The threat of stagflation was raised at a meeting of EU finance ministers. There was strong support for economic sanctions, and their consequences and price are ready to be accepted.
Policy now returns to the basics, says the finance minister Annika Saarikko (middle). He means that the number one task of the government is now to guarantee the security of Finland and Finns.
At least there is no need to regret the significant investments made in the Defense Forces, most recently the acquisition of an HX fighter under Christmas.
“Otherwise, things are going well in many ways. There is no war in Finland, but it is clear that war near us affects us here in many ways. ”
As Minister of Finance, Saarikko knows that Russia’s attack on Ukraine will have major consequences for the Finnish and European economies, which will also affect people’s sense of security.
How big the consequences are, it is still impossible to say. The crisis caused by the coronavirus pandemic has shifted to the next crisis.
Tympein According to Saarikko, the future picture of the economy is that economic growth will slow down at the same time as inflation, ie rising consumer prices. The phenomenon is called stagflation, which is a long-lasting and diabolical disorder that strikes.
It is one development – not inevitable, but we must also be prepared for it.
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Saarikko is emotionally overwhelmed by the video call. EU finance ministers have been meeting in Paris on Friday, with a long working day in an exceptionally concise meeting. In the corridor discussions, several colleagues approached Saarikko with the message that Finland’s special position was being recognized.
“Yes, people understand geography.”
The archipelago emphasizes on several occasions during the interview that the most important thing for Europe and Finland now is to be able to respond to the Russian threat. Politics returns to the basics and also to the basic values. In politics, actors need to maintain their capacity to act, even if emotions erupt.
Indeed, finance ministers gave strong support to economic sanctions against Russia, understanding their consequences and cost.
“Sanctions are now going past economic worries.”
Economic worries are still to be expected and will circulate to Europe through energy. Russia may impose counter-sanctions that complicate Europe’s energy supply and raise energy prices despite all alternative supply channels.
25% of Europe’s oil and 40% of its gas comes from Russia. According to Saarikko, this concretely shows how important it is to get rid of fossil fuels quickly.
Energy prices were a headache for member states even before the Russian invasion, as the price of natural gas started to rise as early as last year, as did electricity and oil. Almost all member states, now also Finland, have tried to alleviate the energy bill of consumers with various support measures.
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A new concern relates to security of supply for food production. The price of agricultural inputs, such as fertilizers, has risen even before this due to higher natural gas prices.
Globally, there are fears about what will happen to the availability and price of wheat, as Russia and Ukraine together account for two-thirds of the world wheat market.
“Agricultural policy and energy will also become a security of supply policy. This is not the speech of the Minister for the Center, but it was also a European view. ”
Ministers of Finance discussed at their meeting how economic isolation of Russia from the rest of the world would affect economic growth.
As for Finland, Saarikko says that if exports of goods fell by half, for example, Finland’s GDP would shrink by 0.25–0.75 percentage points.
This underscores the importance of Russian exports in some industrial sectors, meaning that losses by sector and company could be large, even catastrophic.
Finland and the Baltic countries are more vulnerable to exports than many other EU countries.
“In general, the EU is not as tied to Russia’s trade as many recall the years of Eastern trade, neither is Finland nor the rest of Europe. Instead, Russia is the EU’s number one trading partner. “
The worst According to Saarikko, there is uncertainty caused by war, which is always poison to the economy. The impact of energy and trade may be reduced in percentage terms, but it is not yet known how people’s thinning confidence in the future will affect it.
Do companies dare to invest, do people dare to consume?
“The most important thing now is to trust tomorrow, let everyday life continue. Businesses employ and people do work. ”
The antidote to the economic shock caused by the corona was a massive global recovery.
“Traditional economic policies were set aside across Europe. It is clear that the same means will not work to resolve this situation. The deep indebtedness of the whole of Europe over the Corona is at an all-time high as this situation begins to be resolved. ”
On the other hand, there were also indications that economic growth has been strong recently and will not fluctuate in an instant.
The archipelago flew to Paris as early as Thursday, the day Russia invaded Ukraine. The working day was spent in meetings and discussions with, among others, the Governor of the Bank of Finland Olli Rehnin with. Rehn attended an extraordinary meeting of the Governing Council of the European Central Bank in Paris.
In the evening, Saarikko came to the hotel room alone and only then had time to read the news of the day in more detail, including the president Vladimir Putin speech, and browse through the news of the war a few hundred miles away.
“I don’t remember that feeling in my adulthood. There was a big miss in the kids at home. ”
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