Tag Archives: ETLA

Banking freeze-up: Vicious circle for Finnish SMEs

Update – here is a reaction by a representative of a co-operative banking group on the apparent banking freeze.

I have occasionally reported on the state of the Finnish economy in relation to the Eurocrisis, and e.g. last week I posted a link on new forecasts by the Bank of Finland that are very grim. Also some Finnish key economists have very divergent views on how they propose Finland gets out of the current recession (which is the third since 2008). But they agree on one thing: the Finnish economy is looking bad. So far, the economy has been mainly supported by domestic demand, but I have seen news items that indicate this is something from the past as well.

The weekly ‘technology and economy’ journal Tekniikka&Talous quite often has much more significant news on the Finnish economy that e.g. Helsingin Sanomat, the main Finnish daily newspaper. Especially its frequent updates are a feature that is extremely valuable. Today T&T has a very important piece regarding small- and medium sized enterprises. It is based around data on bankruptcies, bank functioning (including Basel III), loan guarantees and other issues regarding the functioning of SMEs. The interviewed persons work for Fennia, a large Finnish insurer and ETLA, an important economic research institute. [correction applied]

In this post, I don’t want to go into the reasons why Finland used to be one of the most competitve countries in the world and now it is sinking fast. But I do say that, agreeing with the reasoning on this Finnish economics-blog, it was a cardinal mistake for Finland to join the euro. And perhaps the hard line Finland’s goverment has taken in recent years regarding the Eurocrisis will bite it in the behind soon.

One knows that the situation is bad when a news article opens with the sentence: “The ability or will of banks to finance is at its lowest since the recession of the early 1990s.” I recommend this book for insight on the crisis, which was a kind of Greek crisis but fortunately Finland was not shackled in the EMU then. The article mentions that SMEs are not able to secure finance from banks and therefore they look elsewhere – e.g. to other financiers or capital investors, but often in vain. The author states that the lack of economic growth burdens companies, and that this year is going to be (even) tighter than last year. But the big problem is still finance, because it limits new investments as well as working capital.

The vice CEO of Fennia Eero Eriksson posits that this Autumn looks bad regarding repayment problems and bankruptcies. Until the beginning of the year, the amount of bankruptcies was on the same level as the same period last year, but April was very bad all of a sudden.The research director of ETLA Markku Kotilainen states that it is not likely that the number of bankruptcies will explode, if the ‘expected international recovery will happen early enough.’ To this I would say – the forecasts by IMF and in particular the European Commission have not been exactly reliable. In most cases, especially regarding the EC, they have been wildly optimistic. Of course, stranger things can happen, but I for one am not too optimistic about a timely recovery in Europe.
Kotilainen also repeats something some economists here mentioned: that wage moderation is needed. ETLA is indepentent but generally seen as pro-business.

The most important worry though is the financing system in Finland, to this Eriksson says that they just don’t work (or work properly) and that also government involvement should be considered to get things afloat again. He calls this a vicious circle, because with undersized own capital it is not possible to get loans to even sensible investments.

In this process, it is possible to see the effects of new rules on bank capitalization – according to Kotilainen banks try to compensate for the costs of these measures by raising marginals, and these in turn influence both the availabilty of loans for SMEs and the costs of loans.

Regarding non-bank finance the article mentions the Finnish state-owned specialized financing company Finnvera, TEKES, business-angels and tax decreases (starting next year) as possibilities for SMEs to survive and get financing elsewhere.

But although there are possibilities to get financing elsewhere, the will to invest has decreased since the beginning of this year, the article states. And in those cases firms want to invest, risk capital is unlikely to be found for SMEs. Eriksson states that banks do not want to take any risks at the moment. Although this should be analysed in a broader context, this freeze-up of the Finnish capital market for firms is not a good sign. Basel III is also said to reduce the amount of risk banks are willing (or allowed) to take on.

Eriksson states something very important in relation to the whole Eurocrisis: “The stimulating monetary policy of the central banks doesn’t show in the SME-sector, because the price of money is high for them: pricing by banks is based on risk. Banks are exceptionally over-prudent in risk assessment right now.” And: “Regardless of the record low interest rates in relation to the central banks’ monetary stimulus, the price of money/financing is too steep for SMEs, or financing is simply not available.” He continues to state that the guarantee loan instruments of various Finnish institutions such as Finnvera should be used.

There you have it. I have written a lot about the state of the Finnish economy, which is worse that somehow is acknowledged in the European policy discussions (as also is the case with the Netherlands). I have not previously written about banking issues, because I don’t know enough about that. I do know that the government continues to assure that Finnish banks are in a good shape – this may be, but that is not now where the problem is. So, similarly to what is written e.g. here, also in Finland the money supply is too tight, regardless of what is said about the risks of inflation etc. I do hope, for the sake of all those people who work in SMEs (and not only in Finland) that some kind of solution can be engineered soon.

ETLAn uusi ennustus

‘Etla pudotti reippaasti aiempaa, syyskuulta peräisin olevaa ennustettaan. Jos valtion velkasuhde haluttaisiin vakauttaa viime vuoden tasolle, vaatisi se 1,8 miljardin euron lisäsopeutusta, Etla laskee.

Voimmeko jo toteaa, että ‘lisäsopeutus’ on kamalin eufemismi, mitä olen viime aikoina kuullut?

‘Maan hallitus kokoontuu kehysriiheen huomenna torstaina. Etla sanoo, että valtionvelan suhde bruttokansantuotteeseen ei nykyisellä hallituskaudella alene, jos menoja ja tuloja ei sopeuteta lisää.

Jos velkasuhde haluttaisiin vakauttaa viime vuoden tasolle, vaatisi se 1,8 miljardin euron lisäsopeutusta, Etla laskee.’

Pointti on se, että EI PIDÄ PITÄÄ HALUTA VAKAUTTAA! EU:n säännöt ovat tappamassa talouksia ympäri Eurooppaa. Muistanet, että Portugali cum sui ‘pelastettiin’ ja niiden piti leikata valtion menoja? No, tällä hetkellä niiden velkasuhde on entistä pahempi. Milloin Euroopan valtaeliitti tajuaa, että eurojärjestelmä on täynnä vikoja ja säästökuripolitiikka johtaa kaikki taloudet ahdinkoon, muun muuassa koska ei ole pankkiunioni eikä verounioni?


Olen niin kyllästynyt tähän. Lukekaa herrat ja naiset politiikot (myös ECB:lla) artikkeleita kuin De Grauwe (2011) ja jälki-Keynesilaista tutkimuksia. Myös blogi Raha ja Talous-blogi on erinomainen lähde. Nämä kaikki tutkimukset, ja myös IMFin mea culpa, näyttävät ettei saa ryhtyä menojenleikkuun talouskriisissä. Kaikki taloustietelijät, jotka ovat tutkinneet 1930-luvun kriisiä, ovat ennustaneet, että tämä austerity-politiikka ei tule toimimaan. Kas, ne ovat olleet ihan oikeassa.