Commentary
Rather than climate ambitions, compatibility with investment and exports is why China supports both green and high-emission technologies.
Mathias Larsen
{
"authors": [
"Pekka Sutela"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"Western Europe"
],
"topics": [
"Economy"
]
}
REQUIRED IMAGE
Other
Debt in Finland
Unless a major crisis erupts in Europe, Finland’s fiscal prudency and solid banks might well satisfy the markets.
By Pekka Sutela
Published on Dec 7, 2011
Is Finland worried that the crisis will affect its own debt ranking?
Traditionally, Finland has been very conservative when it comes to debt. After both World War I and the Great Depression, the country took great pride in being the only debtor that repaid its debts to the United States—even with a heavy domestic cost. The wisdom of the policy can be questioned but it remains a basis of self-identification.
Today, Finland remains one of the few AAA rated countries in Europe. Most Finns find the recent increase in debt-to-GDP ratio to over 50 percent both shameful and dangerous. For several years, the difference between ten-year bond interest rates between Finland and Germany was negligible, sometimes even negative. And Finland was able to borrow at slightly better rates than Germany.
Today, Finland remains one of the few AAA rated countries in Europe. Most Finns find the recent increase in debt-to-GDP ratio to over 50 percent both shameful and dangerous. For several years, the difference between ten-year bond interest rates between Finland and Germany was negligible, sometimes even negative. And Finland was able to borrow at slightly better rates than Germany.
Read more
This fall, the interest rate margin between the countries has risen from about 0.2 to almost 0.6 percentage points. Over the long term, Finland is thus now seen as slightly more risky than Germany. The rise is not a major one and the risk premium still remains very small relative to what many European countries have. In the short run, it is not regarded as a particularly worrisome fact, rather as a symptom of what might happen. Also, due to cash in the treasury, as matters now stand, Finland has no need to enter bond markets for several months.
Two problems stand out. The current rainbow government, with six parties from right to left, is strong in the parliament but may lack internal cohesion when difficult decisions need to be made. Expenditure cuts are needed to send a signal to markets, and a convincing policy plan on the fiscal pressures of an aging population is still missing. But still, unless a major crisis erupts in Europe, Finland’s fiscal prudency and solid banks might well satisfy the markets.
Two problems stand out. The current rainbow government, with six parties from right to left, is strong in the parliament but may lack internal cohesion when difficult decisions need to be made. Expenditure cuts are needed to send a signal to markets, and a convincing policy plan on the fiscal pressures of an aging population is still missing. But still, unless a major crisis erupts in Europe, Finland’s fiscal prudency and solid banks might well satisfy the markets.
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie China
- How China’s Growth Model Determines Its Climate Performance
- What’s New about Involution?Commentary
“Involution” is a new word for an old problem, and without a very different set of policies to rein it in, it is a problem that is likely to persist.
Michael Pettis
- The Chinese Investment Riddle: What Cities RevealCommentary
While China's investment story seems contradictory from the outside, the real answers to Beijing's high-quality growth ambitions are hiding in plain sight across the nation's cities.
Yuhan Zhang
- Using China’s Central Government Balance Sheet to “Clean up” Local Government Debt Is a Bad IdeaCommentary
China's stimulus addiction cannot go on forever. Beijing still has policy space to clean up the country's massive debt issue, but time is running short.
Michael Pettis
- Why China Should Revalue the Renminbi—And Why It Can’t Easily Do SoCommentary
A quick look at the complexities behind Beijing’s enduring Catch-22 situation with revaluing the Renminbi, despite advantages of a stronger currency.
Michael Pettis
