Remarks by Governor Erkki Liikanen on the occasion of the dinner of the Executive Board of the International Press Institute at the Bank of Finland, on June 5, 2009.
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perjantai 5.6.2009, 0.00
Ladies and gentlemen:
It is a great honour for me to welcome you to Helsinki and to the Bank of Finland tonight. I hope that during your stay in Helsinki you will enjoy our city and that you can take some time to explore its ambiance, based on its fine architecture and the spectacular location on the Baltic Sea.
Helsinki has become a popular conference location. This time of the year, the natural conditions here should be especially suitable for the IPI meeting. The task of free media is to bring everything important into broad daylight – and in Helsinki we have plenty of daylight today: almost 19 hours! Of course, if you had gone a bit further north, to the Finnish Lapland, the sun would not set at all...
Central banks and the media have a special relationship. To a very large extent, monetary policy today is about communication. It is through media that monetary policy statements have their influence on the markets, and on the expectations and behaviour of firms and consumers.
So, our very success or failure depends on how well our intentions are understood by the public. This is why central bankers appear quite sensitive about how our statements and actions are interpreted. Without the role played by the media, it is even difficult to conceive how modern monetary policy would be possible.
And even more fundamentally, the media are important for central banks as guardians and guarantors of the independence and integrity of monetary policy institutions. Our work, monetary policy, is all about trust: trust in the value of the currency, and trust in the financial system.
Central banks are now seen as one of those public institutions whose independence and accountability is essential for the well-functioning economy, and indeed for democracy itself. The independence and accountability of all free institutions depends on the existence of a free press. Central banks are no exception. In this spirit I wish you very welcome tonight.
The Bank of Finland is the fourth oldest central bank in the world. Only the Swedish Riksbank, the Bank of England, and the Banque de France are older. Actually, Finland obtained its central bank and a currency of its own long before the independence of the country.
As a political entity, Finland emerged as a result of the peace of Tilsit, in 1807, when Napoleon encouraged the Russian Emperor Alexander I to conquer Finland from Sweden – in order to punish Sweden for not joining a trade embargo against Britain. Alexander succeeded in the conquest, and established here an autonomous Grand Duchy of Finland.
The Russian Tsar ruled here in Finland as a constitutional monarch, according to old Swedish laws – although he remained an autocrat in Russia. Finland remained part of the Russian empire until the Bolshevik revolution in 1917. In this Grand Duchy of Finland, a note-issuing bank was established as early as 1811, from which the present Bank of Finland has developed.
Finland obtained its own monetary system in 1860, still part of the Russian empire. Own currency was seen as a means to economic stability and also as a way to integrate Finland with the continental European markets. The currency, markka, was made equal to the French franc in metallic content. After joining the gold standard in 1878, the exchange rate of the markka remained fixed vis-a-vis the gold franc for 36 years, one to one, up till the beginning of the First World War.
Today, Finland is part of the euro area with the common currency. For the Bank of Finland, this means that we are one of the National Central banks which constitute the Eurosystem. ECB and the Eurosystem formulate and implement this common monetary policy for the whole area.
For me, as the governor of the bank, it means European Central Bank council meetings twice a month in Frankfurt. There we make monetary policy decisions together, and our National Central Banks jointly implement them.
Finland has come a long way from a poor corner of northern Europe to a dynamic high tech economy. The success has been built on a long tradition of stable democratic institutions. A hundred years ago, Finland was the first country in Europe to grant universal suffrage and eligibility to all adults, women and men alike. In the elections of 1907, altogether 13 women were elected, the first women parliamentarians in the whole world – and that was achieved when Finland was still part of the Tsarist Empire.
Our democratic institutions survived the civil war of 1918, the nationalist currents of the 1930’s, and also the critical war years. After the war, Finnish neutrality was a careful balancing act between the two hostile blocs. In particular, Finland could not take part fully in the political integration of Western Europe before the collapse of the Soviet Union. But economically and socially, the country always remained a part of western democracies.
