Economics 23/04/2010: As Greece crashes, Finns are talking gibberish

Sometimes, it is wise for policymakers not to speak to the media. This is usually true when the policymakers have no idea what they are talking about. Case in point – FT’s story (here) about the Finnish PM backing German plan for a new treaty on tougher fiscal deficit and debt measures for the Euro area.

“Finland is sympathetic to controversial German proposals for a fresh European Union treaty if necessary to enforce fiscal and economic discipline in the eurozone after the Greek debt crisis.” Mr Vanhanen, PM of Finland, said “the priority should be to look for ways to tighten rules within the existing treaty, including the withdrawal of EU structural funds from countries that ignore official warnings from Brussels over excessive budget deficits”.

So far, so good.

Per FT, “his comments came amid the most serious crisis in the euro’s 11-year history, with Greece on the brink of a bail-out from the IMF and fellow eurozone countries. “Greek debt is not so big but there is a domino threat so we need to isolate the problem as early as possible,” said Mr Vanhanen” (italics are mine, of course).

Oops! Did he really say that? At 117% of GDP at the end of 2009, and pushing toward 130% by the end of this year, Greek debt is ‘REALLY BIG’, folks. This is precisely why Greek bonds are trading now at the yields close to those of junk-rated Pakistan!

Mr Vanhanen “insisted the crisis must not be allowed to disrupt plans by Estonia to join the euro next January and said the eurozone must keep its doors open to aspirant members.” Why not? He warned that “any delay would “send totally the wrong message” to other aspirant members, such as Latvia and Lithuania, which are making tough budget cuts and other reforms to keep alive hopes of euro entry.”

So hold on, Mr Vanhanen. You say that these countries are undertaking reforms only in order to comply with the euro entry rules, not because these are the right things to do? What hope do we, the Eurozone taxpayers, have that once admitted into the club these countries will not turn Greek? None, certainly, judging by Mr Vanhanen remark.

My humble advice – if you are a politician with no expertise in economics or finance, don’t give interviews.