True Finns and European Economy

[undead reindeer cavalry]

as some of you may remember from past, i am big supporter of the idea of a much stronger EU, though one built on transparity and liberties.

some of you may also be aware of the results of recent Finnish parliamentary elections, in which True Finns party won a stunning victory. i myself didn't vote them and i still remain a bit skeptical about the party and its policies. however, they are becoming more attractive almost each time i hear them speak.

while foreign media has often mislabelled True Finns as fascists or nazis, that's not really the case. i won't get to why i think so, but instead would like to provide a link to an article written by the chairman of the party for the Wall Street Journal: Why I Won't Support More Bailouts . i think the article expresses in quite a clear way how the True Finns party rejects the traditional pragmatical "realpolitik" policies practiced by Finland (e.g. in this subject, "we know it's fooked, but the best way to influence it is by supporting it so that we get to have some say over it").

i know some of you guys posting here on general like to talk about economics, so i would be interested to hear your opinion about the ideas expressed in the linked article.

[Magpie_Oz]

Well to my mind you cannot have a Union and then "amputate that which cannot be saved". I think the idea of bailing out the states that are in trouble is a means of sharing the debt, rather than the alternative of bankrupting a country.

Sure the states concerned should not have let themselves get into this position in the first place but it is too late now to say we should have had tighter fiscal control years ago.

It is normal in a time of monetary uncertainty to cultivate a notion of "We are OK so why should we bother with them" otherwise known as a resurgence in Nationalism.

But such activities provide fertile ground for trouble.

The inequity of economic development in the late 19th century which spawned the situation prior to WW1 and the Great Depression that preceded WW2

[costard]

URC, I haven't seen any references to the True Finns as fascists or neo-nazis - obviously I read the wrong press. That said, I can understand why they would be labelled as such: it's convenient (for the powers trying to maintain the status quo), it's the sort of hysteria raising emotive bunkum that passes for mainstream journalism these days.

Bailing out the nations that allowed themselves to get into the position they now find themselves in is tantamount to rewarding them for for behaving like financial cretins. It's throwing good money after bad and there is no way the potential recipients can be said to be arguing in good faith when they still cannot bring themselves to practice honest accounting or fiscal discipline (reference the big misses on the Portugese and Greek deficits this financial year). Bailing them out helps no-one in these circumstances.

I don't think the devolution of the EU is on the cards, even with a vetoed bailout. You might see the Finns and Norwegians secede if the EU decides that the natural resources enjoyed by these nations are in some fashion the property of the EU (maybe take a look at the way Australia manages its resource base, particularly with respect to the taxation of profits from the mining companies (paid to the Federal Government) and the royalties (paid to the State government on whose land the resource is found). *Australia is a federation): then again, if the structuring of the EU taxation system provided real, acceptable benefits in return for this approach this might well be the way to go.

The market (if it is let alone to work itself out) will force the PIIGS governments to adopt realistic policies and non-corrupt practices: these are the only things that will let the populations of these nations enjoy anything like the current standard of living enjoyed by their northern neighbours. The oversight of the global financial system will take care of itself in the not-too-distant future: banks and exchanges will be prohibited by law from running the scams they have been for the last little while (in the meantime, I hope you're well stocked with lube.) The problem isn't small, but the belief that throwing money at it will provide a solution is beyond credibility. Money is a symbol - of value, of trust, of a belief in a future better than the present. The power of money lies in the systems that can be built around it and the behaviours those systems drive: thrift, honesty and working for a better future. Giving it to people shown to be liars and nincompoops is not a sensible thing to do: letting it benefit those who do work, don't tell fibs as a matter of policy and respect the symbol in so far as they won't willingly waste its physical manifestation is a much better course of action.

[Erik Springelkamp]

The question is not, bailing out nations, but bailing out banks.

For a nation it can be profitable to do a debt reconstruction with partial write-off of the debt, see a lot of South American nations.

But in the EU, all the major banks of the 'rich' countries have bought loads of debt of the 'poor' countries - because of the high interest.

If that debt would be a - partial - write-off, it would be those banks who got into serious trouble.

So once again, banks are taking the profit, but expect the tax-payers to pay the losses.

And governments support that once again.

[LemoN]

I just wish that countries and economies would pay more attention to the Hayek market theory...

[Erik Springelkamp]

I just wish that countries and economies would pay more attention to the Hayek market theory...

With a few very large players there is no free market.

And a real free market tends to create that situation of a few very large players, who will then own and distort the market.

