The Great Financial Crisis in Finland and Sweden: The Nordic Experience of Financial Liberalization

351 Pages·2009·1.69 MB·English

by  Lars Jonung

The Great Financial Crisis in Finland and
Sweden

The Great Financial
Crisis in Finland and
Sweden
The Nordic Experience of Financial
Liberalization
Edited by
Lars Jonung
DG ECFIN, European Commission, Brussels, Belgium
Jaakko Kiander
Labour Institute for Economic Research, Helsinki, Finland
Pentti Vartia
Research Institute of the Finnish Economy, ETLA, Helsinki,
Finland
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Lars Jonung, Jaakko Kiander and Pentti Vartia 2009
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2009930854
ISBN 978 1 84844 305 1
Printed and bound by MPG Books Group, UK
Contents
List of Contributors vii
Preface xi
1 Introduction 1
Lars Jonung, Jaakko Kiander and Pentti Vartia
PART I THE CRISIS OF THE 1990S IN FINLAND AND
SWEDEN
2 The great fi nancial crisis in Finland and Sweden: the dynamics
of boom, bust and recovery 1985–2000 19
Lars Jonung, Jaakko Kiander and Pentti Vartia
3 Financial crisis in Finland and Sweden: similar but not quite
the same 71
Peter Englund and Vesa Vihriälä
4 The crisis of the 1990s and unemployment in Finland and
Sweden 131
Klas Fregert and Jaakko Pehkonen
5 How costly was the crisis in Finland and Sweden? 158
Thomas Hagberg and Lars Jonung
PART II THE INTERNATIONAL CONTEXT
6 The boom and bust cycle in Finland and Sweden in an
international perspective 183
Lars Jonung, Ludger Schuknecht and Mika Tujula
7 The boom and bust cycle in Norway 202
Erling Steigum
8 How did Denmark avoid a banking crisis? 245
Claus Vastrup
9 The Nordic and Asian crises: common causes, diff erent
outcomes 265
Ari Kokko and Kenji Suzuki
v
vi The great fi nancial crisis in Finland and Sweden
PART III LESSONS FROM THE NORDIC CRISES
10 Twelve lessons from the Nordic experience of fi nancial
liberalization 301
Lars Jonung
Index 325
Contributors
Peter Englund is a professor of banking at the Stockholm School of
Economics, Stockholm, Sweden. Prior to joining the Stockholm School, he
was a professor at Uppsala University. He also holds a part-time position as
professor of real estate fi nance at the University of Amsterdam. He has pub-
lished articles in major journals in the fi elds of public economics, banking,
and housing and real estate. Currently his main research interests are in real
estate economics. Englund is the secretary of the committee for the Sveriges
Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Klas Fregert is an associate professor at the Department of Economics
at Lund University, Sweden, where he received his PhD in 1994. His
research has mainly focused on macroeconomic history, in particular
economic policy and the labour market. Currently he works on the inter-
action between fi scal institutions and fi scal policy in 18th-century Sweden.
Together with Lars Jonung, he has co-authored a widely used textbook on
macroeconomics in Swedish.
Thomas Hagberg is an economist, currently working as Audit Director
at the Swedish National Audit Offi ce (SNAO). Prior to joining SNAO,
he worked at the Public Finance Analysis Unit of the Swedish National
Institute of Economic Research (Konjunkturinstitutet) in Stockholm and
before that at the Swedish National Financial Management Authority.
His research is focused on Swedish economic crises. He holds an MSc in
Business and Economics from the Stockholm School of Economics.
Lars Jonung is, since September 2000, a research adviser at the Directorate-
General for Economic and Financial Aff airs of the European Commission
(DG ECFIN) in Brussels, dealing with macroeconomic issues. He was pre-
viously a professor of economics at the Stockholm School of Economics.
His research is focused on monetary and fi scal policies, monetary unions,
exchange rate arrangements and the history of economic thought. Jonung
has published several books and articles in English and Swedish.
Jaakko Kiander is currently director of the Labour Institute for Economic
Research in Helsinki. Previously he was scientifi c director of the Yrjö
Jahnsson Foundation (1989–94), and research director at the Government
Institute for Economic Research (1999–2006). In 1997–2001 he was the
vii
viii The great fi nancial crisis in Finland and Sweden
director of a multidisciplinary research programme on the Finnish eco-
nomic crisis funded by the Academy of Finland. He has authored several
books and articles in labour economics, public fi nance and economic
policy. He obtained his PhD from the University of Helsinki.
Ari Kokko is professor at the Copenhagen Business School, Copenhagen,
Denmark. His teaching, research and publications cover issues related to
international trade and investment, economic development and technology
