Posted by: Dirk | December 30, 2015

Finland’s economy in 2016

The picture for Finland’s economy in 2016 is bleak, according to Bloomberg:

Without the option of currency devaluation, the government has calculated that Finland needs to lower its labor costs as much as 15 percent to catch up with its main trade partners, Sweden and Germany. Finland’s economy has shrunk for the past three years and Nordea, the biggest Nordic bank, predicts further contraction in 2015. Finland will be the weakest EU economy by 2017, when it will grow at less than half the pace of Greece, according to the European Commission.

There is a problem with shrinking wages, which is the subsequent fall in aggregate demand. Quite obviously, if people have less income they will buy less goods and services. This is too bad, because the expenditure of one person is the income of another. Wage cuts did not “work” in Spain and did not “work” in Greece or anywhere else in the euro zone. If they are now applied to Finland then one wonders why countries engage in policy experiments that are very likely to turn out disastrous.

The foreign minister of The Finns Party has apparently said that it was a mistake for Finland to join the euro (see article above). Support for the common currency quickly approaches zero, it seems. The euro-peans are stuck with a currency that nobody likes and quickly has become the scapegoat for all kinds of economic problems, often correctly. In Spain, another government of the austerity kind was rejected by the electorate. It is political suicide for national governments to follow the eurozone rules.

As the saying goes: if something cannot last forever it will stop (Herb Stein).


Responses

  1. And do not forget the impact of sanctions to Russia on the Finnish economy.


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