Parliament House, Annual Meeting of Finnish Heads of Mission
20 August 2012
(Check Against Delivery)
It is once again a great pleasure to be in front of you. I would firstly like to thank you for the magnificent work you have done for Finland and the Finns. I have met many of you in action in the field, both in European affairs and in work representing Finnish trade and industry.
You deserve a big thank you.
We will have a separate occasion to look at the promotion of exports and the revamped practices in this area. Today, I want to talk to you about Europe, particularly the euro and Finland?s policy in that regard.
My intention is to discuss firstly Finland?s euro policy, secondly the resolution of the euro crisis, and thirdly the broader outlook for the European economy.
I know that many of you have had a hard time explaining Finland?s euro positions and demands. Today, therefore, I want to examine in more detail and also more personally those aspects that I consider to be essential, and I hope that this will provide a good launch pad for explaining Finland?s strategic intent and views when you return to your host countries.
Ladies and Gentlemen,
With respect to Finland’s euro policy, I want to make three things clear: firstly, Finland’s commitment to the euro; secondly, the need to develop the Economic and Monetary Union with an open mind; and thirdly, how important it is to focus on the main topic, not on side issues.
When it comes to the basis of Finland’s euro policy, the key message that I want you to take back into the field is the fundamental fact that Finland is very committed to the euro. I want to make it clear that there is no uncertainty or ulterior motive in this. For Finland, the euro is an irrevocable choice. For a small economy like Finland that is strongly dependent on exports it is a great benefit to be in the same currency as its main market. Although the euro crisis is dominating the headlines, the fact remains that the euro has brought stability to the Finnish economy. It has also produced very tangible benefits for all Finns. Finnish households’ real disposable income has increased in all income groups during the euro era.
I must also draw your attention to the fact that commitment to the euro is not restricted in Finland to government circles. For example, President & CEO of Kone Corporation Matti Alahuhta emphasised just last week the importance of the euro for Finnish trade and industry. In his view, Finland should absolutely remain within the euro. Alahuhta refused to even consider the possibility of withdrawal from the euro.
Although, at times, there have been confusing messages and news about this fundamental point, it should not be called into question.
Finland is at the heart of the euro ? among those regrettably few euro countries that have managed their economies with discipline and adhered to the common ground rules. In this group, we have great influence and responsibility, in close cooperation with, among others, Germany and the Netherlands.
Another important aspect of Finland?s euro policy relates to the development of the euro and the deepening of the Economic and Monetary Union, which will be under discussion this coming autumn. To my mind, it is obvious that the Economic and Monetary Union should be deepened. The monetary union needs alongside it a more coherent economic policy framework.
When the euro was launched, it was assumed that, spurred by the common currency, the economies of the euro countries would integrate more quickly and that the rules would be obeyed. This just didn?t happen ? the mistake was not in the planning, but in the implementation.
I myself am convinced that a commitment to the euro requires its deepening. We cannot simultaneously say, on one hand, that we give our support to euro, but, on the other, are not prepared to contribute to its proper functioning. Doing nothing in this situation is not a real option.
Discussion on deepening the Economic and Monetary Union is about to begin and we must approach this debate in a constructive spirit ? by exploring hands-on solutions to what we want to promote and how we will find effective joint solutions. A negative attitude will not promote this discussion, nor serve our interests as a euro member. This is not an ideological but a practical matter. It?s good that a thorough discussion on deepening the monetary union will take place in both the Government and Parliament during the autumn.
It?s important to remember that Finland does not have separate Government and Parliament positions within the EU; policy formation takes place so that the outcome is Finland?s position. The Government discusses policy with Parliament, but this does not absolve the Government of responsibility and leadership. We do not negotiate behind Parliament?s back.
I personally do not believe that Finland, as a meticulous country, has anything to lose in the tightening of euro area economic policy and rules. It is obvious that within a jointly agreed framework countries are free to make choices, but breaking the ground rules has its consequences.
Monetary union is a common undertaking ? it cannot be that in the name of budget sovereignty a member of the monetary union can practise a policy that harms others. Even so, I don?t believe that from a principled or ideological standpoint we should slow down the deepening of the euro area; rather we should grasp this opportunity.
Discussion on the future of the euro presents an opportunity to consider all the options in an open-minded manner. It would be most beneficial, however, to focus on options that are probable. For these, the common denominator is roughly the present number of euro countries.
Thirdly, with respect to Finland?s euro policy, I would like to add that we must be able to see the wood for the trees. It’s fine that we have succeeded in our collateral policy and received assurances for the agreed new support measures in accordance with our Government Programme. But let?s not forget the fact that there is no such collateral that would protect us from upheavals in the European economy. Finland?s economy breathes in time with Europe, as we have seen in the latest economic statistics. If the European economy nosedives, the Finnish economy will sink.
