Capital Markets seminar looked for new ways to restore economic growth

Representatives of the business world and Aalto University gathered again on 25 September.
Discussion was lively! Photo: Ilkka Vuorinen

The seminar was organised by PwC and the School of Business to discuss a very current topic: How can we restore growth in the crisis-ridden European economy and make Finland competitive again?

European Commission Vice-President Olli Rehn gave the opening address before a full house in the School of Business' PwC hall. He highlighted how, for the first time since the 2008 financial crisis, we are finally in a situation where the European economy returned to growth after the 2010–2012 stabilisation phase.

On the other hand, geopolitical tensions in Europe are weakening the recovery by reducing investor confidence in the market. As a result, Rehn called for a stronger, bolder and well-coordinated cooperation between the various EU institutions and member states. According to Rehn, the same principle also applies to Finland's situation: 'Finland has put off implementation of economic reforms for too long.

‘In the long term, European competitiveness will be based on investing in education, research, innovations and the green economy,' stated Rehn. He also presented a three-stage proposal for a possible reform package that emphasises the interface between the economy and policy and the role of three particular member states. According to Rehn, Italy and France have to make significant economic reforms in order to reassure the European Central Bank that its monetary stimulus would eventually have the desired positive effect.

Rehn believes that this would justify both to the political leaders of France and Italy and their voters that the economic reform is worth the political cost. At the same time, he also believes that surplus economies, such as Germany, should should further boost domestic demand and investment, both in the public and private sectors.

 

New sources of growth and new structures


Senior Advisor, Dr. Andrew Sentance from PwC's London office considered the topic of where Europe should start looking for growth. Sentance began by taking people back to the pre-2008 era and stating that the growth drivers in Europe at that time, such as 'easy money', cheap imports and confidence in the policy regime, are undervalued today. On the other hand, the conditions that supported growth in that era are not set to return very quickly due to the challenges facing Europe today, which were also mentioned by Rehn in his speech.

Dr. Sentance still wanted to be positive in his assessment that new sources of growth are very likely to appear. Opportunities in Asia and emerging markets, new technologies and innovations, increasing business flexibility and adaptability, and especially implementing new and sustainable sources of energy will pave the way to success. 'It's a matter of how business succeeds in putting new innovations into use so that they support growth,' stated Sentance.

However, business life, politicians and investors need a common strategy in order to survive uncertain times and still be able to build these potential growth drivers. Also needed is regional and global trade liberalisation, not only intercontinental trade but also between European countries. All this will require support in the form of restructuring and reforms in the public sector of European member states.

 

Long-term focus


Timo Löyttyniemi
, Managing Director of the State Pension Fund, presented the investor perspective on the topic of the day by asking whether pension investment can be considered a long-term investment. In order to avoid a financial crisis like the one in 2008, Löyttyniemi emphasised the importance of patience in the financial markets, more extensive regulation, solvency and capital buffers and, above all, increased crisis preparedness.

He believes that pension funds have long-term liabilities in their investment activities, but regulation, governance, market solvency, the media, human behaviour and short-term targets are a challenge to long-termism. This is why pension funds have a mixture of short-term and long-term strategies in order to deal with each market situation. Löyttyniemi's solution for putting Finland back on the path to growth can be summarised in the phrase 'Lead the country as you would lead a company.... long-term'.

 

Never miss a good crisis!

One of the most timely speeches of the afternoon was given by Jyrki Talvitie, Investor Relations Director at RDIF (Russian Direct Investment Fund). Talvitie provided a very realistic picture of the current situation in Russia, particularly in view of the Ukraine crisis, with regard to the political, economic and investor relations atmosphere. He brought up the question of whether the Russian reaction in the situation was actually surprising or perhaps even predictable in light of history.

According to Talvietie, the Russian economy is now experiencing a slight slowdown in growth, but the country is nowhere near a recession. The rouble is floating freely and inflation is around 7%. However, investors are nervous about Russia and the crisis in the Ukraine has served to reinforce stereotypes. Talvitie reminded the audience that the sanctions now being applied also create opportunities for new companies to enter the Russian market. 'The Russian public sector is in good shape. There's no use focusing only on the stock market when drawing conclusions about the state of the Russian economy,' suggested Talvitie.

So, what is Russia doing right now? 'It is refocusing its activities: inside the country and to the east, seeking new partners in Asia, Latin America, China, Brazil and India,' said Talvitie and continued: 'Although the uncertainty of the situation will continue for a long time, we in Finland should be aware that the largest consumer market area in Europe is right next to us and a redistribution of markets will be happening there n the near future. The question is are we going to be bold enough to use this opportunity? 

Professor Sixten Korkman from the Department of Economics in the School of Business concluded the seminar by summarising the themes. All in all, Korkman considered the discussion at the seminar to be constructive and knowledgeable and not overly structured. Although the seminar produced several options to deal with the situation, Korkman says that Europe currently has too many different opinions concerning how to resolve the crisis. This makes it difficult to formulate a single common vision and direction.

Korkman agreed with Rehn on the substance but not on the actions to resolve the situation. 'I would say NO to all packages. ‘The European Central Bank will never coordinate political decision-making. This is a matter of finding balance between several parties.'

Like Andrew Sentance, Korkman endorsed the liberalisation business and Löyttynmiemi's idea of long-term investment in infrastructure. 'Decisions that are made to early in political terms are well-known for being too late economically.' In contrast, Korkman was in favour of putting effort into building long-term relations with Russia. - Never miss a good crisis!

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