Tuesday, June 2, 2015

The Finnish Disease - NYTimes.com

A short blurb from Krugman on the impact of inflexible exchange rates and its effects on recovery for the Finnish.

The Finnish Disease - NYTimes.com

A followup to my post inspired by troubles in Finland: it’s worth emphasizing just how bad Finland’s performance has been. For Finns, the great depression they remember is the slump at the beginning of the 1990s, driven by a combination of a bursting housing bubble and the collapse of the Soviet Union next door. The result was a very nasty slump, and a delayed recovery. But this time, although the slump in per capita GDP never got quite as deep, has been far more persistent:
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Why can’t Finland recover this time? Debt is not a problem; borrowing costs are very low. But it’s all about the euro straitjacket. In 1990 the country could and did devalue, achieving a rapid gain in competitiveness. This time not, so that there is no quick way to adjust to adverse shocks

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