Free market theory is fundamentally flawed, and can only function with a lot of patches^b^b^b regulations.

[LemoN]

With a few very large players there is no free market.

And a real free market tends to create that situation of a few very large players, who will then own and distort the market.

Free market theory is fundamentally flawed, and can only function with a lot of patches^b^b^b regulations.

I was more referring to the "try to avoid bubbles, don't reinforce them, and don't try to keep asset prices artificially high and aim for a healthy growth" part of Hayeks theory, which is unfortunately absolutely neglected.

[Erik Springelkamp]

I was more referring to the "try to avoid bubbles, don't reinforce them, and don't try to keep asset prices artificially high and aim for a healthy growth" part of Hayeks theory, which is unfortunately absolutely neglected.

But all those things are necessary consequences of a free market.

The faulty presumption of economic theory is that people react rationally in their own interest.

However, in reality people are highly emotional in a market situation, and that emotion is the most important short term driving factor for the market.

It is a biological imprint of the working of our mind. One can also show the same behaviour in related animals.

Profit and loss, long term and short term, they are all judged in a non-rational, non-linear way by our brains.

[Tero]

By costard

URC, I haven't seen any references to the True Finns as fascists or neo-nazis - obviously I read the wrong press. That said, I can understand why they would be labelled as such: it's convenient (for the powers trying to maintain the status quo), it's the sort of hysteria raising emotive bunkum that passes for mainstream journalism these days.

Yep. The association in the foreing press reported by URC is part of the ongoing smear campaing here in Finland by the Finnish media and press.

I find it quite hilarious how the "liberal" and "tolerant" (also referred to as intellectual) circles display their absolute intolerance towards opposing views.

I did not vote for them but I cheer them on as they are truly voicing the little peoples views on a wide variety of subjects currently important over here.

Bailing them out helps no-one in these circumstances.

How long do you think it takes before a strong central government is called for ? The slipery slope from a state federation to federal state is tilting.....

I don't think the devolution of the EU is on the cards, even with a vetoed bailout.

IMO the core in this is the struggle between liberal capitalist economy and state sponsored subsidies and wellfare state. The "liberal capitalists" have been milking the system and now that somebody has called the hoax of the emperors new clothes it will become really hard for the current banking system to get state sponsored subsidies to transfer wealth from the masses to the rich.

[Tero]

By Erik Springelkamp

However, in reality people are highly emotional in a market situation, and that emotion is the most important short term driving factor for the market.

We have been training this by having the quarterly management imposed on us.

Profit and loss, long term and short term, they are all judged in a non-rational, non-linear way by our brains.

True. But why is "the market" behaving like a 3-year old ? Instead of having a long term plan of sustainable growth the short term profit is what the market is after ?

[Erik Springelkamp]

But why is "the market" behaving like a 3-year old ? Instead of having a long term plan of sustainable growth the short term profit is what the market is after ?

That is what a market is.

An unstable market offers great opportunities for profit, so it is in the interest of traders to operate in an unstable market.

Buyers and sellers of the end-product on the other hand would be better off with a stable 'market', but then it wouldn't be a 'free' market any more.

Long term sustainable growth depends on planning, but unfortunately we are too stupid to do it well. Always some unforeseen circumstances that spoil you carefully planned scheme.

Or else corrupt people playing the system. And there are always people who will work their way towards the place where they can game the system. That is what power is all about.

[abneo3sierra]

From a non-European, but one with family still in EU in Germany, I think what that party stands for is a great deal of what I would support if I was there.

As it is, I think it is immediately unfair to reward nations which did 1-nothing to help themselves, and 2-actually incorporated policies that hurt themselves, and then ask the countries that 'did it correctly' to help them...this seems a lot like having 2 roommates in university, one studies,works hard, skips many social events to improve his grades...and earning perfect scores..while his roommate parties, stays out late, never does his work...then, at the end of the term, the professor takes some of the score from the 'good student' and hands it to the bad one, to even it out. This type of policy never rewards the better ones, and has no incentive for the poorer ones to 'man up'.

And yes, it is a bit nationalistic, but that is not a bad thing, either. People should be proud of their nation, Finns should be proud of what makes them different, just as Germans should be, French, Americans, hell...even Aussies, probably :-D

[womble]

Or else corrupt people playing the system. And there are always people who will work their way towards the place where they can game the system. That is what power is all about.

I find the whole notion of a speculative market in stocks and shares to be inherently corrupting. The original concept of a shareholder having a stake in the future of the company they buy shares in was fine. That has, over the years morphed into the unholy short-selling, perception-led feeding frenzy that is today's (even semi-)automated stock exchanges.

