Despite their outward modernity, many people across the Nordics find their moral compass in Jante Law, an early 20th century concept which basically says: You are no better, no smarter and no more important than anyone else.

A touch of such humility, according to Finland’s central bank governor Erkki Liikanen, is being adopted by the most unlikely of audiences — European and American policymakers.

And it is already bringing benefits, Liikanen said. “Because it has hit us all and so much is new in the collapse of the international financial system — it has made people humble,” said Liikanen, who sits on the European Central Bank’s rate-setting Governing Council.

“There is nobody lecturing now, people want to find solutions. This kind convergence of views has been overwhelming compared to any other experience in my past,” he said in a speech in Oslo on Friday.

U.S. President Barack Obama came to Europe “to listen” instead of preach, as his predecessor was accused of doing. And joint global action, Liikanen says, has already done much to bring back financial market liquidity in the wake of last year’s crunch and is now tackling the problem of banks’ capital.

Liikanen said the crisis could also refine the way central banks make decisions, perhaps place more emphasis on issues such as asset price bubbles and the real economy in addition to closely analysing monetary aggregates detailing money flows.

“I am sure that when we get out of this crisis, all those who think we need one model by which to run our monetary policy will be more humble,” he said in a thinly veiled swipe at monetarists. “In monetary policy, it is good to look at all the data you have, it is good to learn.”

But he said conducting monetary policy without giving money a role is like studying theology without giving God a role. 

The ECB itself took first steps on a new path on Thursday, when it decided to start buying covered bonds for $80 billion.

 So are the global media underplaying humility and a spirit of cooperation learnt from the crisis? Or is Liikanen just being polite?

Five things to think about this week:

– IS RATE OF ECONOMIC CONTRACTION SLOWING?
Some economic reports have been pointing to a slowdown in the pace at which economic conditions are deteriorating — eg U.S. home sales data; auto sales data; PMIs; UK lenders seeing improved credit availability in Q2, and PMI data. While job destruction is continuing apace, signs that inventories are being drawn down leave room for hope for those inclined to look for the silver lining, or even seek a bottom to the current downturn.

– REBOUND MOMENTUM
Investors are wondering whether equity markets can extend a solid Q2 start now that major fiscal stimulus announcements, rate cuts, QE  (in most developed economies), the London G20 meeting, and other big milestones are largely behind them. A sustained narrowing of corporate spreads, the VIX clearly breaking out of ranges that have held post-Lehman, and any shift out of defensive stocks are just some of the signals that would suggest that the rebound has legs.

– QE CLUB
The European Central Bank opted to wait another month before deciding on whether to join the QE club and unexpectedly left itself room for a further refi cut. By contrast, curveballs are unlikely from Bank of England and Bank of Japan policy meetings given their quantitative easings are under way. The relative performance of their respective sovereign debt markets is in focus as a result, as are the inflation outlooks being priced in by index-linked paper at a time when some are pondering the longer-term fallout of QE policy. The Reserve Bank of Ausstralia also meets this week week but markets finding it tough to call the outcome.

– EMERGING
The MSCI emerging market index’s year-to-date performance is in positive territory and investors’ willingness to venture further into these waters could rise given the International Monetary Fund is ready for new business with a hefty increase in resources and has found its first client for the new credit line that doesn’t impose conditionality for those strong economic track records. Just knowing such a backstop is there could foster confidence in well-run emerging economies and see their outperformance against less well-thought-of peers become even more pronounced.

– FIXING BANK BALANCE SHEETS
A drive to improve health of financial sector balance sheets is being pursued at regulatory/industry/firm levels. M&A activity, rights issues, and bond buybacks or exchanges are being deployed to improve health of bank capital. Relaxation of mark-to-market rules in the U.S. is expected to flatter Q1 earnings results — and has already helped U.S. financials. Interest in how many U.S. banks plump for the option given not all European banks moved away from market-to-market rules when given the choice in 2008. Stock markets look more inclined to hope for a break in financial sector gloom.

The European Central Bank has cut interest rates to a record low of 1.5 percent and although it’s expected to cut further to 1 percent by mid-year, this still means benchmark borrowing costs in the euro zone will be higher than the UK, the US, Canada and Switzerland, where official rates are already at 0.5 percent or lower.

But euro zone residents are actually enjoying more favourable credit conditions than the ECB’s “official” rate, the main refinancing rate, would suggest. 

 The Commerzbank branch opposite the ECB’s Frankfurt headquarters is offering mortages at a five-year fixed rate of just over 3.5 percent,  two percentage points cheaper than the average cost just a few months ago.  This is partly because the ECB, in addition to cutting rates, has flooded money markets with liquidity, meaning banks can borrow money amongst themselves more cheaply than the official benchmark rate.

  Economists I’ve spoken to in the last few months have dubbed this a de facto zero interest rate policy, or ZIRP by stealth.

Average overnight interest rates or EONIA, which would normally track the main refi rate, have fallen steadily in the last few months arnd are down to below 0.9 percent, while Euribor three-month market rates are around 1.6 percent.