transfer with a focus on Asia. Kokko is a member of the advisory board of
the Swedish International Development Cooperation Agency, an adviser
to the Vietnamese Minister of Agriculture and Rural Development, and
the chairman of a Swedish government commission studying the develop-
ment of Swedish market shares in world exports. Before joining EIJS, Ari
Kokko held a chair in International Business at Åbo Akademi, University
of Turku, Finland.
Jaakko Pehkonen is a professor of economics at the University of
Jyväskylä, Finland. He has been the Dean of the School of Business
and Economics since 1998. Previously he worked at the Helsinki School
of Economics and the Academy of Finland. He holds a PhD from the
University of Jyväskylä. He is a member of the Research Council for
Culture and Society of the Academy of Finland and he has served at the
European Association of Labour Economists as a member of the execu-
tive committee and at the Finnish Economic Association as the chairman
of the board. He also holds several positions in private companies. He has
published on labour and regional economics.
Ludger Schuknecht is a senior adviser in the Economics Directorate-
General of the European Central Bank where he contributes to the prepa-
ration of monetary policy decision-making. He was previously head of
the ECB’s fi scal surveillance section, following assignments at the World
Trade Organization and at the International Monetary Fund. His recent
research focuses on public expenditure policies and reform and the analy-
sis of economic boom–bust episodes. He authored Public Spending in the
20th Century: A Global Perspective together with Vito Tanzi.
Erling Steigum is a professor of economics and head of the Department
of Economics at BI Norwegian School of Management in Oslo. He was
previously a professor at the Norwegian School of Economics in Bergen.
He is a fellow of CESifo and chairs the Investment Strategy Council
for the Sovereign Wealth Fund of the Norwegian Government. His
main research work is on monetary and fi scal policy and open economy
macroeconomics.
Contributors ix
Kenji Suzuki is an associate professor of political economy at the School
of Global Japanese Studies at Meiji University in Tokyo, Japan. He was
previously an associate professor at the European Institute of Japanese
Studies at the Stockholm School of Economics in Sweden. His main
research interest is concerned with the decision-making process and
outcome of public and private organizations in Japan, Sweden and other
developed countries.
Mika Tujula is a senior economist in the Monetary Policy Stance Division
of the European Central Bank (ECB), primarily dealing with household
fi nancing and fl ow of funds related issues. He previously worked in the
Fiscal Policies Division of the ECB and in the Economics Department
of the Bank of Finland. His research has mainly focused on fi scal policy
related topics. He studied economics at the Helsinki School of Economics,
Helsinki, Finland.
Pentti Vartia was in 1983–2005 the Director of ETLA, the Research
Institute of the Finnish Economy. He has been a member of several
professional and scientifi c societies and foundations such as the Finnish
Society for Economic Research (Chairman 1973), the Yrjö Jahnsson
Foundation (on the Board since 1978, Chairman since 2008), the Finnish
Economic Association (President 1979), the Finnish Cultural Foundation
(Board member 1994–2002, Council member since 2003), the Finnish
Academy of Technology since 1993, the Association d’Instituts Européens
de Conjoncture Economique (AIECE) (President 1998–2004), and the
International Institute for Applied Systems Analysis (IIASA) (Council
member since 2002). He holds an MSc (in aeronautical engineering) from
the Helsinki Institute of Technology and a PhD (in economics) from the
University of Helsinki. He is the author of several books and articles.
Claus Vastrup is a professor of economics at the University of Aarhus since
1983. Before moving to Aarhus, he previously spent some years working
with Danmarks Nationalbank and the University of Copenhagen. He has
been a deputy chairman (1985–87) and later the chairman (1987–93) of the
Danish Economic Council. Vastrup has been on the board of the Danish
Institute of International Aff airs (DUPI) (1995–2002). He is one of the
authors of the report on the economic aspects of ‘Denmark and the EMU’
published in 2000.
Vesa Vihriälä is, since February 2004, State Under-Secretary for Economic
Aff airs in the Prime Minister’s Offi ce and the Secretary General of the
Economic Council of Finland. He was previously the managing director
of the Pellervo Economic Research Institute. He worked in the Bank of
Finland for over a decade, including a three-year period as head of the