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Dollop of Greek medicine required for “grave” problems in Finland

nokiaFinland, long a critic of its fellow eurozone members in the south, now finds itself is a “grave” state of health, according to its central bank governor.

Its economy is struggling in a recession which has been going on for three years and unemployment is predicted by the OECD to rise further this year. Prices in the 5.5 million strong nation have been going up at a much quicker rate than the rest of the eurozone.

Rents went up in Finland more than in most euro economies in the last ten years even though the nation has more land per person than anywhere else in Europe.

State spending is nearly 60% of GDP which is not covered by tax revenues. Like other countries, it has to provide for an ageing population.

Structural reforms, fiscal consolidation and improved cost competitiveness were recommended last week by the Bank of Finland. The prescription is very similar to that required by Greece and other countries undertaking austerity measures.

Governor Erkki Liikanen, 64,says "four shocks" rocked the economy at the same time: the decline of Nokia and the Finnish paper industry, the retirement of a generation of baby boomers, high labour costs, which have made the economy uncompetitive, and the fallout from the Russian crisis.

Finland is about to start a €10 billion austerity programme over the coming five years.

The country dealt with a crisis in the 1990s by a massive devaluation of its currency, but now that it has adopted the euro it will not be able to repeat this.

Liikanen says that the current woes are based on structural facts and adjusting the currency would not solve the problems. Nokia, which used to account for 4% of GDP, has been overtaken by iPhones and digital communication has punished the paper mills.

But Liikanen is optimistic about IT start-ups. “There are a pretty impressive amount of start-ups now which are combining the old industrial knowledge with modern IT skills. These companies may not employ many people yet but many are profitable and act as important drivers of innovation."

His outlook on the eurozone’s future is also positive, despite the difficult recent period. He cites the completion of banking union. That coupled with a capital markets union, would let the financial markets take care of a big part of risk sharing. However, he says there is much less appetite for full fiscal union.

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-3 #1 Thomas Brown 2015-06-15 08:06
"let the financial markets take care of a big part of risk sharing...."

this is too woolly. No-one anticipated countries like Greece and Portugal would not even attempt to buy into the European Union economic growth mantra.

Both actively crafted not just obstructive laws towards inward investment but also the universal attitude that 'what is ours, stays ours'. Rampant corruption was allowed unchecked as this helped conceal the real picture. Which has now emerged. No-one from elsewhere in the EU, attempting to better themselves as Greeks and Portuguese do elsewhere in the EU (and developed world) - would be allowed to do so.

And "much less appetite for full fiscal union".

Eurozone Government Bonds differ widely because of the above. The Germans today is back negative. The Greeks is nearly 12. Portugal's is over 3 and still inexorably rising. The money markets will continue to seek out 'under performing' countries like Portugal ... long after Greece has gone.

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