Therefore we must not be lulled into a kind of complacency in which ? collateral granted ? we do not have anything to worry about. This attitude could even lead to a false impression of arrogance ? suggesting that we were not interested in the euro area as a whole nor in the economic outlook. That we’re happy that a ventilation window has been sealed, even though a cold gust of wind is blowing from the front door.
The correct objective is growth ? how to get the European economy to grow. Now it?s clear that the euro area economy is contracting and that any eagerly awaited growth will be measured in tenths of one per cent. A more appropriate target should be growth in healthy, whole percentage figures. Growth means well-being, prosperity and employment. Europe needs strong growth and dynamism in order to prosper as its population ages.
In deepening the Economic and Monetary Union and in stabilising the euro, results are more important than preparation. I consider it natural that a proposal be drawn up to serve as a basis for decision-making, like in any other European Union decision-making process. The June European Council concluded that the Member States will be linked closely into this deliberation process and that they will be consulted regularly even in the preparation phase. The Member States, indeed, will ultimately make the decisions relating to the future of the EMU and the euro ? both in the Union’s institutions and nationally. Let’s open-mindedly join the process and stop shouting from the sidelines.
The political debate on the stability of the euro again seems to be disintegrating into discussions about the legal interpretation of preambles to international agreements. I don?t deny that there is a natural place for such discussions, but in the euro area crisis it is not the main political question ? the key issue is euro area growth.
Ladies and Gentlemen,
Growth is therefore essential in resolving the euro area crisis. In this, we cannot be satisfied with what we have achieved. For more than a decade, much has been spoken about the EU?s competitiveness, but concrete measures have proved to be inadequate. European competitiveness has long been reminiscent of the proverbial never-ending project.
With respect to resolving the euro crisis, there are three important things that should be said: firstly, there is no going back; secondly, economic reforms are essential; and thirdly, the euro needs new structures.
1. I believe that valuable time has been lost in the euro crisis as many crisis countries have sought to resolve the crisis with measures that collectively would eliminate market pressure. There is no basis for this. Not even Germany could take on the responsibility of becoming the guarantor for everyone else. Nor would this be healthy. Returning to a time when money was cheap and indebtedness had no ceiling simply cannot happen. No-one has a magic wand like this, not even the European Central Bank.
There has been no lack of solidarity on display, however ? the bailouts have been huge. Finland, too, has shown such solidarity.
Of Finland?s bilateral loan to Greece, around one billion euros has been paid. From this, interest income and fees totalling EUR 53 million had been received by the end of June 2012.
Finland?s guarantee share of the EFSF?s EUR 241 billion funding programme approved in January 2012 is around EUR 8.2 billion. The programme covers the funding of the Greece, Ireland and Portugal bailouts. Of this, around EUR 135 billion is in use, of which Finland?s imputed guarantee share plus interest and over-guarantees is around EUR 4.55 billion.
Finland has imputed liabilities via the IMF and the EFSM totalling around EUR 1.2 billion. These consist of Finland?s imputed share of the funding granted by the IMF and the EFSM to Ireland, Portugal and Greece. Finland’s guarantee share of the EUR 100 billion aid package to Spain is, with certain assumptions, around EUR 3.6 billion. The total sum of the guarantees given by Finland to the EFSF funding programme will rise through the decision to around EUR 11.8 billion.
So there is no reason to tolerate any suggestion that Finland has not shown solidarity.
The euro area crisis will not be resolved, however, simply by spending money. Financial support is first aid, not part of a permanent solution to the problem.
2. Reforms are the only way forward. At the EU level, this means in particular a deepening of the internal market. We need a digital internal market, but intentions have not evolved into concrete measures, even though everyone knows what should be done. Thus, we are constantly losing on growth, jobs and competitiveness.
The biggest shortcomings, however, are in national structures. Excessive regulation, too many restrictions, too much inflexibility. In this respect, Finland is less than a squeaky-clean model student; the Commission does observe shortcomings even in Finland, for example in the competitive environment and the labour market. The crisis will not turn into growth until the euro countries radically reform their structures. More freedom for the business sector, less bureaucracy.
I would also like to point out that I do not accept the view that the southern countries were in some way fundamentally incapable of reform and condemned to inertia. Portugal is a good example of responsible willingness to reform. This is not easy for anyone, but necessary.
Remember the longer perspective ? Northern Europe was in a similar mess a few decades ago. The UK was perhaps the first to realise the limits of its own highly regulated economy and resorted to reforms. In Finland reforms were forced by a recession, in Sweden by a banking crisis, and in Denmark and the Netherlands by a collapse of competitiveness. Germany, too, made reforms only a decade ago, and the results can now be seen. My point is that in the north reforms were born of economic necessity, not of any special sense of enlightenment. Now these reforms have to be implemented without delay throughout the entire euro area. There is no alternative to a policy of reform.
