Europe risks repeating a familiar mistake: tightening too soon

By the chief economists of the Nordic trade union confederations:

Disregard for ordinary people and basic economic relationships continues to hold the Nordic economies back. For economists like us, this comes as no surprise as we meet regularly – most recently in Finland – to discuss common trends and policy issues. Finland provides a revealing case, and the Nordic experience holds many lessons for all European countries.

Recent consolidation measures by the far-right Finnish government were intended to boost employment while strengthening the fiscal position. Yet the positive effects have not materialised. Instead, employment has deteriorated and the unemployment rate has risen to the highest level among EU and OECD countries, and the public surplus is still nowhere to be seen.

Economies are built bottom-up, not top-down

The current Finnish government has prioritised tax cuts for high-income earners and corporations while introducing adverse labour market reforms and cutting social security benefits for ordinary people.

Distribution matters for the level of activity in the economy. Ordinary people, with smaller economic margins, have a higher marginal propensity to consume while high-income earners save more of their marginal income. Therefore, the ongoing redistribution is expected to reduce economic activity. This is especially true when unemployment is high, job openings are few, and any behavioural effect on job seekers has very limited potential to affect the employment rate.

Fiscal discipline is necessary — but without demand, it can become self-defeating

To deliver sound public finances, one needs to carefully consider the cyclical situation.
As global inflationary pressure keeps rising, monetary policy is not expected to support demand. On the contrary, policy is already tightening, even though the surge in inflation is driven by global shocks to energy prices that lie outside central banks’ control.

At least, fiscal policy should not worsen the situation. Fiscal multipliers — that is, the change in economic output resulting from a change in government spending or taxation — are significantly larger in economic downturns than in expansions. When demand is weak, consolidation most often suppresses activity far more than the size of the budget cuts.

Without cyclical consideration, fiscal policy risks lowering living standards, increasing unemployment, and weakening the economy without strengthening public finances.

A stable wage share is not only just, it can also drive demand

Recent inflationary shocks have already suppressed the share of economic surplus allocated to wages and increased the share going to profits and capital owners in most European economies. This undermines the social contract.

A stable wage share is not only just, it is also essential to ensure broad economic distribution that can support demand in the economy. An economy for all can only be built on the foundation of strong social partners. The Nordics and other European countries should continue to build pro-labour institutions and support unionisation as well as collective bargaining in order to strengthen the foundation that has made the Nordic economies the envy of much of the world.

The Nordic experience shows that strong institutions and coordinated policymaking can deliver growth, stability, and fairness. But even these systems come under strain when macroeconomic policies pull in the wrong direction.

The Nordic countries have learned the importance of fiscal credibility. We must now relearn the equally important lesson that demand, employment, and social cohesion are not secondary objectives — they are at the core of sustainable growth.

Patrizio Lainà
Central Organisation of Finnish Trade Unions SAK

Torbjörn Hållo
Swedish Trade Union Confederation LO

Roger Bjørnstad
Norwegian Confederation of Trade Unions LO

Damoun Ashournia
Danish Trade Union Confederation FH

Róbert Farestveit
Icelandic Confederation of Labour ASÍ

This article was originally published in French in Le Monde on 13th August 2026.