This is a translation of my Finnish article of yesterday, explicitly meant for an international audience. Finland is still in some way one of the main architects of the austerity policies in Europe, and although the Finnish economy is not doing well, there doesn’t seem to be a change of course in the making, perhaps for much the same reasons as in Germany, but with an added dimension: the continuing decline of the Finnish economy helps the opposition Center Party and True Finn parties, both of which have rather confused ideas on the eurocrisis and a host of other issues. Although I don’t agree with the reasons, the True Finns want to do away with the euro (and a lot more of EU parts), which does not seem such a bad idea – apart from the fact that it would likely bring these two aformentioned right and center right parties to power. I haven’t dared to write this down on my blog before but in terms of politics the current government’s strategy re: the eurocrisis is very likely to bring about a backlash in the next elections, in which at least the Social Democrats (as represented by Jutta Urpilainen, Finance Minister) will take a very big hit, because the Euro isn’t saved by these policies and neither is the Finnish tax-payer spared (even though there is ‘collateral’).
To provide a bit of context: the three economists mentioned are, Seija Ilmakunnas, Olli Koski and Simo Pinomaa. Seija Ilmakunnas is with the Labour Institute for Economic Research. The institute missing here is ETLA (the Research Institute of the Finnish Economy). The latter two economists are from the Confederation of Finnish Trade Unions and the Confederation of Finnish Industries respectively. This means, although they are economists, they do at the same time represent labour market actors/lobbying organizations. The two organizations are (still) the key actors in Finnish industrial relations, but on many issues they have increasingly different views.
The context for the original article in the Finnish daily Helsingin Sanomat was that The Bank of Finland quite sharply revised its forecast downwards for 20132-2015. I would say, not a big surprise, but it rekindled the public debate about the Eurocrisis and the recession in Finland.
So, here is the translated article:
‘Four guides to end the recession’
In today’s Helsingin Sanomat there was an article named ‘Four guides to the recession.’ Four economists ponder what to do. The best guides is in my opinion that of Seija Ilmakunnas. Less great or bad guides (in that order) are by Olli Koski and Simo Pinomaa. I think the guides by these representatives of SAK and EK are less usefull because they are too political (i.e. also with a view to the collective bargaining rounds in Autumn). But at least Olli Koski does have some constructive ideas.
1. The first guide has been removed by request.
2. Seija Ilmakunnas
She has good ideas how to use stimulus funds. She also looks at the long term – what could be Finland’s important sectors. As she says, those cannot be determined ‘by decree’ but they have to develop organically through thorough fundamental research. Ilmakunnas takes the Finnish Cleantech-industry as a good example of this.
According to her, further economic integration is the natural course regarding the European Union, but I don’t see this as a realistic possibility in the (near) future. As long as the ideology of austerity reigns at the Commission and in Germany (and Finland and the Netherlands), no sensible economic policy regarding the longer term can be expected.
3. Olli Koski
Labour market politics is a stronger presence with this SAK-representative and the next EK-representative. The article begins with criticism against EK, which reduces his space for real arguments regarding the recession. He prefers a centralized incomes agreement (naturally). This is fine, of course, but it does not fundamentally relate to the eurocrisis, nor do I think it is realistic, because also SAK’s labour unions might have different wishes (exposed vs sheltered sectors).
Koski, emphasises the importance of domestic demand, and is of course completely right that fiscal policy should not be tightened anymore. He also has sensible ideas where to use stimulus, but the use of stimulus funds for infrastructure and rent-apartments could probably also be used sensibly by hiring more teachers, kindergarten personnel and nurses (or preferably making their positions more secure).
4. Simo Pinomaa
The representative of EK is in the last position here, because nearly all his comments show that he has not yet realized the Reinhart-Rogoff and Alesina-Ardagna have been thoroughly debunked. His central themes are ‘austerity’, ‘zero or negative wage-growth’, ‘budget deficit’. On the positive side he does acknowledge it would be a bad idea to tighten fiscal policy even more. But nonetheless he worries about debt in particular.
He also worries about Finnish competitiveness and argues for wage restraint, budget cuts etc. As a representative of EK I would most certainly demand the same, but it is politics rather than sensible economic policy.
I cannot indicate what the relative weight of these opinions is on Finnish politics/Finnish government. This is especially difficult since Finland has again a kind of rainbow coalition in which liberals, social democrats, greens, socialists and christian parties are all together. But the prime minister is from a pro-business party and the finance minister, although a Social Democrat, represents a rather tough line in economic thinking. I guess we have to see how it will play out.