Finland has only lived through the interest rate crisis for a few weeks, but it is time to consider how to move forward. How will the restrictions be lifted in time and the Finnish economy will get back on its feet?
The government has set up a group of experts to consider the matter. Vesa Vihriälä, Professor of Working Life at the University of Helsinki, who is piloting the group, does not start speculating on what the group intends to propose.
That has been agreed, and nothing is even on paper yet. The group has time until the end of the month.
It is clear that the interest rate crisis will increase government indebtedness by billions.
- It's definitely a two-digit number, but what the first number is, I can't say, Vihriälä says.
Working Life Professor Vesa Vihriälä, University of Helsinki.
Photo: Heikki Saukkomaa / Journal
There will therefore be an increase in debt of at least EUR 10 billion, if not several tens. According to Vihriälä, the increase in debt, on the other hand, means that adjustment measures will be known later.
At the same time, efforts should be made to ensure that the economy grows strongly so that debt service costs can be managed as far as possible with rising tax revenues.
So what kind of adjustment measures are planned?
- At some point, we need to start looking at tax increases and spending cuts.
The group does not intend to present ready-made cutting lists to the government. At this stage, Vihriälä also does not comment on the scale or timing of the necessary adjustments.
- But when the debt becomes much more, somehow it has to be managed. If revenue does not increase through the expansion of the tax base, it is necessary to either reduce spending or increase the tax rate.
Vihriälä does not consider government indebtedness caused by the coronavirus to be problematic in the short term.
Interest rates are low, and according to Vihriälä, the European Central Bank will “most likely” keep them low for several years to come. Finland also gets a low-cost loan because creditors trust Finland's ability to pay off its debts.
If inflation accelerates further, the real value of debt will shrink. Vihriälä believes that it lightens the burden but does not remove it.
Professor of Finance Vesa Puttonen, Aalto University
Photo: Irene Stachon / Lehtikuva
Vesa Puttonen, Professor of Finance at Aalto University, is in line with Vihriälä.
Puttonen assures that he if someone basically takes government indebtedness seriously.
- If the state becomes heavily indebted, there is always an increased risk that it will lose the opportunity to decide independently on its own economic policy, Puttonen explains.
- But when Finland is the first class and the situation is what it is, Finland can afford to take on more debt, a lot. Tens of billions. It will not cause any problems in the short term.
The effects of the crisis are coming in waves.
The first blow was taken by service companies when customers stopped coming. The next blow could hit export sectors as the economies of Finland's exporting countries weaken.
How much damage the coronary pandemic will eventually cause to Finland will largely depend on how long the restrictive measures have to be continued. The longer restaurants stay closed, the harder it is for them to reopen.
If companies stay afloat through the crisis, those laid off will have jobs to return to. It is therefore vital to ensure that companies receive funding and, where necessary, direct subsidies.
In Vihriälä's opinion, decisions have been made in Finland quite quickly. The exemptions agreed by the social partners for the redundancies will also significantly reduce the burden on companies. However, further efforts are needed.
Chief Economist Mikael Kirkko-Jaakkola, Central Association of Taxpayers.
Photo: Susa Junnola
The subsidy money should not be distributed evenly in every direction, but only to those who really need it, Mikael Kirkko-Jaakkola, chief economist of the Finnish Taxpayers' Union, points out. Wider resuscitation may be considered later.
An encouraging message is also given by a study on the Spanish disease that raged more than a hundred years ago. It said the fastest recovery was in the economies of U.S. cities that quickly took action and introduced social distance.
Chief Economist Henna Mikkonen, Savings Bank.
Photo: Aku Häyrynen / Lehtikuva
When the restrictions are then lifted, they will be done gradually, Henna Mikkonen, the chief economist of the Savings Bank, believes.
Customers are also more likely to venture into small cupboards first and only then to movie theaters or events where there are more people gathered.
Mikkonen is looking at China. The origins of the epidemic are already beginning to return to normal life.
- People have been made to work quite well and factories to run, but consumers' attitudes and courage are consuming a bigger question mark, Mikkonen says.
Consumption has recovered faster, for example in e-commerce and other sectors that do not require physical proximity. People are more afraid to visit the restaurant.
Director Elina Pylkkänen, Wage Earners' Research Institute.
Photo: Heikki Saukkomaa / Journal
Elina Pylkkänen, director of the Wage Earners' Research Institute, has a proposal that could accelerate the recovery in demand already now.
According to Pylkkänen, corona and antibody tests should be significantly increased to find out who already has immunity to the virus. They should be allowed to act and consume freely.
- It would set this in motion, Pylkkänen says.