erkki liikanen : the great recession and its long shadow – youth unemployment speech by mr erkki liikanen, governor of the bank of finland, at the university of tartu, tartu, 30 may 2012. * * * unemployment to center of policy debate the financial crisis has brought unemployment back to center of the policy debate in europe and elsewhere. almost 4 million jobs were lost in the euro area since the start of the crisis in 2008, and employment still remains about 3 million workers below the pre - crisis level. differences in unemployment experiences and youth unemployment reflect shocks and institutions the impressive aggregate figures mask large differences across countries and across worker groups. while some euro area countries have experienced dramatic increases in unemployment, in others the labour market adjustment has been milder than expected. one the one hand these differences reflect the different nature of shocks affecting individual countries. on the other hand, they reflect labour market institutions and policies in place in these countries. the shocks and institutions are also behind the perhaps most worrisome manifestation of the crisis on the labour market, the rise of youth unemployment to record levels. it has risen to a half of the youth labour force ( aged 15 – 24 ) in spain and greece and a third of the youth labour force in ireland. in estonia the youth unemployment rate stands at the current 25 % ( although peaking at 40 % in 2010 ). however, at the same time some countries have experienced only moderate increases in the youth unemployment rate, and in germany it has actually fallen to the current 8 %. earlier debate on shocks and institutions relevant again looking at these recent developments, the debate on the interaction of shocks and institutions behind the rise and persistence of european unemployment seems highly relevant again. the chief economist of the imf, then a professor at mit, olivier blanchard claimed in 2000 in his harry johnson lecture and his article with justin wolfers ( blanchard & wolfers 2000 ), that to explain both the rise and cross country heterogeneity in european unemployment since the 1960s, the interaction between shocks and institutions is crucial. lars ljungqvist and thomas sargent ( 1998 ) blamed the high european unemployment since the 1980s to welfare states ’ diminished ability to cope with more turbulent economic times, such as the ongoing restructuring from manufacturing to the service industry, adoption of new information technologies, and a rapidly changing international economy. assar lindbeck and dennis snower ( 2001 ), in their insider - outsider theory, examine why labor markets are segmented into “

the ratings were due to the support and commitment of the parent company ( ghl ), its historical profitability and its adequate capitalization. you would notice the words “ adequate capitalization ” featuring in both cases. these words add even greater significance to the agreement we celebrate today. if my understanding is correct, the ifc ’ s investment of us $ 75 million involves a conversion of us $ 50 million of subordinated debt into equity, with the balance being an injection of new capital. as a result of the transaction shareholders ’ equity in ghl will be increased by close to $ 400 million. the ifc ’ s decision to partner with ghl through equity participation demonstrates its tremendous confidence in the local financial services industry, despite the challenges the sector currently faces. ghl, in turn, is expected to benefit from ifc ’ s considerable expertise and its association with a strong reputable partner, which has funds available for follow - up investments. from our vantage point, as regulator, this agreement sends precisely the right message to the insurance industry, and that is, the importance of adequate capitalisation. as you may ( or may not know ), with our legislation dating back to 1966, we are one of the few jurisdictions in the world that do not have robust capital requirements for the insurance industry. without doubt, this deficiency contributed greatly to clico ’ s problems. adequate risk - adjusted capital would not only have provided a buffer to absorb losses but moreover, would have acted as a dis - incentive to risk - taking since the greater the risk, the greater would have been the need to allocate scarce resources to capital. i am pleased to say that the bank is well advanced in the development of a new legislative framework for the insurance industry. this new framework will include a robust risk - based capital regime, a standardized actuarial methodology, tighter prudential arrangements, enhanced corporate governance and regulatory and supervisory practices, consistent with international best practices. fortunately some insurance companies, including guardian life and guardian general should be able to adapt easily to the new regulatory structure since they have already patterned their operations in order to meet higher standards. ladies and gentlemen, the central bank is very pleased to demonstrate its strong support for ghl ’ s capital raising initiative. it is an added bonus that ghl ’ s partner in this transaction is a progressive reputable global development institution with deep pockets. this partnership should bring significant benefits to the financial services industry in trinidad and tobago, and the caribbean.