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Finnish bank chief says debt top threat to economy

15 June 2011 20:20 (UTC +04:00)

Baku â€“ APA. The European debt crisis is the greatest external threat to Finland’s economy, the head of the Nordic country’s central bank said a day after EU ministers failed to devise plans for a second Greek bailout, APA reports quoting AFP.
"One risk is that the debt crisis will spread, affecting European and potentially even global financial markets," Bank of Finland governor Erkki Liikanen told reporters in Helsinki, adding the crisis was the "biggest external factor" affecting Finland’s economy.
Liikanen, who had called the news conference to present his bank’s economic outlook for coming years, said he expected Finland’s gross domestic product (GDP) to increase by nearly 4.0 percent this year, with growth slowing to around 2.5 percent for 2012 and 2013.
He cautioned however that this growth was threatened by the risk that wage hikes could outpace inflation, the lack of a long-term measures to stabilise public spending, and above all the danger of the EU debt crisis spreading.
"We call for the avoidance of any credit events or selective defaults" by Greece, Liikanen said, echoing the position voiced by European Central Bank head Jean-Claude Trichet last week.
EU finance ministers were unable to reach an agreement on how to structure a second Greek bailout at a meeting in Brussels on Tuesday.
Liikanen nonetheless voiced optimism that the issue could be resolved.
"I believe the people in responsible positions will be strong when the moment comes to make decisions," he said.
Liikanen however cautioned that Finnish domestic policy needed to be tightened to rein in the deficit and stabilise public spending if the country and its rapidly aging population is to overcome the financial challenges ahead.
"Two things will not change: Finland’s public debt is increasing every day, and Finland is getting older every day," he said, adding that without prompt policy and structural changes, the financial risks would be "significant."
The issue of long-term financial policy has proven one of the main stumbling blocks in ongoing negotiations to form a new Finnish government.
Jyrki Katainen, the head of the conservative party that won the most votes in April 17 elections, has been struggling to form a coalition with six of the eight parliamentary parties, spanning the entire political spectrum, and reach agreement on a common financial agenda that would clamp down on country’s growing debt.