"Domestic demand has also picked up in response to the revival of household consumption demand and housing investment. Exceptionally low interest rates and government action to support housing construction have supported the domestic market through the recession."
For several years, Finnish labour costs rose faster than the average for the euro area. Although the most recent wage settlements have been much more moderate, this will be insufficient to correct the exaggerations of the ‘crazy years’.
The growing levels of debt have recently been a source of general concern. It is not possible to draw a firm line that would indicate in all situations what is an appropriate level of debt, and what is excessive. In the final analysis, this depends on numerous household specific factors."
"From the perspective of households themselves, the greatest risks relate to not being properly prepared for a potential rise in interest rates, a sudden drop in their income or other unexpected situations that could undermine their ability to service their debts.
With this in mind, it is very important that households conduct their own sufficiently rigorous ‘stress tests’ on themselves when considering taking out a loan.
Households need to be able to service their debts in the event of interest rates becoming considerably higher than they are at present. This is also in the interests of the banks and other lenders.
Finally, it is also important that households leave themselves sufficient room for manoeuvre in case of possible changes in their general income and expenditures."
1- Indeed, Interest rates will go higher...at some point(that is the 712 600 € question), that is the only direction it can go unless the deflation threat has not really disappear since so far there is no obvious signs suggesting otherwise.
Sudden drop of their income, interesting point. This recession could have provided an opportunitty for better Finnish competitiveness or the convergence in term of wages with the rest of Europe ... However thanks to Politicians (not excluding the finance ministry), they thought otherwise - the group of wise wild wisest started to think hard how to fight a natural readjustement and they managed it ...( even contruction workers wages are going higher, above the inflation rates -ast)
2- Mr Erkki Liikanen & Co, somehow worries me and in some extent scare me when he talks of the need of "Stress Test" on Household - isn't that the role of banks in Finland and ultimately the roles of regulators - after all that is their job. Worrying idea, highlighting the fact they have no visibility on how securely they grant loan to household.
3- In the last press conference from the ECB, there was a very interesting suggestion from Mr Jean-Claude Trichet, highlighting that non-conventional monetary operation could happen and outrule an increase of interest rates. So I read it as, if the deflation threat was overdone and the tsunami of liquidity trigger a sudden deadly rise of inflation (mostly imported that could or giver the tentation for translating into higher home inflation), then they will pull the trigger and of course the Finnish market and politicians would not be able to do anything about it. The municipalities debt would also slowly but surely look like the one experienced in California.
Monitoring closely Debt levels
"Moreover, a large debt burden weakens the ability of households – and, indeed, the economy as a whole – to adjust to disturbances of various sorts. In order to ensure stable development of the economy, it is vital to closely monitor debt levels."When the symptom have already appeared, isn't it already too late? So BOF will become firefighters always a step behind the event....let's closely monitor their inaction and how they will act to prevent the system to break apart when it would have been simpler to request moderation and stability.
At the end we do not have central bankers but alchemists...
Source: BOF , there is more to say, but I will try to extract some other interesting info whenever I can