LETTERS TO THE EDITOR

Spring 2011

by Hannes Manninen

Sir,

Poul Nyrup Rasmussen raises a very important question when he asks if Europe's leaders are deliberately trying to put the economy to sleep. And while I agree with parts of his analysis, I disagree with his conclusions. To my mind, the economic situation in European countries is very serious, and we don’t have much time to sort it out. We need economic austerity measures in the short term and different policies in the long term. First and foremost, it must be the responsibility of each EU country to deal with its own economic mess.

Rasmussen offers a rather beautiful vision of the methods he would use to make the European economy vibrant. Of course, investments aimed at stimulating growth are necessary, but we must also keep a sharp eye on how competitive European countries are today. And we have to remember that one of the functions of the public economy is to stabilise the ups and downs of the private sector.

Unfortunately, the public economy in Europe is not in good shape. Almost every country has tried hard to stabilise its finances in the lean years since the crisis of 2008, but we need to face the fact that several had not tried hard enough to reduce their public deficits and debt ratios during the previous years of strong economic growth. Politicians seem to rely on Keynes during a recession, but ignore him in the good times.

I would therefore disagree with Rasmussen that what we need now is even more “solidarity.” Of course we must all work hard to restore growth in Europe, but in my opinion every country should manage this by itself. Lack of responsibility should not be an option, yet Rasmussen’s suggestion that it should be possible to issue joint eurobonds is a step in that direction.

There are several different ways to organise a public sector. In Finland, for example, it is very strong; elsewhere, it is not. That is why co-ordinating economic governance can be so very challenging. Taxation policy needs to remain different in different countries, leaving future governments the room to collect as much revenue as they want or need. On the other hand, we certainly do have to co-ordinate tax levels where there is a threat of tax competition between countries.

I agree with Rasmussen about the need for tighter controls and more transparency in the financial sector. But we cannot fail in our duty to stabilise national economies just because we simply don't have enough capacity to stimulate growth. If growth and tax increases are not enough to balance the books, then cuts have to be placed firmly on the to-do list.