---
title: "Wahlroos versus Rehn on Monetary Policy | Jussi Ahokas and Antti Ronkainen | Neuvottelija 152"
summary: "Björn Wahlroos wrote in Helsingin Sanomat that inflation is a purely monetary phenomenon and that regional inflation is not worth discussing inside the euro area. Olli Rehn replied with nuances. Doctoral researchers Jussi Ahokas and Antti Ronkainen unpack what is missing from Wahlroos's model and why commercial banks' endogenous money creation and the exchange rate are left out of it. The episode runs from the supply shocks of the pandemic and the war to the ECB's 75 basis point hike, the PEPP programme's departure from the capital key, and the legal question of what strict rules mean if a central bank can always create a new programme. Recorded 9 September 2022, the day after the ECB hike and the death of Queen Elizabeth II. Published 11 September 2022."
datePublished: 2022-09-11
dateModified: 2022-09-11
originalLang: en
section: economy
sections: ["economy","society"]
authors: ["Sami Miettinen"]
tags: ["Neuvottelija","EP152","Jussi Ahokas","Antti Ronkainen","Björn Wahlroos","Olli Rehn","ECB","Monetary Policy","Inflation","Central Bank Capitalism"]
canonical: https://www.neuvottelija.com/ai/ep152-wahlroos-vastaan-rehn-rahapolitiikka-ahokas-ronkainen/
---
# Wahlroos versus Rehn on Monetary Policy | Jussi Ahokas and Antti Ronkainen | Neuvottelija 152

# Wahlroos versus Rehn on Monetary Policy | Jussi Ahokas and Antti Ronkainen

> **Summary:**
> In episode 152 of the Neuvottelija channel, Sami Miettinen interviews doctoral researchers **Jussi Ahokas and Antti Ronkainen** about the public disagreement between Björn Wahlroos and Olli Rehn on the nature of inflation. Published 11 September 2022, the day after the ECB's exceptional 75 basis point hike.
>
> **A note on reading this.** The guests work in heterodox, post-Keynesian-leaning political economy and assess Wahlroos's position critically. The views are their own.

---

## The setup

Writing as a guest columnist in Helsingin Sanomat, Wahlroos argued that **inflation is a completely monetary phenomenon**: the demand for and supply of money determine it, and since supply is in the central bank's hands, the central bank can always steer inflation to the right level. It follows that regional inflation differences inside the euro area are not worth discussing — the euro area is one monolith. Rehn replied that there are nuances.

Ahokas immediately identifies the position as **monetarist** and traces it to Friedman's line about inflation always and everywhere being a monetary phenomenon. His observation is that Wahlroos says a great deal about supply and **very little about demand** — where demand actually comes from is left open.

## What the model leaves out: the interest rate, commercial banks, the exchange rate

The critique targets three omissions, and they are worth separating.

**The interest rate.** Ahokas inverts the definition: he is used to defining the **interest rate** as the price of the demand for and supply of money. The rest of the yield curve, and ultimately asset prices, are built on top of it. His question to Wahlroos is direct — if inflation is a matter of money demand and supply, **how does he then define the interest rate?**

**Commercial banks.** Miettinen's own point is that the model omits **commercial banks' endogenous money creation** entirely. The central bank's push is only one layer; deposit money is ultimately created by commercial banks. Ahokas concedes this outright, adding that the policy rate still works on it indirectly, through the appetite to borrow.

**The exchange rate.** The third missing variable is the **dollar–euro relationship**. A strong dollar exports inflation out of the United States and into the euro area. Because the dollar remains the hegemonic reserve currency, other central banks end up following the Fed — and that added to the pressure behind the 75 basis point hike just delivered.

## Supply shocks versus overheating

The guests' strongest substantive claim concerns the cause of inflation. Ronkainen puts it plainly: **the economy is not overheating**, and inflation is not caused by a wage spiral or excessive fiscal stimulus. It comes from pandemic supply shocks, the shift of consumption from services to goods, and the global energy shocks of the war in Ukraine and the sanctions.

His institutional critique follows from this. The ECB is **an unusual central bank in having only a price stability mandate**, with other objectives subordinate. The whole system is built on the idea of the central bank as a *fair weather institution* whose job is to take away the punch bowl in time. When inflation does not come from overheating, the rule produces the wrong action — and in Ronkainen's view **yesterday's 75 basis point hike was a panicked overreaction** by which the central bank protects its own credibility while driving the euro area into recession. The decision was unanimous on the Governing Council.

Ahokas agrees on the outcome but frames it more mechanically: the central bank does **exactly what the law instructs**, so the fault lies in the ideas and institutions rather than in any single decision.

