North is north

Date: 02-04-2013
Source: The Economist: Charlemagne

The euro zone’s exasperated north must do more than complain about the south’s troubles

LAPLAND is just about as far from Cyprus as one can go in Europe. But on a spring day the sun reflected on an endless expanse of snow can be as bright as a Mediterranean beach. Russian pleasure-seekers and businessmen may flock to both countries. Yet in economic terms they are worlds apart. This week Cyprus became the fifth euro-zone country to negotiate a euro-zone bail-out; AAA-rated Finland, in its laconic way, is perhaps the most hardline of creditor states.

It is striking how the economies of EU countries on the Baltic Sea—from Scandinavia round to Germany, Poland and the ex-Soviet Baltic states—boast the union’s fastest-growing economies while many of those on the Mediterranean, from Greece to Spain, are shrinking fastest. The reasons are complex. For now, north and south are living up to stereotypes: Cyprus as the birthplace of the beautiful but fickle Aphrodite, who emerged from the surf at Paphos; Finland as the home of Vainamoinen, the wifeless old bard who, according to the “Kalevala”, a Finnish epic, surfaced from the primeval sea to plant the barren land.

Northern European Investors Steer Clear of Needy South .

If you have a look at the Spanish chart below,  the whole misery comes into the picture. In Spain, the banking crisis and the sovereign crisis can’t be separated any more (hfk)

Date: 23-10-2012
Source: The Wall Street Journal

HELSINKI—Risto Murto, the chief investment officer of Varma Mutual Pension Insurance Co., is pleased that the European Central Bank now says it is ready to fight the euro crisis by buying government bonds of troubled countries like Spain.

But not so pleased he will join in. And that means Europe’s leaders may have more work to do.

Varma is Finland’s largest investor. It manages €34 billion ($44 billion) and is responsible for the retirement savings of around 870,000 Finns. For years after the euro’s creation in 1999, northern European investors like Varma spread their assets around the continent, helping create economic stability in the poorer south.

Worried about Greece’s debt levels, however, the fund’s executives sold their Greek government-bond holdings in 2008 and 2009, before the euro-zone crisis flared. The next year, they adopted a new policy.

We “communicated to the board that we stop investing in any problem countries,” says Mr. Murto. No Greece, no Portugal, no Ireland, no Italy, no Spain. That summer, the board set a fresh guideline for government-bond investments: only the shortlist of countries rated triple-A—chiefly Germany, the Netherlands and Finland.

Finland prepares for break-up of eurozone

Finland is preparing for the break-up of the eurozone, the country’s foreign minister warned today.

Erkki Tuomioja, Finland’s foreign minister: “We have to face openly the possibility of a euro-break up”.

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By Ambrose Evans-Pritchard, in Helsinki, The Daily Telegrasph. 16 Aug 2012

The Nordic state is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth.

“We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.

Where Are You in the Economic Strata?

 

Author: Barry Ritholtz · August 17th, 2012 · RGE EconoMonitor

Its a summer Friday, which means that not a lot is going on. Indulge me while I go off on a bit of a digression.

Why? I have been thinking about various groups of people and how they benefit (or not) from society. What their participation levels are in government, the economy, and local communities. It is something I think about from time to time from a macro perspective. Perhaps its the Paul Ryan VEEP selection and all the insufferable Ayn Rand chatter that dredged this up.

Regardless, I have come to a few conclusions about this, and perhaps you might find my contextualization and random connections of interest.

When thinking about economic strata in the United States, I find it helps to break it down to six different levels. Broad classifications like Rich, Poor and Middle Class simply don’t cut it any more. From top to bottom, I find it looks something like this:

Top 0.1% — The mega wealthy, billionaires and 100 millionaires. They are small in actual number, but attract disproportionate mind share from public & media. Money simply does not restrict any activity or desire of this group (Sorry, top 1%, but you simply don’t have the goods for this strata).

Fix it or Fixit – Could Finland Be Next?

Author: Nouriel Roubini · July 6th, 2012 · RGE EconoMonitor

Talk of Finland leaving the EZ sooner rather than later has increased, with many in influential positions now reconsidering the costs and benefits of EZ membership and coming to the conclusion that a “Fixit” may be the country’s best option.

Consider the following factors. First, the other Nordic countries are outside the EZ and/or the EU and are doing fine economically and otherwise. Norway and Iceland have never joined the EU: The former has remained a success story as a resource-based economy; the latter suffered a severe financial crisis driven by the popping of a massive real estate bubble, but so did members of the EZ such as Ireland and Spain. Denmark opted out of EZ membership and is semi-pegging its currency—the Danish krona—to the euro. Sweden was supposed to join the EZ, but it never did and isn’t likely to join any time soon. Since none of the other Nordic economies are part of EMU, what are the benefits of Finland remaining a member?

Neither Grexit, Nor Spexit, It’s Fixit or Fexit

Author: Edward Hugh · July 8th, 2012 · RGE EconoMonitor

The aftermath to last weeks EU summit has certainly proved to be a damn sight more perplexing than the actual summit itself. Contrary to earlier experiences, this time round the more the details have been “clarified” the more confused we have become.

Just what exactly was approved? Will Spain’s banks really obtain capital directly from the ESM, and if so, how and when? Is Spain about to get a full bailout? Is Italy? Is there a commitment to bringing down sovereign borrowing costs. And just to top it all off what about Greece, what is the next move, is there any kind of plan?

