You columnist was asked by the editor-in-chief* to write a column that synchronized with the coming of Spring, with light and sunshine after the bone-chilling ice of winter’s dying days. But that did not suit your columnist who sees Spring as a time of renewal; and for that to happen we must gather together and face yesterday’s crimes in a Truth Commission. Without this process it is impossible to move forward because people will continue to mutter ugly things under their breath, and sweep them under the carpet to poison our future.
So here is the Truth Commission and its verdicts after hearing the government’s claims:
Growth: The Government claims that it is responsible for the recent increase in economic growth. Most experts say that our growth has been the result of strong macroeconomic activity in Europe and in America, which have allowed exports to flourish, while domestic construction has been debt-fuelled, by demand for housing, as well as commercial and industrial facilities.
Truth Commission’s judgment: Government’s claim struck down because global and domestic markets increased demand for Finns.
Cheap money: The Government claims that Central Bank action has led to sustained growth.
It is true that the Bank of Finland together with the European Central Bank (ECB) have purchased huge amounts of government and corporate bonds to keep interest rates artificially low, which in turn stimulates investments with cheap money. But this is like pissing in your pants in winter to keep warm. Interest rates will rise, once stimulus is scaled back.
Long-term interest rates in the US are already at 3 %, which is far above European levels. A 2 % rise in bond yields will easily cause a 10 % fall in bond prices. The ECB has purchased almost 2 500 000 000 000 (2.5 trillion, svenska: biljon) euros, equalling some 7 000 euros per each Eurozone citizen. Consider a10 % loss of 250 billion euros – a sum which equals almost twice EU’s annual budget!
Finland will be asked to cover this loss of by 500 million euros. When borrowing money cost almost nothing at rock-bottom interest rates, the prices of assets like houses and shares go up, only to fall again when interest rates rise. Booms and busts cost money – a steady hand on the ship’s wheel is preferable.
Truth Commission’s judgment: Government’s claim struck down because QE appears to be rather reckless over the longer term.
Unemployment: The Government claims that unemployment has fallen because of their actions.
The current Finnish employment-to-population ratio is around 71%. This is the ratio of the number of people working, aged between 16 and 64 years, divided by the total work force. The government has been aiming for 72 %. Meanwhile, the Swedish rate is higher at 85 %. Aiming low to begin with is an easy way to claim that progress has been made. Most economists see only modest improvements in employment and the numbers of long-term unemployed have not fallen much.
Truth Commission’s judgment: Government’s claim struck down because very little progress made with labor market deregulation.
Government debt: Government claims that public debt will stop growing.
The Ministry of Finance has admitted that Finland’s public debt is still increasing and will continue to do so after recent slowdown. The same source says that the government’s budget deficit will continue to be around 2.5 % of GDP.
Truth Commission’s judgment: Government’s claim struck down because no indication of the growth in public debt slowing down.
Healthcare reform: Government claims that the proposed healthcare reform, sote, will save money.
Originally there was a plan to “save 3 billion euros” with the healthcare reform over 10 years. However, there will probably be extra “unexpected costs” from IT development, as always. Even though the private sector claims to be more productive, its doctors and nurses earn more than in the public sector.
Truth Commission’s judgment: Government’s claim struck down because actual savings look improbable and hinge on widespread boosts in productivity.
Greece, Poland and Hungary: Government claims that Finland is involved in key decisions in the eurozone bailout.
Greece displays no intention of repaying its debt – that is a given fact, and we will not see the return of our 5 billion euros. That includes lost interest rates. This cannot be called “Katainen’s great deal” – he was the Finnish PM when the government made this investment decision, now he has a nice job at the EU where we are also pay out large amounts in regional funds to Poland and Hungary… thank you misters Junker, Tusk and Katainen.
Truth Commission’s judgment: Government’s claim correct but only when we are asked to contribute hard cash!
*This column was originally published in Swedish in the May 2018 edition of the magazine “Forum för ekonomi och teknik“.