Maybe restricting shares to only being tradeable once a week (each individual share, I mean), or some such, would make the idea of exploting the market less attractive. Or require stockbrokers to pay negative commission on loss-making sales, or something. At the moment, a large part of our world's economy is based upon people selling notional products (bonds, currency, shares) with no actual intrinsic worth back and forth. It's insane, and it can't work forever.

[abneo3sierra]

I agree Womble.. the current system is something like gambling, except that one side usually can see the others cards.

[Bigduke6]

Well it's a nice little article but I don't think the causes and effect are quite as simple as he makes it out.

The basic question here is whether the benefit of a relatively wealthy state's belonging to the EU - and I would put Finland into this category - outweighs the cost of wealth transfers via the EU to the poorer states. And that is a pretty complex calculation.

Finland always has the option of bailing out on the EU, and the moment they do that the debt of places like Greece and Ireland are no longer the Finnish taxpayer's problem. Sounds great, right?

Well, sort of. The problem is Finland's economy is not autonomous, all those Nokias have to be sold somewhere besides in Helsinki and Lapland. Put up a customs barrier between Finland and the world's largest consumer market - yers, it's the EU - and that's a lot of Nokia employees looking for jobs and not paying taxes. Ditto for all the wood they sell the Swedes to make into IKEA furniture, to the Germans to make paper, the chemicals they're selling to the Poles and the Romanians, etc. etc. I don't know what portion of the Finnish economy depends on foreign trade and what portion of that is linked to the EU, but it has to be somewhere between significant and massive.

So a Finnish politician certainly can huff and puff all they want about fiscal responsibility, and they can even elect politicians that say they won't put up with EU shenanigans. This is not the same as seceding from the EU, and if you aren't out then you are in, and that means you're obliged to pay whatever it is you're supposed to pay to Brussels. And if you don't, then up go the customs barriers and for the impact of that see the previous paragraph.

The Greeks and the Irish and the Spanish know all this perfectly well. To carry on the analogy of the dumb kid taking advantage of the smart kid in school, these dumb kids know that hard work is not rewarded nearly so well as gaming the system. Which, if you look at it from a return vs. effort expended point of view, makes the dummies arguably the actual smart ones: they've positioned themselves to extract more from the EU than they are obliged to put into it.

To take the student analogy one step further, if the bad student that parties knows that his Dad will give him a fine job on graduation and after 10 or 20 years because of that nepotism he stands an excellent chance of being the good student's boss, what possible sense does it make for the bad student to study hard? Hard work may be rewarded sometimes, but connections and back-scratching are rewarded more, and more efficiently. They key thing is understanding how the system produces results, not just working like a fiend and hoping the system will take notice of it.

Parenthetically, it seems to me the Norwegians are looking pretty durn smart - they never anted into the EU, and that makes them pretty immune to the Finns and the Spaniards constantly hassling over who should get what out of the EU.

Anyway, for another thing, people tend to think of the EU as a trading block that generates all this economic power because it wiped out tariff barriers between Portugal and Poland, but that's only the half of it. The other bit is, it keeps the competition out, and the world is a big mean jungle out there these days.

Could a Finland lacking member access to the EU, hack it worldwide? Or would Nokia get swamped by East Asian electronics? The Finnish wood-processing industry by the Russian and Canadian product with their massive advantages of economy of scale? The Finnish shipbuilding industry by the Koreans and the Taiwanese? The Finnish chemicals industry by the Germans and the Americans?

And before Finland goes about answering that question, they would do well to look at what other economies - the French and the Germans come to mind - have done to make the EU work to their advantage. It seems like they're onto a good thing, they dictate EU policy so as to protect key domestic industries ("key" meaning politically sensitive or critical for export) from outside competition, which in turn gives their economies sufficient capital to have a shot at competing internationally.

I think that Mr. Soni is however pretty much on the mark when he says the policy of bailing out problem banking sectors is not sustainable in the long run. The EU has a plan for that: if push comes to shove the poorer countries are going to take the hit, and the banking and capital sectors of the richer member nations are the ones that rate the most protection. As long as the EU can sustain that policy, it will.

(This means take your money out of Greek banks and put it in German banks, but you already knew that.)

There is another thing to bear in mind: Markets are markets, but also there are not a lot of things in this world bigger than the German economy. Although it is perfectly easy to say the Irish or the Greek economies are small enough to fail and it would be just great for them to do so to "let the market function" (whatever that really means in this world of multinational corporations and daily intervention in the economy by government) it is not nearly so easy to say the same thing about the German economy, which in many ways IS the EU economy.

