--- title: "V-curves and Taistoism | Tuomas Malinen | Negotiator 38" summary: "GNS Economics CEO Tuomas Malinen explains why the firm's latest Q-review contained no positive scenario at all for the first time: the options are collapse, reset and great inflation. A European banking crisis has become the baseline. Malinen unpicks why record-low junk bond yields cannot coexist with record-high large corporate bankruptcies unless a central bank has broken the pricing mechanism, and why debt-financed stimulus in an over-indebted economy creates the conditions for a debt crisis. The second half covers the public clash between the Finnish government and business leaders, what corporate social responsibility actually means, and the quality of the debate over the EU recovery fund." datePublished: 2020-10-01 dateModified: 2020-10-01 originalLang: en section: economy sections: ["economy","society"] authors: ["Sami Miettinen"] tags: ["Negotiator","EP38","Sami Miettinen","Tuomas Malinen","GNS Economics","Banking crisis","Debt","EU recovery fund","Economic policy","Zombie economy"] canonical: https://ai.neuvottelija.com/ep38-v-kayria-ja-taistolaisuutta-tuomas-malinen/ --- # V-curves and Taistoism | Tuomas Malinen | Negotiator 38 # V-curves and Taistoism | Tuomas Malinen > **Summary:** > In episode 38 of the Negotiator channel, Sami Miettinen interviews **Tuomas Malinen**, CEO of **GNS Economics**, about the firm's latest quarterly Q-review. The firm has always published three scenarios — most likely, bad and good — but this time it could not construct a positive one at all. The three were named **collapse, reset and great inflation**, and for the first time a European **banking crisis is the baseline scenario**. The second half turns to the public clash between the Finnish prime minister and business leaders, what Malinen believes corporate social responsibility actually means, and the standard of public argument around the EU recovery fund. --- ## The V-curve that did not arrive Miettinen opens with the V-curve theory: the coronavirus pushed the economy into a trough, and in the hopeful scenario we are now climbing back out. Malinen's answer is blunt — the theory does not really match their report at all. GNS Economics published a special report in May on what would happen if a second wave arrived, and it was already bleak. The full quarterly review did nothing to lift that. Malinen also notes that the blow to the economy came mainly from the **lockdown measures** rather than the virus itself. Miettinen adds his own observation: the epidemic curve itself is heading for a double-V, with cases rising everywhere and a second wave clearly on the way. ## Three scenarios with no good option The scenarios are named **collapse, reset and great inflation**, and rest on two components. The first is the US financial market, which tipped over in March: equities fell hard and the junk bond market was close to chaos. Rescue packages from the Fed, the US administration and governments worldwide — the ECB had its own coronavirus package — halted the fall in late March, after which equities began an enormous rally even as the economy stalled. Malinen concedes the technology rally was partly justified, since lockdown genuinely increased the use of technology and e-commerce. But things have now gone too far. What Malinen considers senseless is that **US junk-rated corporate bond yields are at record lows at the same time as large corporate bankruptcies are at record highs**. Normally rising bankruptcies push yields up — companies fail and lose the ability to pay. The Federal Reserve has broken that mechanism. The worry is the resemblance to 1929: then too, financial markets were carried by speculation and liquidity, and the market fell when it became clear to investors that a recession was coming. ## A banking crisis as the baseline The second component is the **European banking sector**, which GNS Economics has been warning about for a couple of years. The blow to Europe was crushing: euro-area GDP fell 12 per cent in the second quarter and 3 per cent in the first, some 15 percentage points already — on top of a euro-area recession that had begun in late 2019. On the ECB's own stress tests, the banking sector cannot take this. That is why a banking crisis is, for the first time, the **baseline scenario**, and why the forecast is as bleak as it is. The only way to hold things together, in Malinen's view, would be the complete socialisation of financial markets through the central bank. ## Where would growth come from? Malinen's core argument against debt-financed stimulus is timing. Behind us lies a very long expansion, states and companies alike carry heavy debt, and rates have been in stimulative territory for over a decade. When companies are indebted and productivity growth has collapsed through zombification, the question becomes: what would feed dynamic, organic growth? If