3. The management of the euro area should also be reformed in this crisis. We should, of course, remember all that has already been achieved ? tighter economic policy coordination with credible limits on deficits and sanctions. Now we are taking steps towards a banking union ? particularly credible euro-level supervision. I believe in the necessity of genuinely joint banking supervision, and also that a European solution should be found for deposit protection and bad banks. But not with taxpayer’s money; rather by increasing the sector?s own responsibility.
I don?t believe that the development of the euro area can take place fully without considering new solutions, and that these should be examined as part of the autumn discussions on deepening. Moreover, it is essential that the development of the euro area does not simply mean that some give and others take. All measures will require strict reciprocity. The recipients of aid must, in return, commit to undertaking own recovery measures and reforms. Now and then the debate has been turned on its head ? as if the crisis countries themselves were completely innocent of the high level of interest rates.
Finland has therefore proposed, among other things, covered bonds. An easy way to facilitate one?s borrowing is to provide property or income as security for bonds. This is what Finland did in the depths of the early 1990s’ recession, when foreign funding was drying up. These securitized models should be studied with an open mind ? those in need of aid cannot simply say that it does not suit them.
I myself have also spoken of a model in which the strong euro countries ? those that fulfil the Maastricht criteria, those which do not fall within the scope of the deficit procedure ? could introduce joint bonds. This would create a stronger and more liquid euro bond market and at the same time a strong incentive to comply with the rules. But this, indeed, could only take place in such a way that it involves the strong euro countries that adhere to common ground rules.
Ladies and Gentlemen,
I turn now to the third part of my outline, and at this point I would like to give room for optimism ? Europe has a good future, and no room should be given to euro pessimism. The debt crisis is not the whole picture of Europe?s present economy.
I cannot stand the kind of sophistry that paints Europe as a continent in decline that the chinas, americas and indias are leaving far behind. The fact that the emerging economies are catching up does not mean that they are even on the same lap yet.
Even at the moment, there are many highly competitive economies in Europe. There are six EU countries on the World Economic Forum?s list of the ten most competitive countries in the world. Some of the best companies and universities of the world are in Europe. In other words, the economic foundations required in the 2010s are in good shape. The prerequisites for growth are clear, but all this requires the correct policies.
1. To put it really simply, I could say that Europe has both very good economies and very good companies, but the operating environment on a European level ? for example, the internal market ? is not what these companies and economies deserve. Good companies, skilled workers, poor governance.
Examined internationally, the euro area, moreover, does not as a whole stand up badly when compared with the United States or Japan. The United States can scarcely lecture us about debt problems, but it could teach us a thing or two about an efficient internal market.
2. European know-how can hold its head up high in the world ? many aspects of Europe and European companies are copied around the globe. Although the world is less eurocentric than in the past, Europe is still a model in many ways. There is huge demand for European technology and brand products in the emerging economies. Europe has world-class major companies, and the investments of European companies have been absolutely essential in the growth of many emerging economies. We have a good head start. But Europe?s problems start precisely with the shortcomings I described above ? an inadequate internal market, laziness in reform and stifling regulation, which adversely affect the growth of European companies into the global premier league.
It tells us something that no European growth companies have risen in recent decades into the world?s elite. The latest Forbes 500 list has only one European company founded after 1975 while California has 26.
3. Fundamentally, the euro area crisis is a political crisis: we have been unable to act in a sufficiently goal-oriented way and to create conditions for growth. In the euro area crisis, it has been mainly populists and economists who have made themselves heard. Now it’s time for politicians to solve the crisis. That?s why deepening of the euro area and European growth policy should be addressed in a constructive spirit here and now. The euro area crisis is a political crisis, showing an inability to make the right decisions.
Ladies and Gentlemen,
It has been a pleasure to speak to you directly and more personally. This is how the euro area crisis looks from my perspective.
When you return to your host countries, I would like you to keep three basic facts clearly in mind:
Finland is committed to the euro ? at the very heart of it ? and is willing to develop the Economic and Monetary Union in a constructive spirit.
The key to solving the euro area crisis is growth, and growth cannot be achieved without reforms. The debt crisis is not the whole picture of the European economy ? the European economy has great strengths and we should not give in to euro pessimism.
Fundamentally, the euro area crisis is political in nature, and it must be solved by policies that will free the European business sector to produce growth and well-being. I believe in Europe: the answers to the crisis will be found together, not by entrenching ourselves in national foxholes.
Thanks to you all.