Tag Archives: Eurocrisis

Finland’s secular stagnation – a small aside

Edward Hugh wrote a very insightful piece on the state of the Finnish economy, especially seen from the secular stagnation perspective. In my opinion it is a very convincing piece and leads one to seriously question current economic policies (which is also possible on other basis, but this has a longer scope fundament).

There is, however, one tiny section of the text where  I feel I have to add something. The text is:

In 2007, when the countries export-led technology industry was booming workers representatives hammered out an 8.5 percent wage increase that was implemented over two years. That deal led to an upward spiral where other industries and then the public sector pushed for ever higher compensation.

This sounds very ominous and ‘profligate’, a typical example of ‘why labour unions are bad for business’ etc.

But this is just the kind of factual reporting that needs footnotes, because otherwise the wrong lessons are learnt from it. So, here we go:

1. 2007 was the end of the final centralized incomes policy

What does that mean? Finland has a long tradition of centralized incomes agreements, which not only include wage increases but also a variety of tax issues, social security reforms and other policies (usually) meant to support the private sector. In 2007, the last centralized incomes agreement ended (its duration was 2005-2007) and the employers’ federations strongly voiced their opinion about this instrument: the TUPO was now dead, it was not of this time anymore. So, following 2007, Finland went on to have sectoral collective bargaining for the period 2008-2011. The first sectoral agreement period was 2008-2009 and in this period there was indeed the ‘spiral’ which Hugh refers to. This was to be expected though, because the empirical literature is quite clear on the fact that in sectoral bargaining the wage increases tend to be higher than at either a centralized or completely decentralized level (the Calmfors-Driffil hypothesis). I’d like to stress though, that it was the employers who wanted to move away from centralized bargaining.

The problem with all this was that the Eurocrisis hit. So, with any agreement, the wage increases would have been to high, but with a sectoral agreement even more so. Finland doesn’t have much in the vein of opening clauses in collective agreements (like Germany) so any adaptation to the detoriorating economic situation has primarily happened through lay-offs and redundancies – in the private sector, but through Finland’s voluntary austerity also very much in municipalities.

In 2009, there was a so-called social agreement, which deals with improvement in unemployment protection policies, in particular regarding temp agency work. Another aspect of this agreement was the improvement of income-dependent pensions.

More important, in 2009 there was an attempt to intr0duce a so-called wage anchor. The employers’ side set this at a maximum wage increase of 0,5% but in practice the average increase in all agreements was approximately 1%. It must be noted that some of the negotiations of wages in 2009 were the actual negotiations for the second or third year of some 2-3 year agreements. The wage anchor came from the ‘opener’ of the negotiations, the metal industry, which agreed on an general wage increase of 1% (and 0,5% individual wage increase).

After the negotiations and agreements of 2009-2010 it started to become clear that the eurocrisis hit Finland particularly hard, with its unit labour costs rapidly exceeding the German levels. So, although the employers had sworn that there would never be a centralized incomes agreement again, they negotiated – after quite some prodding from the state – the so-called Framework agreement. In this agreement it was agreed that in 2 years, the wages would increase by 2,4% and 1,9% respectively. Furthermore, the agreement dealt with a host of qualitative labour market questions (training, unemployment benefit changes for temp workers) and tax incentives (incomes tax changes, corporate tax reduction).

In 2013 the so-called Growth and Employment Agreement was concluded. This agreement focuses nearly entirely on (wage) competitiveness and thus features, over 2 years, a wage increase of 20 euros in the first year and 0,4% 12 months after that. In the present, there are discussions whether to renegotiate the agreement or keep the provision that the agreement would be valid until the beginning of 2017. This is mandated by the agreement, which states that in June 2015 the economic situation has to be evaluated to negotiate a new wage agreement for the second phase of the Growth and Employment Agreement.

So, while it is true that in the period 2007-2009 various sectors demanded high(er) wage increases that the sector that concluded agreements just before (the ‘spiral’) this did not exactly happen anymore after 2009. Although there was much discontent about the unilateral adoption of this wage anchor, which did not completely succeed either but not nonetheless introduced a significant wage moderation already. Also, it must not be forgotten that wage differences in Finland between services and industries are not trivial.

All-in-all, Hugh’s article is a very acute description of the state of the Finnish economy at the moment, but the recent developments in labour market relations are a bit more complicated than it seems.

Breaking the Cycle of Deficit Fetishism


Ten conclusions on the many mistakes of the handling of the Eurocrisis

The Levy Economics Institute of Bard College co-organized an international conference on November 21-22 in Athens, Greece, on the continuing crisis in the eurozone.

The conclusions of the panel of the conference make for sobering reading (actually, it makes you question why the same old politicians/parties are still in power everywhere). You can read the ten conclusions here.

Ilargi puts it clearly

Ilargi often has quite “grand” writings, which sometimes exaggerate things, but this post quite nails it. Of course it is still one aspect of the whole eurocrisis but it is one from which a lot of things follow and have followed.

Jörg Bibow on Germany’s policy prescriptions, again

This is as concise as it can be. Jörg Bibow once more (how many times does he have to write the same thing?!) deconstructs the fallacies of the German Model, especially when it is forced upon the rest of the Eurozone. I linked to this post in this article already but it fully deserves its own post.

