Tag Archives: unemployment

Greece, Grexit and IT issues

This post is a bit tongue-in-cheek but meant to provoke discussion. Recently, especially Naked Capitalism.com has spent attention to the practical, IT issues of a Grexit. See e.g. here and here.

Here’s a thought: with the collapse of Nokia and the withdrawal of Microsoft from some of its remains in Finland and the resulting unemployment among highly skilled IT people in Finland, why not set up a Finnish-German IT task-force to engineer a controlled exit for Greece from the Eurozone ? We could include Estonia as well, so we have two countries with very advanced netbanking society and structure. This could also include reforms of tax collection (I am very happy with the Finnish tax system, as opposed to e.g. the Dutch tax system, from a user perspective that is.)

Furthermore, Estonia has experience with cybersecurity and Finland has F-Secure, which I think is a very solid company regarding virus protection and malware detection.

Just think of it: Greece could regain freedom in a hopefully non-destructive way and Finnish IT professionals get a very complicated multiyear project. Rather than Finland exiting the Eurozone, WE CAN FIXIT!

Bill Mitchell on the dishonest ‘analysis’ of the almost-Troika

On his blog. Here, I’d like to share the conclusion (my bold). The whole text is quite dense and in places technical, but worth a read, especially now when in Finland all the major political parties compete over how large budget cuts they intend to make after the elections.

The reason that unemployment rose so sharply in the Euro countries between 2008 and 2014 has nothing much to do so-called trade imbalances or differential ULCs.

Those imbalances (as they call them) and different ULCs are not new. What happened in 2008 was a major aggregate spending collapse which was then reinforced by the imposition of austerity.

If I graphed the change in fiscal position (as measured by the differential austerity imposed) and the change in the unemployment rate I would get a very strong positive relationship (more austerity, higher the rise in unemployment rates) which would have some meaning.

That should be the starting point for the European Council – but then that would require them to ask questions about their patently dysfunctional fiscal rules.

Dutch and Finnish economies shrink more than expected

In the category “some saw it coming, some didn’t” the news that both the Finnish and Dutch economies shrunk more than expected recently.

The Dutch economy shrunk by 1,4% in the first quarter of 2014 (compared to the previous quarter in 2013, 0,5% compared to the same quarter in 2013) and the Finnish economy 0,8% (compared to the same quarter in 2013, 0,4% compared to previous quarter).

In the Dutch case, the explanation is that due to the mild winter, less natural gas was used and exported (as one fairly large element in the developments). The Dutch Statistics Office states that loss of jobs is still growing, especially in health care. But on the other hand, rising investment and industrial production is noted, which seems to show that the underlying trend would be upwards.

In the Finnish case, both primary and secondary production decreased, by a large 3%. Services production decreased by 1%. Also the number of employed decreased, as did the number of hours worked relative to the first quarter of 2013.

What does this data tell us? First of all, even in the so-called core countries the crisis is far from over. Second, I do think the Netherlands may experience more positive developments because of the news regarding investments. Without investments there can be no growth. For Finland it is more difficult to find recent data on investments, but this source states that in 2013 investment declined (in value) by about 5% and in the current year they are expected to fall by more than 4%. In combination with the ongoing attempts of the Finnish government to shrink its budget (to aim for the Maastricht-criteria) this does not bode well for the Finnish economy. Although this is not based on a calculation, I think even the official estimate of GDP growth for 2014 of 0,5% must be very optimistic.

Closing the competitiveness gap through German inflation or periphery deflation

Mr Gloomy European Economist again has a very good post. As he states, it is a ‘completely unscientific simulation’ but I think it is useful in the same way Paul Krugman’s ‘quick and dirty’ charts help sort out some basic intuitions.

The core thing Mr. Saraceno does is to simulate how long it would take for the so-called periphery countries (in the Eurocrisis) to converge their price levels with that of Germany, which would mean they are at a level field again in terms of price competitiveness. First he calculates these terms with the assumption these countries have zero inflation from now on, and next he calculates what the average rate of deflation would need to be to reach the same price level as Germany by 2020.

Obviously the assumptions are not realistic, and the mechanism through which the German inflation would be achieved is left out for the moment – it would be easier to achieve the higher level of German inflation if Germany would aim to improve domestic demand rather than exports.

But assumptions aside, the conclusion from this ‘sketch’ is clear: price convergence MUST happen and it is not going to happen anytime soon.  One can wonder about the resilience of the eurosystem, like Paul Krugman does:

This need not lead to a breakup of the euro: Pessimists on that front, me very much included, misjudged the strength of European elites’ commitment to the project. But the euro might yet survive — and be a continuing disaster.

