The great financial crisis in Finland and Sweden The nordic experience of financial liberalization Jonung, Lars; Kiander, Jaakko; Vartia, Pentti 2009 Document Version: Publisher's PDF, also known as Version of record Link to publication Citation for published version (APA): Jonung, L., Kiander, J., & Vartia, P. (Eds.) (2009). The great financial crisis in Finland and Sweden: The nordic experience of financial liberalization. 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LUND UNIVERSITY PO Box 117 221 00 Lund +46 46-222 00 00 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