Sunday the 25th and what next in Europe?

Important. Reuters has good reporting on the EU of late!

Finnish economists in the media and the role of journalism in the Eurocrisis

Yesterday I attended a seminar on “The Eurocrisis in the News”, organized by the Finnish Union of Radio and Television Journalists with support from the Finnish Journalist’s Union and the Finnish Broadcasting Corporation (YLE). This was a very interesting seminar on a topic which I am rather interested in. The seminar was too long and too diverse to summarize it properly, but some interesting points and highlights:

– according to a research by one of the organizers, there is a big skewedness in which economists get asked to comment on news related to the eurocrisis. There are a few which are asked all the time and there are many which are asked a few times at most. The period of time investigated was from the crash of Lehman Brothers until the 15th of September 2014 and focused on the daily news of YLE as well as the Finnish daily Helsingin Sanomat.

– perhaps this skewedness is a result of who is famous and who is available, but a much more worrying bias is that there were hardly any women represented in the sample studied. Nonetheless, in Finland there are many talented female economists, both in banks and research institutes.This is a big problem, as the eurocrisis in any case has an asymmetric gender impact (i.e. given the kind of jobs and sectors women are predominantly present in, they suffer from the crisis to a greater degree than men.)

– As Sveriges Radio economic reporter Staffan Sonning stated, bank economists are paid to do work for the bank, so one should not listen too much to their policy advice.

– Research journalist Elina Grundström launched a new concept: the Triple-H credit rating, referring to the works of (journalist) Jan Hurri, researcher Timo Harakka and economist Lauri Holappa (of the Raha&Talous -blog). The question discussed in this section of the seminar was whether these kinds of ‘alternative’ analyses were less represented in the media and whether it has been more difficult for these to gain visibility in the Finnish media. The answer was yes and no. The majority of analysis (of the Eurocrisis) followed the ‘German good – South profligate’ model apparently (which I also have criticized in a column in Turun Sanomat, regarding a specific part of this discussion). The no-part is reflected in the finding that actually there were more critical analyses than may have seemed. While this may be true, I would like to see this over a period of time (Jan Hurri has been on this topic for a long time, but Harakka’s and Holappa’s books came out this Spring – but they were very active in the internet). Also it would be interesting what the substance of the various articles was, how e.g. the ‘alternative explanation’ was categorized etc. Another question is whether the inclusion of ‘alternative explanations’ or criticism led to more media presence for those economists. Given the statements by the Finnish Prime Minister Alexander Stubb on the issue of public finances and economic policy, it doesn’t look like any of the criticism had any effect. But then again, nowhere in Europe this seems to be the case.

– The director of EVA (a Finnish pro-market think tank) Matti Apunen had a presentation which defies summarization. This was caused by his use of rethorical devices and he also frequently seemed to contradict something which he just said. Regardless of the feeling of ‘what did he actually say, did he say something sensible at all?’ I think he had a couple of things worth mentioning. First, he had a good point that the news media should have a Eurocrisis ‘task force’ to report on these issues and be able to have  a kind of strategy regarding longer term investigative journalism etc. This is ultimately a resource question, which e.g. websites such as NakedCapitalism also face. Apunen asked who is the Finnish Martin Wolf or Wolfgang Munchau, and I think there is no answer (yet). Another thing he mentioned which is a good point is, what is our/the media’s next blind spot? He claimed that the current eurocrisis is like that (or I think he claimed that) but that is obviously not true – maybe for some actors and some media but there have been plenty of warning signs and scholars who were right on top of it. But although there is plenty to say about the past and past mistakes, it IS important to think about blind spots. Sixten Korkman mentioned Donald Rumsfeld’s Unknown unknowns, which (although I think he is a politician of the worst sort) is one of the smartest things any politician has said, in a kind of philosophical sense.

These blind spots are of course by definition hard to conceive, but some in the audience mentioned France and Italy. Well, these are obvious and not blind spots anymore. Also Germany is not a blind spot, as Bill Mitchell and Jörg Bibow show. What I think is a blind spot is the link between the eurocrisis and the narrowing of democracy. This is an issue about which has been written before, but the media could be more interested in it. After all, a democracy cannot work without the media to report on good or bad things, and without critical voices. I think right now we can very clearly see that the EMU, and to a great extent also the EU as a whole, has turned into one great neo-liberal project. Seen from that perspective, everything makes sense – austerity, saving the banks, pumping the liquidity, the demands for labour market flexibilization etc. And here we have the blind spot: news media have to be much more in contact with social scientists (yes, I know I am advertising myself here) – economists discuss outcomes, social scientists are able to say sensible things about policy making and power struggles, not to mention legal issues, that lead to these outcomes. Where are the political scientists discussing Brussels policy making? Where are the sociologists and demographs that focus on the ill effects on austerity policies on the fabric of society? Where are the legal scholars that discuss the hollowing out of the rule of law (anyone remember Greece and Italy and how the European Commission installed puppet-governments?)

The eurocrisis involves so much more than just economy; at the very least we have to talk about political economy – what decisions are in whose interests and why? We can’t let this be discussed by economists alone.