Episode 116 · 2022-01-09 · 28:58 · Original in Finnish
The Finnish Economy in Trouble Again | Stefan Törnqvist | Negotiator 116
Originally published as “Suomen talous taas ongelmissa | Stefan Törnqvist | Neuvottelija 116”
Stefan Törnqvist returns to the channel and holds to the most provocative claim of his previous appearance: everyone benefits from the euro except the Finnish national economy. The sharpest observation is about timing — because pay movements in Finland run one way and there is no downward flexibility in a downturn, large increases could never really be granted in a boom either, and he sees the same signs now as in 2007 and 2008. On monetary policy he holds that the Fed is tightening and the European Central Bank cannot, because a market rate cannot be imposed on Italian debt without a banking crisis that Basel regulation has built into the balance sheets.
Core theses
- Wages that cannot fall cannot safely rise much either, which turns a distributional argument into a timing one.
- The 2007–2008 comparison is specific: a boom in which large settlements are granted is the condition that makes the following downturn unmanageable.
- The ECB's constraint is not inflation but Italian debt, and Basel put that debt on bank balance sheets by design.
- The claim that everyone gains from the euro except Finland is stated as a conclusion about one economy's structure, not as a general case against monetary union.
Watch and listen
Summary
Stefan Törnqvist returns to the channel and holds to the most provocative claim of his previous appearance: everyone benefits from the euro except the Finnish national economy. The sharpest observation is about timing — because pay movements in Finland run one way and there is no downward flexibility in a downturn, large increases could never really be granted in a boom either, and he sees the same signs now as in 2007 and 2008. On monetary policy he holds that the Fed is tightening and the European Central Bank cannot, because a market rate cannot be imposed on Italian debt without a banking crisis that Basel regulation has built into the balance sheets.
Ratchets work in both directions
The argument is neater than it first sounds. If pay cannot fall in a downturn, then a large increase granted in a boom is permanent, and the adjustment has to come out of employment instead. That makes restraint during good years a condition of survival in bad ones rather than a preference.
Why 2007
Törnqvist is not saying the economy resembles 2007 in general. He is pointing at one mechanism — generous settlements at the top of a cycle — and noting that it is present again. Narrow claims of that kind are the checkable ones.
Italy, not inflation
His reading of the ECB’s position is that the binding constraint is sovereign debt held by banks under rules that treat it as safe. Whether or not one accepts the conclusion, it locates the constraint somewhere specific, which most commentary on central bank hesitancy does not.
Watch
The recording lives on the Neuvottelija channel: Suomen talous taas ongelmissa | Stefan Törnqvist | Neuvottelija 116. A Finnish edition of this episode is published at www.neuvottelija.fi.
In depth
The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
Go deeper
People and topics
Guests: Stefan Törnqvist