Erkki Liikanen enjoys a challenge.
At 64, the governor of Finland’s central bank has faced a few in his lifetime. First, as finance minister in the years before the collapse of the Soviet Union, one of Finland’s key export markets, and in his current job, where he has seen the economy go from leader to laggard in a decade.
Finland is in trouble, and in the words of the central bank this week, the situation is “grave” .
While France has often been branded Europe’s “sick man” and Greece’s problems are well known, Finland’s economy is still 5pc smaller than before the financial crisis. The country will barely crawl out of a three-year recession this year, while unemployment is forecast by the OECD to grow in 2015.
Faced with a bloated state, below-par growth, and prices and costs that have risen at a much faster pace than the rest of the eurozone, the medicine is a familiar one.
“The key to resolving the serious problems in the economy lies in structural reforms, fiscal consolidation and improved cost competitiveness,” the Bank of Finland’s latest health check of the economy said last week.
The phrase could have been taken from Greece’s own long austerity prescription, but with an ageing population, state spending approaching 60pc of gross domestic product (GDP) and tax revenues far short of this, something has to change, and quickly.
Perhaps Liikanen’s passion for marathon running will be a help because, like so many others in Finland, he knows he is in it for the long haul. “I ran 4 hours 35 minutes in December,” he states, an impressive time, particularly for a sexagenarian.
Finland, which has become known as one of the eurozone’s lead preachers of fiscal prudence, will embark on a €10bn (£7.2bn) round of belt tightening over five years .
Following April’s elections, Juha Sipila, the prime minister, Timo Soini, the eurosceptic foreign minister and Alexander Stubb, the finance minister, have pledged to create more jobs, to get the economy moving and avoid a “lost decade” from a lack of reforms.
Liikanen is less gloomy. He says many of Finland’s woes stem from “four shocks” that hit at the same time: the decline of Nokia and the country’s paper industry, the retirement of a generation of baby boomers, high labour costs, which have made the economy uncompetitive, and the fallout from the Russian crisis.
Bank of Finland data show that in the five years following the 2008 financial crisis, the manufacturing industry suffered job losses of 42,000, while the electrical engineering sector has seen losses of 53,000 – significant in a country with a population of just five million.
With the eurozone also facing questions about its future, moving on from the Nokia era requires stamina, grit, resilience, and stoicism. Britons aren’t the only ones with a stiff upper lip. In Finland it’s called “sisu”.
“Sisu means that you never give in – you never give up, you go to the very end,” says Liikanen. “You keep moving. I’m a marathon runner, you don’t need a lot of talent, but you need character to finish.”
But would Finland need “sisu” if it didn’t have the euro? Soini has admitted that he is “not committed” to the single currency, while the country’s crisis in the 1990s was helped by a massive devaluation, which cannot be repeated now that Finland belongs to the 19-nation club.
Liikanen, a policymaker for 25 years, is not convinced that returning to the markka would help.
“If we had a little weaker Finnish markka, I don’t believe that Nokia would beat iPhones or that young people would suddenly start to read printed books and newspapers and create demand for the products of Finnish paper mills.
“Our challenges are based on structural facts, an adjustment of our currency would not make up for those challenges.”
For Liikanen, the government must focus on three areas to strengthen the economy. “[We must] consolidate the public finances. Our GDP is smaller but our welfare state has not shrank so much. I think the programme is going in the right direction. Structural reform is needed to increase competition in our product and labour markets. In addition, our pension reform has been negotiated but it hasn’t been legislated.
“If we increase competition we can get our service costs down. Conditions for housing supply also need to be improved. We know that rents have been rising in Finland more than in most other euro area economies in the last ten years – Austria is the other one. And this has happened in a country where there is more land per person than anywhere else in Europe.”
While Liikanen is loyal to the Nokia brand, a fact revealed in the middle of the interview when the sound of the company’s famous ringtone blasts out from his pocket, he’s also hopeful for the future. He is pinning his hopes on the tech start-ups that launched hit games such as Angry Birds and Clash of Clans, and wants Finnish policymakers to help the Supercells and Rovios of this world to flourish.
“We’ve had a tough period, but have we lost our innovative capacity? The answer is no. There are a pretty impressive amount of start-ups now which are combining the old industrial knowledge with modern IT skills. These companies may not employ many people yet but many are profitable and act as important drivers of innovation.”
While demographics are not on Finland’s side, its highly trained workforce is. Nordic countries have continued to lead the way in eliminating gender equality, which has also meant Finland has one of the highest female employment rates in Europe, with most in full-time jobs.
Finland’s employment gender gap in 2012 was the second smallest in the EU after Latvia, according to the European Commission, while it also topped the World Economic Forum’s education, skills and employment league table, which looks at how well countries nurture and develop its people.
Liikanen, a member of the European Central Bank’s governing council, has a few stern words for Greece as it continues to negotiate a fresh rescue package, saying the ball is firmly in the country’s court. “Countries that have supported Greece have taken a risk towards their own taxpayers. Most people want to have a solution, not only words, which are a bridge to nowhere.”
But Liikanen is also optimistic about the future of the eurozone. “We have had a difficult period. I, however, have reasons for pragmatic optimism.
“Since 2012, we were able to complete the banking union, we have … a resolution system. I have been in European policymaking for 25 years, and this is the biggest step since the 1990s. Capital markets union is also very important. If you have a banking union and a capital markets union, and they function, then a big part of risk sharing is taken care of by the financial markets.
However, he says there is much less appetite for full fiscal union.
“There are many historical differences. We have our national traditions, our cultures, out languages, that was created from scratch, we have our histories. In the areas where it makes sense – like banking union, capital markets union.
“We can go deeper [but] I do not think that we will have a big European budget with which we will do all the rebalancing like in America.”
As reported by Business Insider