Since they are either fully government funded or jointly funded with municipalities, there are no incentives to search short term profits by running diploma mills.

Ministry of Education controls the money and conducts yearly performance target negotiations bilaterally with each higher education institution. You actually need a permit from the ministry to run any kind of school. Even our few "private" primary and secondary schools are publicly funded and regulated accordingly.

Independent expert body FINHEEC audits universities quality management schemes regularly. Some European countries use accreditation-based evaluation (for single degree programs) instead of system wide audits. At least one Finnish university has also acquired ISO 9001 cert, but it was seen as more labor intensive and not providing the same benefits (benchmarking, benchlearning) as the required peer-based audits.

Outline of FINHEEC audit process and outcomes: http://www.qaa.ac.uk/Partners/education/Documents/FINHEEC%20...

Well, that is a problem. But universities also doesn't want to be known for poor quality. And then there is pretty strong government oversight. In Sweden the National Agency for Higher Education do regular audits and have the right to remove a schools privilege to award degrees.

And it is a right they also exercise, but rarely against an entire university. The schools usually just lose the privilege for one subject.

I would imagine that they self-audit a lot better than the US based degree mills, but I'd be fascinated in the specifics as well.