Katainen expects financial crisis to hit Finnish economy through corporations

Finance Minister advises caution in economic matters

print this

The financial crisis which made landfall in Europe during the weekend, is also affecting the Finnish national economy. Minister of Finance Jyrki Katainen (Nat. Coalition Party) says that the difficulties will primarily be reflected in the real economy.
      “When economic growth in the world economy and in Europe is significantly reduced, it will cut back on demand for products of Finnish industrial companies on the international market, and the Finnish economy will probably recede”, Katainen predicted.
      In his view, slower economic growth will not necessarily have a major impact on the lives of ordinary people, because consumer purchasing power is expected to improve next year. The main reasons why Katainen expects buying power to rise are large pay increases, cuts in income tax, and improved benefits.
     
The Finance Minister nevertheless advises citizens to be cautious in their financial dealings.
      “Everyone needs to evaluate their own economic risks. Caution is needed, but there is no reason for panic or pessimism.”
     
Lack of confidence within the finance market has cut off the flows of credit that are vital for banks, and the risk margin charged by banks on loans has increased. The Euribor interest rates, which were quite high before, rose again on Tuesday. This imposes expenses on those saving up for a new home, whose loans are tied to market interest rates.
      “We have at least two types of views on the interest rate level. When there is little money on the move, interest can rise. Another view is that as the economy dwindles, the European Central Bank could reduce its interest rate.”
     
The rejection of the US bailout plan by the US House of Representatives has increased uncertainty on financial markets.
      In Finland, the Ministry of Finance plans to re-evaluate its economic forecast in December.
      “Nobody can be fully certain of how far or how deep we will be going in this crisis.”
      On Tuesday the government’s ministerial committee on economic policy got a report from experts on the chaos in the United States. Katainen insists that this was not a crisis meeting, but rather an example of closer scrutiny of the financial markets by the government.
      “A clear view is that the United States needs to do something to get legislation that allows for a bailout. Now the risk is that a very turbulent situation will emerge in the world because of a lack of confidence.”
      Finland still has dark memories of the deep recession of the 1990s. Reckless lending by Finnish banks and a plummeting economy led to disastrous mass unemployment.
     
The ongoing crisis is also the result of excessive granting of credit, and cyclical prospects have also become rapidly worse. However, the protective mechanisms are now stronger than during the recession: the value of the common currency, the euro, does not fluctuate like Finland’s national currency did in the storms of the crisis.
      The Financial Supervision Authority says that banks in Finland are on solid ground, suggesting that some lessons were learned in the recession.
      “It may be that unemployment will rise in Finland. However, I do not believe in mass unemployment, because we already have a shortage of skilled labour. After 2010 the shortage will be even greater because of the ageing of the population.”
     
The crisis will be discussed early next week at a meeting of the ministers of finance of the euro zone, and at the Ecofin Council comprising the finance ministers of all member states.
     Katainen does not believe that any new solutions could be come up with at the EU level. Banks are bound by the national legislation of the member states.
     “The rescue of Fortis is a good example of how common rules of the game operate in dealing with a cross-border banking crisis.”
     “If a bank operating in several countries ends up in trouble, the bank monitors of each country need to be informed in advance. The primary option is to seek a buyer for the bank in crisis.”
     Katainen emphasises that there is no bank monitor or regulator in Europe that could handle the present crisis alone.
     “Also, nobody can order us to put up euros to save some bank. In the final instance, Parliament decides on the matter over here”, he notes.


Previously in HS International Edition:
  Major Finnish investors seek to calm worries about financial crisis (30.9.2008)
  Limited impact of Lehman Brothers bankruptcy on Finnish investors and bank customers (16.9.2008)

Helsingin Sanomat