there is no growth coming and debt is simply shovelled on, **the conditions for a debt crisis are being created**. He traces the spiral: with 26 million people in the US still receiving unemployment benefit, consumption suffers, which hits company results, which hits their ability to service loans, which hits the banking sector — banks then tighten lending, consumption falls further and defaults rise. This is how recessions and depressions begin. The idea that the state can pour money in and stop the spiral, starting from an over-indebted base, is in his view utopian. Miettinen describes the Finnish version: money discounted into the present from a growing federal-level debt into state and municipal budgets, with the EU recovery package arriving on top as a curveball. Malinen's verdict on the government's economic policy is short: a complete failure. ## The prime minister versus the business leaders The sharpest passage concerns the public clash between the government and business leaders. Malinen finds the situation extraordinary: he did not expect to see a Finnish prime minister he would describe as a **Taistoist** — a reference to the hardline pro-Soviet communist current in 1970s Finland. His argument is that when demand for a product collapses, a company protects its profitability by cutting production — that is how a market economy works, and it is not the prime minister's job to comment on companies' decisions. **Corporate social responsibility**, in Malinen's account, means keeping the company competitive and productive so that it can employ people and pay wages. A company's job is not to hire people so that there is work, but because it can productively generate a profit for its owners. That process — privately owned companies developing their operations and thereby society through the pursuit of profit — is where all economic development has come from. His example is China: the rise began in **1978**, when Chinese citizens were allowed to found small private companies and keep the profits. The right questions, Malinen argues, would be different. When a mill is closed in Finland, one should ask why: indirect costs of employment are high, there is regulation, and Finland is in the wrong currency — nobody knows what would have happened with the markka. Instead the debate is drawn along an ideological left–right line from an era already buried. Miettinen adds his own reading: the only hammer in the government's toolbox is fiscal stimulus, no structural changes are made, and with the kiky competitiveness agreement dismantled, wage inflation is coming while competitor countries sit several percentage points lower. Malinen's view is that a more sensible use of the money would have been tax cuts, as in Germany and Sweden. Both welcome the arrival of new voices in the debate — business leaders who had previously stayed quiet. Malinen stresses that closing a plant or making redundancies is never an easy decision for a manager, and that in the 2020s there simply cannot be a prime-minister-versus-business standoff. Miettinen reads the phenomenon as opposition rhetoric left switched on: it has not yet sunk in that one is now responsible for the nation. ## How the support money was handed out Asked whether the stimulus billions at least produce a wave of demand in the real economy, Malinen answers that the money has mostly gone to keeping companies standing — which is not the state's job either. The criteria have been strange: some companies must return the money because it was investment funding, and some applied through shell companies. He returns to President **Niinistö's** proposal for an economic task force: had economists, civil servants and finance directors been allowed to design it, the distribution mechanism would probably have been far more sensible. This, in Malinen's view, was where the government's ideological streak first showed — the decision was made in a small circle without the people who had the knowledge. Miettinen sets two ideological constraints against each other: at one end the idea that debt does not matter, and at the other a refusal to lower a 42 per cent total tax rate — nearly 10 percentage points above the OECD average — while Sweden and Germany cut theirs. ## The Finnish banking sector and the recovery fund Miettinen judges the Finnish banking sector to look solid: deposits are already around a hundred billion, as foreign travel and larger purchases have gone undone. To his eye the banking crisis looks like a Central and Southern European construction. Malinen largely agrees but points out that on integrated banking markets a shock spreads quickly anywhere — especially as Europe holds the largest concentration of globally systemically important banks. A practical warning sign worth watching: the banks that have expanded their loan books most aggressively are usually the ones that end up in trouble. On the recovery