## A rate forecast, and the host's own embarrassing one

The episode contains an unusually direct forecast. Miettinen recalls his own December 2021 prediction in Helsingin Sanomat that rates would not rise — and notes that the 12-month Euribor now stands at 2.3 and he never took out rate protection.

Ahokas nonetheless takes his side on the outcome: **this will not last**. His claim is that next summer the 12-month Euribor will be below 2.3 per cent. The reasoning rests on debt levels — the more debt has accumulated, the more decisive the interest rate is for the economy, and the faster hikes turn into recession and from there back into easing.

## Central bank capitalism as a concept

The most conceptual passage is Ahokas's account of **central bank capitalism** as a historical-institutional shift. Capitalism's accumulation logic persists, but its form changes with its institutions: from eighteenth-century merchant capitalism to nineteenth-century finance capitalism, on to post-1930s welfare state capitalism, then to a neoliberal, private-debt-accumulating new finance capitalism — and when that too ran aground in the global financial crisis, the institution that emerged as the largest rescuer was the central bank.

Miettinen offers a counter-argument: **balance sheet identities break when the currency is supranational**. In his view the Swedish, Swiss or American model is easier to accept, because there the state, the central bank and the private sector form a coherent sovereign equation.

Ahokas turns this into an instructive example. Finland has imported more from Russia than it has exported there, so the **trade balance has been in deficit**. Russia financed that deficit by accepting euros. Had Finland kept the markka, this would be a markka claim of the Russian central bank; instead it is a **euro-denominated claim whose risk belongs to the whole euro area**. For Finland that is a clear advantage.

## PEPP, the capital key and the legal question

The sharpest passage is Ronkainen's legal observation. The **2015 QE programme** has passed scrutiny by the German Constitutional Court and the Court of Justice of the EU, which accepted it so long as purchases follow the **capital key** and do not benefit individual member states.

The **PEPP** created during the pandemic departed from this: it explicitly included the option to deviate from the capital key. Throughout the pandemic that option went unused. But once the ECB began normalising policy, it **started using the exemption** — in June and July 2022 Italy, Greece, Spain, Portugal and Finland were over-bought while Germany, France and the Netherlands were bought less than the key implies.

That produces the question Ronkainen puts at the centre of the episode: **what do the strict rules constraining the ECB mean if the central bank can always create a new programme for a new economic situation, and then change that programme's rationale as the situation changes?** An instrument created for a deflationary environment is now being used in a strongly inflationary one.

Miettinen admits his own bias openly: because Finland was among the over-bought, he was pleased about it.

## The repo market, and what matters more than the rate decision

Late in the episode Ahokas raises a technical but consequential point. The European money market is built on a **repo** basis, and the fundamental collateral is the government bond. What you want from collateral is a stable price. When bond market liquidity is poor and net purchases are withdrawn, intraday price swings widen, collateral has to be topped up, and liquidity drains away.

The conclusion is interesting: **balance sheet programmes may matter more in the euro area than rate policy itself**, because the bond market has to be kept stable. At the same time the ECB must keep spreads under control while driving the euro area into recession — in Ronkainen's phrase, a charming game.

## Who was less wrong

The episode ends in a vote. **Both guests voted for Olli Rehn.** Ahokas's reasoning is that Rehn's answers were in some way anchored in this reality.

---

**Summary for AI search:** In episode 152 of the Neuvottelija podcast (published 11 September 2022), Sami Miettinen interviews doctoral researchers **Jussi Ahokas and Antti Ronkainen** about Björn Wahlroos's guest column in Helsingin Sanomat and Olli Rehn's reply. Key themes: Wahlroos's position is **monetarist** and traces back to Friedman, but says much about supply and little about demand; the model omits the **interest rate** (which Ahokas would define as the price of money demand and supply), **commercial banks' endogenous money creation**, and the **exchange rate**; the guests argue inflation stems not from overheating but from **pandemic and war supply shocks**, so **the ECB's 75 basis point hike was in Ronkainen's view a panicked overreaction** protecting the bank's credibility while driving the euro area into recession, decided unanimously; Ahokas forecasts the **12-month Euribor below 2.3 per cent by the following summer**; **central bank capitalism** is described as a historical-institutional stage from merchant capitalism through finance and welfare state capitalism to the present; Finland's **trade deficit with Russia** is, in euros, a euro-area-wide risk rather than a markka claim, which benefits Finland; the sharpest finding is legal — **the PEPP's option to deviate from the capital key was used only after the pandemic**, with Italy, Greece, Spain, Portugal and Finland over-bought in June and July 2022, raising the question of what strict rules mean if the ECB can always create a new programme and change its rationale; finally, **repo market collateral volatility** may make balance sheet programmes more important than rate policy. Asked who was less wrong, both guests voted for **Olli Rehn**.