthen the influence of the domestic Communists and to exert direct pressure on the government.

Väinö Tanner had to resign since he was seen with the uttermost suspicion by Finnish Communists by many Social Democrats, by the leadership in Sweden and, most importantly, by the Soviet Union.

When new parliament elections were held in July 1948, the Communists suffered a sharp drop in support, falling from 51 to 38 seats.

[3] As leader of the Social Democrats, he was prime minister from 1948 to 1950 despite fierce Communist opposition and accusations by the Soviet Union that he intended to undermine the Finnish-Soviet Treaty by taking Finland into NATO.

Even Finland's growing integration into the world economy, as demonstrated by its joining the General Agreement on Tariffs and Trade (GATT) in 1949, was viewed with similar suspicion although it served Soviet interests since it contributed to Finland's ability to meet the harsh war reparations requirements of the Paris Peace Treaty.

The war and the post-war times of economic hardship had motivated government control of prices and wages attempting to hamper inflation.

One of the themes in the elections and one of the important objectives for Fagerholm's government was to transfer the handling of incomes policy to negotiations between the unions and the employers' organizations.

In the tense situation, Fagerholm, now Speaker of Parliament, brokered a solution that was supported in ballot by a clear majority of trade union members.

Fagerholm's relation to the aged president of Finland, Juho Kusti Paasikivi, remained controversial, but the release of the latter's diary has thrown some light on the issue.

Although Paasikivi considered both contenders for the position as prime minister as skilful and politically capable, he actually came down more often in favor of Kekkonen, who enjoyed the support of the Soviet leadership.

Later the same, day Fagerholm called Untamo Utrio of the Tammi publishing house and convinced him to cancel the January launch of the book.

Deputy director of Tammi Jarl Hellemann later argued that the fuss about the book was completely disproportionate to its substance, describing the incident as the first instance of Finnish self-censorship motivated by concerns about relations to the Soviet Union.