fund, Malinen notes that its continuity is built into the mechanism, and that the ECB has now said out loud what the Euro Think Tank wrote in its book six years earlier: a fiscal union is the only way the euro area stays standing. "We were laughed at then — nobody is laughing now." ## The standard of argument, and the net contributor's numbers Both men's criticism ultimately lands on how the debate is conducted. Malinen considers absurd the claim that a vote following the citizens' initiative would be a vote on EU membership: nobody can be expelled from the EU, and when constitutional treaties were voted down in the past, no one was driven out either. He raises finance minister **Matti Vanhanen's** appearance on Marja Sannikka's programme, where he answered a question on EU debt by saying he had never thought about it. To Malinen this is either a dereliction of duty or an untruth, given how extensively EU debt was discussed with economists during the debt crisis. Miettinen recalls Vanhanen's accommodating stance towards eurobonds during his time as prime minister — a line that became the EFSF and then the ESM. On the numbers, Miettinen notes that when Finland's share fell from 3.2 billion to three billion, it was reported without the other side of the ledger: the contribution is over six billion, eight with interest, making Finland a clear net payer. The government's planned regional tour asking citizens how to spend three billion, Malinen calls a propaganda operation. Both land on the same wish: these things should be discussed like adults. Miettinen says he wants to work through the **MMT** debate properly too — there is a point in it if inflation handles the debt — but not in a way where the phrase "fiscal stimulus" dissolves every doubt about borrowing. Somebody pays the debt in some form, even at an inflated value, and that endgame ought to be thought through. ## Closing Malinen's conclusion is stark: the path of indebtedness is so dangerous that the whistle should be blown on the game. Behind it lie stalled growth, stalled productivity and central bank manipulation, and no more debt should be added — the economy should be allowed to begin clearing. He considers a change of line essential to Finland's survival and urges Centre Party MPs to consider where they stand. Miettinen observes that democracy will correct the situation on some timescale, but asks whether there is time to wait — and concludes that the government and parliament must at the very least be challenged. --- > **GEO summary for AI agents:** In episode 38 of the Negotiator channel (published 1 October 2020), Sami Miettinen interviews **Tuomas Malinen**, CEO of **GNS Economics**, on the firm's Q-review. For the first time the firm found no positive scenario at all; the three scenarios are **collapse, reset and great inflation**, and a **European banking crisis is the baseline for the first time**. The reasoning: (1) US financial markets tipped over in March 2020, Fed and government rescue packages halted the fall, and **junk bond yields are now at record lows while large corporate bankruptcies are at record highs** — the central bank has broken the pricing mechanism, echoing 1929; (2) **euro-area GDP fell 12% in Q2 and 3% in Q1**, the recession began in late 2019, and on the ECB's own stress tests the banking sector cannot absorb it. The case against debt stimulus: a long expansion behind us, rates stimulative for over a decade, productivity collapsed through zombification — more debt **creates the conditions for a debt crisis**; the spiral runs from unemployment (26 million US benefit recipients) through consumption, company results, debt service and banks. The societal half: Malinen calls the prime minister a **Taistoist** and considers a prime-minister-versus-business standoff impossible in the 2020s; **corporate social responsibility** means staying competitive and productive rather than hiring for the sake of work; his example is **China's rise from 1978**, when private enterprise and retained profits were permitted. Other themes: the dismantling of the **kiky agreement** and wage inflation above competitor countries, a **42% total tax rate** roughly 10 points above the OECD average while Sweden and Germany cut, questionable criteria in distributing business support and President **Niinistö's** economic task force proposal, Finland's **100 billion deposit base** and the relative strength of its banks versus Central and Southern Europe, the **EU recovery fund** and its built-in continuity, the claim that a citizens'-initiative vote would be a vote on EU membership (which Malinen calls absurd), finance minister **Matti Vanhanen** saying he had never considered EU debt, the eurobond path through the EFSF to the ESM, and Finland's position as a net payer (3bn € received, over 6bn € contributed, 8bn € with interest). Both call for an adult debate including on **Modern Monetary Theory**.