No need for alarm (?)

I read this news on Bloomberg and I was a bit alarmed by this paragraph:

A number of analysts are already advising investors to steer clear of Finnish government debt. UniCredit Bank AG recommends shorting Finnish 10-year notes and instead buying debt sold by Italy and Germany, equally weighted. HSBC Securities Inc. advises its clients to sell Finnish 10-year bonds and buy similar-maturity Belgian debt instead.

I agree that the Finnish economy is not exactly in good shape, but this advice seems to me a bit panicky. As I recount here, Finland has solid fundamentals in infrastructure and education and innovative capacity. This kind of advice will only drive up the cost of government debt and with the current government induce more cuts in government spending, therefore worsening the economic crisis.

As should be clear to anyone, especially with this new shock, the economic crisis of Finland is fuelled by a lack of aggregate demand, not by structural issues or profligate government spending. This demand-shock comes at a really inconvenient time, but Finland, through its own policy stance re: the economic crisis elsewhere has little space to maneuvre itself out of the position it has gotten itself in. If it is consequent, then it will somehow cut the budget even more, but that makes matters worse. If it is inconsequent, its international credibility will be hurt.

It almost seems there are no good options for Finland at the moment, notwithstanding many great, inventive companies. The key in the dilemma lies in an analysis of the sectors which are hardest hit and whether they can and should be helped. In any case, this is a very difficult problem. I wish the policy makers all the wisdom they have!


From Bloomberg charts, it seems that sovereign bonds are inching higher, and that the spread with Bunds (Green) is growing for Finland (red) and the Netherlands (orange, of course):

Sovereign Bond Yields, from Bloomberg. For Germany, Finland and the Netherlands

Sovereign Bond Yields, from Bloomberg. For Germany, Finland and the Netherlands



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