Still, the accession to the EU in 1995 was a big step because we became a full member of the European Union, where the decisions are based on law, not on force. We had always been part of Western Europe, but only then we got a seat around the table where the decisions were taken.
In the history of Finland, freedom of the press and monetary policy were connected very early. The history of two Finnish statesmen, Anders Chydenius and J. V. Snellman describes it well:
The world’s first freedom of information act was passed in 1766 in Sweden. Finland was still a part of Sweden at the time. That law (“His Majesty’s Gracious Ordinance Relating to Freedom of Writing and of the Press”,) provided for the freedom of the press on a level which was unheard of in that century. The driving force was the Finnish clergyman, politician and liberal economist Anders Chydenius, who was one of the leading figures in the Swedish parliament at the time.
After his great success with the freedom of the information act, the same Mr Chydenius was soon expelled from the parliament and sent back to Finland because of his monetary policy opinions. Chydenius wanted the value of the currency be stabilized, in terms of silver, contrary to the official policy of his own party and the government.
It was no coincidence that Mr Chydenius worked for both the freedom of the press and the stability of the currency. For him, both were part of his general political philosophy which emphasized the rule of law, free institutions, and personal liberty for all.
In front of this building there is a statue of Johan Vilhelm Snellman, the Finnish philosopher and statesman of the mid-19th century. Also Snellman personifies the meeting point of monetary policy and the freedom of the press in Finnish history.
Snellman founded modern political journalism in this country, at a time when the Tsarist government was attempting to repress all political debate in Finland. According to Snellman, the freedom and political consciousness of the nation could only develop when supported by a free press, aware of its role.
Later in life, Mr Snellman became the finance minister of Finland, and in1865 he managed to separate the Finnish monetary system from the Russian rouble. The rouble had been destabilized by the Crimean war and the uprising in Poland. Mr. Snellman wanted to stabilize the Finnish currency by linking it to the north European silver currencies of the time. It is this role of Mr Snellman as “the father of the Finnish currency” which earned him the place in front of the central bank here. But we should note that the point of Snellman’s monetary reform was not separatism, but the stability of the currency and integration to the North European financial markets.
Tomorrow you will have dinner in the House of Estates, on the opposite side of the Snellman square. The Finnish diet, consisting of the representatives of the four estates –nobility, clergy, bourgeoisie, and the free peasantry- convened in that building before the independence of Finland. The set-up where the Central Bank and the House of Estates face each other over the square is highly symbolic. It reflects the constitutional position of the Bank of Finland, which is subordinated to the parliament, not to the government as in most other countries.
Let me return from these historical observations to the severe global economic crisis of today. It is still unclear how quickly the world economy will recover from this crisis. What is clear, however, is that there is no simple return to the pre-crisis world.
The trust in unregulated financial markets has all but collapsed. Financial regulations and financial supervision will be strengthened, to ensure better stability. Consequently, the role of the governments and regulators in the financial system will become more prominent.
We can recall how the tremendous growth of the financial markets in the last two decades led to a parallel growth in the demand for instant business news. Markets live on business news, and the news media thrived on markets.
Now, when the role of governments is again getting stronger, the focus of attention might shift to journalism which analyses the new interaction between the political process and the markets. Regulation and supervision had too light a touch before the crisis; when you correct the balance in the middle of the crisis, you easily overshoot.
When private consumption and investment fall dramatically, everyone asks for government stimulus programs. But when the economies start to recover, a timely exit is necessary, but not at all politically easy.
In these challenging times, the value of analytical, in-depth journalism should grow, whether printed or electronic. Stronger government intervention requires a strong and competent free press. This is critical for the legitimacy, quality, and international fairness of governments’ policies. My conclusion is that, if anything, the current economic crisis will underline the value of the free press, and set new challenges not only for us central bankers, and other policy makers, but also to journalists all over the world. The need for analytical media grows – just at the time when it itself faces great challenges over its own economic basis.
Ladies and gentlemen: with these words I want to wish you all warmly welcome to Helsinki, to the Bank of Finland, and wish you the best of success in the enormously valuable work of the International Press Institute.