Little wonder then that Spain’s 10 year bond yields were once more back over 7% on Friday. Markets had taken the view that while agreement on the details of an ESM bond buying formula and full banking union would obviously take time, surely the ECB would be prepared to do something – another LTRO, reopen the Security Markets Programme – in the meantime. But no, Mario (Draghi this time) was not for turning, and sent the ball straight back into the politicians court.

Really I think the markets have gotten a bit ahead of themselves here in expecting instant action, since European decision making works according to its own timeless laws.

Finns, Dutch cast first doubt on euro zone deal

Date: 02-07-2012

Source: Reuters

Finland and the Netherlands, the euro zone’s most hardline creditor states, cast the first doubts on Monday on a European summit deal designed to save Spain and Italy from being engulfed by the currency bloc’s debt crisis.

The Finnish government told parliament that Helsinki and its Dutch allies would block the euro zone’s permanent bailout fund buying bonds in secondary markets, despite an agreement among leaders’ last Friday that the fund could be activated to stabilize markets.

The euro fell, European stocks gave up gains and safe-haven German Bunds reversed losses on news of the Finnish statement, which raised fears that the latest deal which drew a positive initial market reaction could unravel.

Several previous market rallies after euro zone crisis agreements have fizzled within a day or two as investors have fretted about the lack of detail, the risk of delay and national vetoes, or the inadequate size of the rescue funds available.

Is Finland Really a Closet Member of the Eurozone Periphery?

Author: Edward Hugh · December 18th, 2011 ·RGE EconoMonitor

At a time when many eyes look hopefully towards the ECB for the kind of action which may prove to be the salvation of the much beleaguered Eurozone other, more critical, ones are casting themselves back over the recent track record of the institution itself, and asking what, if any, responsibility the Frankfurt-based bankers have for having allowed Euro Area government finances to fall into the sorry state they are now in.

Lessons From Japan?

No idle question, since it harks back to the time when a good deal of attention was focused on the Bank of Japan, and how much responsibility policymakers there had for the deflation trap into which the country’s economy eventually fell. Now according to a very influential paper published by the Board of Governors of the US Federal Reserve System back in 2002 (Preventing Deflation: Lessons from Japan’s Experience in the 1990s, by Alan Ahearne and colleagues) the most important concern raised by Japanese policy during the country’s first “lost decade” was not that policymakers did not predict the oncoming deflationary slump –that in itself was not especially surprising, after all, neither did the majority of analysts and forecasters – but that they did not take out sufficient insurance against downside risks through a continuous precautionary loosening of monetary policy. Simulations carried out at the time using the FRB/Global model lead the authors to the conclusion that, had the BOJ lowered short-term interest rates by a further 200 basis points at any point between 1991 and early-1995, at least the first bout of deflation could have been avoided. (On the other hand the model indicated that loosening after the second quarter of 1995 would have been too late to avoid deflation, as by that time inflation had already fallen below zero.)

Die unbequeme Finanzministerin

orf.on, 2/9

Sie ist ehrgeizig, musikalisch und jung: Jutta Urpilainen übernahm mit 32 Jahren als erste Frau den Vorsitz der schwer gebeutelten Sozialdemokraten und machte sie zur zweitstärksten Kraft in der finnischen Regierung. Mit 35 übernahm sie ihr erstes Ministeramt, sie wurde Finanzministerin. Heute, mit 36, provoziert sie Euro-Großmächte wie Deutschland und Frankreich.

Ihre Forderung zur Griechenland-Hilfe überraschte: Zur Absicherung der 1,4 Milliarden Euro, die Finnland zum 109-Milliarden-Paket beisteuert, handelte Urpilainen Sondergarantien mit Athen aus. Finnland schlug vor, einen Teil des Geldes auf ein Treuhandkonto zu überweisen, bis Griechenland seine Kredite an Finnland zurückzahlt.

Aufstand der „Zwergenstaaten“

Länder wie Österreich und die Niederlande waren von der finnischen Idee sofort angetan und forderten umgehend ebenfalls einen Sonderstatus. Dieses Ansinnen ist mittlerweile wieder vom Tisch, weil Euro-Großmächte wie Deutschland und Frankreich strikt gegen eine Bevorzugung einzelner Länder sind. Doch die Grundidee geistert weiter durch die Finanzministerin der Euro-Länder.

AP/Virginia MayoUrpilainen mit ihren Amtskollegen Venizelos und Juncker (v. l. n. r.)

Finanzministerin Maria Fekter (ÖVP) schlug vor, dass Länder, die nur wenige Investitionen in Griechenland haben (wie auch Österreich), Sicherheiten bekommen. Länder wie Frankreich und Deutschland, die von dem Hilfspaket deutlich stärker profitieren, sollen hingegen keine Garantien erhalten. Mittlerweile drehte Wien den Spieß aber um und fordert nun, dass alle Staaten, die Sicherheiten wollen, dafür auch zahlen sollen.

Europe’s Economic Crisis, Euro Nations’ Political Backlash: The Fin(n)ish Line of the Euro Zone?

Dan Steinbock

May 12, 2011 4:20PM, RGE Monitor

After great uncertainty and volatility, Finland has agreed to support participation in the Portugal rescue. How did Finland, the “EU model student”, turn into a euro-skeptic?

“The National Coalition party and the Social Democratic party have agreed to support participation in the Portugal rescue,” Jyrki Katainen, finance minister and leaders of the Conservatives (KOK), told reporters on Wednesday. With the agreement between Finland’s two biggest political parties to support the EU bailout for Portugal, the way is paved for EU finance ministers to authorize the €78bn ($110bn) bailout in Brussels next week – even if Finnish support is conditional.