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Even ECB policymakers such as arch-hawk Axel Weber say that the ECB’s overnight deposit rate, which is set one percentage point lower than the refi rate at 0.5 percent, has taken over the role as the floor for money markets, while the refi rate is acting as a ceiling.

One more 0.50 percentage point rate cut could take this rate down to zero, putting money market rates on a par with those in other regions while still allowing the ECB to keep to the moral high ground and argue that it is keeping up its guard against future asset price bubbles and inflationary pressures.

“If they go to 1 percent for the refi and put the deposit rate at zero, it means we would have an overnight money market rate at 0.2-0.3 percent, which would be for all intents and purposes a zero monetary policy,” Bank of America Merril Lynch economist Gilles Moec said.

The European Central Bank has to cut official interest rates by at least another percentage point to stop the real cost of borrowing for households and firms jumping in the summer as inflation plummets.

That’s the logical conclusion of comments in recent weeks made by ECB policymakers including Italy’s Mario Draghi and Germany’s Axel Weber, who are watching inflation-adjusted borrowing costs closely to gauge the impact of cuts in official interest rates on the real economy.

One key factor in the euro zone’s economic recovery will be the real cost of borrowing, the interest rate paid on credit after adjusting for inflation, or any loss of purchasing power.

Although there is a long academic debate about how to calculate this, several policymakers have done a simple equation of taking annual inflation (1.1 percent in January) away from the current benchmark interest rate (2.0 percent) to arrive at an estimate of the real cost of borrowing of just under 1 percent.

“In the euro area the real short-term rate is now below 1 per cent; if official rates had not been cut, it would have risen considerably because of the fall in inflation,” Draghi said in a speech in Milan on Feb. 21. “The Governing Council is keeping a close watch on the real cost of money.”

The catch to this argument is that euro zone inflation is expected to fall to zero or lower in the middle of the year, which will push real borrowing costs up unless the ECB slashes official rates by an equivalent amount. If it keeps its refi rate at 2.0 percent, the real rate would also be 2 percent — or double the level it is now.

Economists fully expect the ECB to cut rates to 1.0 percent by the middle of the year, given the dismal outlook for growth as well as very low inflation. But they warn that the real rates argument could backfire on the ECB, which is already under fire for not having cut interest rates as aggressively as its peers in other countries, given inflation is expected to rise again in the second half of the year.

“Does that mean they would follow through by raising rates to compensate? That’s why I think they should be very cautious in using this argument,” said Deutsche Bank economist Mark Wall.

The world’s second largest economy, Japan, and Europe’s largest, Germany, all of a sudden have a lot in common. 

Their most striking resemblance in recent weeks is the breathtaking speed of economic decline, with output ransacked by a collapse in world demand for high-quality manufactured goods and an overvalued currency.

The fundamental problem is simple and doesn’t take an economist’s model to explain. At this stage of the financial crisis, who wants to replace a fully-functional Audi they bought a few years ago? What’s wrong with the 2007-vintage Sony PlayStation connected to the two-year-old Bravia or Grundig flat-screen TV? And who in their right mind would want to import the stuff in bulk when the euro and the yen are so expensive?

It’s very simple, but somehow analysts remain nearly universally stunned.

News that German industrial production plunged by 4.6 percent in December, nearly double the Reuters consensus and the steepest decline since 1989, triggered much handwringing. “Really horrific”, one analyst gasped. “Pretty horrible”, another muttered. “Devastating”, another shrieked.

Those were more or less the same words used to describe the near-10 percent collapse in Japanese industrial production, driven by the same trouble from those same frugal global consumers. Compounded, of course, by even more thrifty domestic consumers, as in Germany.

Perhaps the ever-hawkish European Central Bank, which did not think it necessary to seriously consider cutting rates this month, is now warming to the idea that Germany’s economy has completely frozen over.  ECB über-hawk Axel Weber appeared to be sporting a more dovish feather earlier on Tuesday — but only after flying halfway around the world to give a speech in Kuala Lumpur.

“We should not at this point avoid to lower rates aggressively, because we understand at the current juncture all indicators look like the economy is in free fall,” Weber said.

Perhaps the ECB may have more than one 50 basis point interest rate cut left to deliver after all?

All the G7 countries outside the euro zone now have interest rates of 1 percent or less, prompting some grumbling in various financial quarters that the European Central Bank is being particularly stubborn in keeping its rates at 2 percent.

Now comes an interesting take on this from JPMorgan Asset Management which suggests the gap may have more to do with egg on the face than monetary policy. 

“There is a school of thought,” it writes in a new note “that the ECB has been in a state of denial ever since it decided to raise rates last July.  An organisational behaviourist would observe a desire to preserve ‘face’ in the deliberate way by which the central bank has reversed its previous tightening stance.”

Whether this is the case or not, it does not bode well for European equities or the euro itself, the firm says, arguing that equities are further away from being upgraded than U.S. stocks as one result of the higher rates.  As for the euro , JPMorgan AM says there is plenty of scope for it to be punished.