But even given this, 6-11 years of continuous deflation (not to mention the risk that Germany itself would slip into deflation) just is VERY long, especially in politics. And the more need for deflation, the more unemployment. Which is simply not politically tenable.

Finland at the moment does not have very low inflation, but it does have a large problem with unemployment – there is a huge gap between those seeking work and the number of vacancies: the number of those seeking work was (curve (1) in the document in the link, in January 2014) still rising and the number of open vacancies ( curve (2))has been fairly stable since 2008. Regardless of these numbers, the current Finnish government (of 6 parties, led by the National Coalition Party and the Social Democratic Party) still intends to do everything to increase the labour supply. It is no surprise that the (only two!) opposition parties in parliament, the ‘agrarian conservative’ Center Party and the True Finn party have been rising in polls (even though these concern the EP elections, not domestic elections; there the picture is slightly different).

But regardless of the polls, the political field in Finland is extremely in consensus about the need to ‘break’ the increasing public debt (not even 60% of GDP) and implement measures to increase the labour supply. The goverment has even asked for a ‘national consensus’ on this issue – the ‘need’ for reforms and budget cuts will one way or another lead to increases in the labour supply, which is not necessarily (sic) a good thing at the moment.

The interesting thing is that seen from the macro-economic imbalances picture (current account surpluses etc) Finland has reduced its surplus, which is ‘good’ in terms of convergence. But politics in Finland are absolutely hyper about this fact and want to restore the surplus. This is perhaps one very clear example that Finnish politicians don’t really understand the nature of the eurocrisis. Which thus also means they won’t find the proper solutions.

“Debunking the Idea that “Structural Reforms” Reduce Unemployment”

http://feedly.com/e/sOJkMcmU

More like these articles please!

Nordea: “Economic rebound escapes again”

This is a translation of this news item on Finnish Yle News. It is almost an exact example of the ‘jobs recovery is always two years in the future’ -thesis.

Nordea revised its forecast for Finnish economic growth downwards – “the recovery of the economy escapes again”

According to the latest forecast by Nordea the Finnish economy shrinks this year by one percent, while a previous forecast projected half a percent. Also Nordea’s economic growth forecast for 2014-2015 is revised downwards.

Nordea has revised its forecast for Finnish economic growth for the near future. According to the latest forecast by Nordea the Finnish economy shrinks this year by one percent, while a previous forecast projected half a percent. The forecast for next year by Nordea is growth of 0,8 percent and 2 percent for 2015.

The previous estimates for next year were 1,5% and for 2015 2,3% growth.

Nordea’s economist Pasi Sorjonen says, that the recovery of the Finnish economy is dependent on a rebound in exports. The domestic demand doesn’t feed economic growth, because the weakening of employment is slowing down domestic demand.

Nordea expects exports to pick up next year.

In its overview, Nordea writes about the employment developments that employment weakens until next Summer. Nordea forecasts a rise in unemployment to 8,4%.

An unemployment rate that increases to just over 8% nonetheless gives a too rosy picture of the situation according to Nordea: in the labour market a part of the unemployed is completely out of the work force – in other words: even though the number of unemployed grows, this doesn’t show in statistics.

In Nordea’s overview the Finnish government’s structural reform package is criticized as well. Nordea’s chief economist Aki Kangasharju says, that the structural reform package is not concrete enough to solve the problems of the Finnish economy.

“Too much depends on how smoothly the next steps in the preparations will be.” says Kangasharju.

I have an issue with the statement that the Finnish economy is so dependent on export picking up. I have shown this picture before, but it is still useful.

Source: OECD

Source: OECD (series from 1999 to 2012)

 

 

 

 

 

 

 

 

 

 

There may be many ways to determine how important a sector is for economic growth (I am not an economist) but in the picture above, I don’t think you can say that domestic demand has not been a driver of economic growth, also not given this picture. It is quite possible, as the Bank of Finland has said, domestic demand is not anymore a major driver of economic growth (probably because of private households trying to repair their balance sheets, i.e. consumption is reduced). So Nordea has a large part of the decling growth covered, but perhaps gets it backwards – why is domestic demand/consumption declining? Shouldn’t the Finnish government do more to stimulate domestic demand rather than hope for a revival in exports?

 

Dutch AAA credit rating gone – no surprise actually

S&P strips Netherlands of top credit rating – http://www.ft.com/cms/bc093146-58bc-11e3-a7cb-00144feabdc0.html

Unfortunately this is not a surprise for me. Given e.g. this or this with regard to other eurozone countries this almost had to happen sooner or later.

And unfortunately I was right here.