As long as the EU lives and breathes, I think, there will be people in Brussels committed to keeping the German economy in as good a shape as possible, and ready and willing to sacrifice the interests of most other EU members for this goal.

Peculiarly enough,therefore, I would say the best policy for the Finns is the one they chose during World War Two: Stick with the Germans - but only as long as they're not going down the tubes, then dump them.

So at least in a sense Mr. Soni seems to me to be a bit of a populist who is playing a nationalist - although judging by the article certainly not racist - card. It's easy enough to point fingers at the poorer Europeans you are obliged by treaty to hand cash from time to time. It's harder to find a viable alternative; but if the Finnish voters aren't going to think that through then griping about EU membership might well score you some points at the polls.

[Erik Springelkamp]

European policy is not solely made by Brussels or Berlin, but member states still have a little bit of influence on the direction this policy is going.

The position of the Finns is useful getting a little bit of movement in the Brussels policy.

The Germans and Dutch are not entirely annoyed with the Finnish position. It gives them a bit more weight in the great game. But let us not overstate the importance.

[Stalins Organ]

Here's all you need to know:

[Kanonier Reichmann]

What blows me away is that the German population are expected and DO work hard until 65 when they finally reach retirement age and can enjoy some return on all the taxes they've paid while the Greek equivalent insist it's their right to still retire at 55 and get bailed out by the EU (read Germany mainly) to maintain the privilege. How does that work?

Regards

KR

[abneo3sierra]

What blows me away is that the German population are expected and DO work hard until 65 when they finally reach retirement age and can enjoy some return on all the taxes they've paid while the Greek equivalent insist it's their right to still retire at 55 and get bailed out by the EU (read Germany mainly) to maintain the privilege. How does that work?

Regards

KR

This is the attitude of my family there, as well, and would be mine also.

[Stalins Organ]

What blows me away is that the German population are expected and DO work hard until 65 when they finally reach retirement age and can enjoy some return on all the taxes they've paid while the Greek equivalent insist it's their right to still retire at 55 and get bailed out by the EU (read Germany mainly) to maintain the privilege. How does that work?

Watch the video I linked to......

[Erik Springelkamp]

What blows me away is that the German population are expected and DO work hard until 65 when they finally reach retirement age and can enjoy some return on all the taxes they've paid

No, to counter the cost of the Credit Crisis, German, and Dutch, workers have to continue working till they are 66 or 67 (still under discussion here).

At the moment I don't know when my retirement age will start: in 10, 11 or 12 years.

[undead reindeer cavalry]

What blows me away is that the German population are expected and DO work hard until 65 when they finally reach retirement age and can enjoy some return on all the taxes they've paid while the Greek equivalent insist it's their right to still retire at 55 and get bailed out by the EU (read Germany mainly) to maintain the privilege. How does that work?

at least German banks had a part in making those bad calls. there are EU citizens who don't have the luxury of enjoying that excuse. so they pay for both the Portugese etc AND Germans. epic win?

[dieseltaylor]

My solution is for the US and Europe to launch a raid on the approximately $10 trillion of private money which is held through tax-havens. View it as a re-run of the Disoolution of the Monasterys by Henry VIII.

Conveniently this will also destroy those tax-havens and recover much criminal loot. The money of course does not actually sit in the Cayman islands in a large hill but is laundered through NY and London. Therefore any money requiring to go off-shore - that is say Euro-Bonds sold to raise cash will be blocked from transfer out.

Holders of bonds or deposits, shares etc where the ownership is not a named individual will have to attempt recovery through the courts showing the source of the investment funds is legal. In my view widows and orphans rarely keep their money in off-shore entities and I believe that this move will actually inconvenience very few.

There is the possibility of legal challenges but once the arguments have been made I am confident that some retroactive legislation will clear up any loopholes.

[abneo3sierra]

I think to steal people's money, whether in the form of taxes, or of armed robbery, are both wrong. I resent a government deciding that they have a right to my money as much as I have..the perfect solution would be for governments to actually promise less, do less,and take less from their people,allowing the people to have the right to work hard and actually make a benefit for their hard work, rather than working hard to make the money,then having a government agency decide that money is theirs, so they can pass it out to people who refuse to pull their fair share.

Just my opinion though :-)

[Stalins Organ]

I think that forgetting that government is a social contract, under which people expect safeguards for all, equality before the law, communial services, etc. is one of the most dangerous ideas in the world today.