MINISTRY OF FINANCE

1
Finnish experiences of EU and EMU

• The annual meeting of The Icelandic Travel
  Industry Association
• Reykjavik 2.4.2003

2
Competences of EU and national decision making

• Common areas
• Common markets
• Common agricultural policy
• Economic and Monetary Union
• Harmonised VAT and excise taxes
• National areas
• Taxation, level and structure
• Social security and social policy
• Size of the public sector
• Structure of public spending
• Reykjavik 2.4.2003

3
Fiscal relations between EU and Member States

• EUs expenditure 1,09 of Member States total
  GDP (255,2 euros per inhabitant)
• 80 of total expenditure is used to the common
  agricultural policy (45) and structural and
  regional programs (34)
• About one half of the total income is based on
  VAT and customs duties, another half on GDP
• Finlands contributions and revenues at about the
  same level
• Reykjavik 2.4.2003

4
Price developments during the EU membership

• Medium term inflation target of the ECB under 2
  per annum
• Finnish consumer price index 2,2 p.a. in 1999 -
  2002
• Food prices down by about 10 in 1995 due to the
  common agricultiral policy
• As of 2004 import limits of alkoholic beverages
  are widened substantially (spirits 10 litres,
  wines 90 litres, beer 110 litres)
• Reykjavik 2.4.2003

5
Economic and Monetary Union

• Common monetary policy
• ECB and ESCB aiming at price stability
• Stability and Growth Pact
• Aiming at sustainable public finances, limits to
  deficits, limits to public debt, convergence
  criteria for outs
• Policy coordination
• Broad Economic Policy Guidelines
• Convergence Programs
• Pre Accession Economic Programs
• Structural Policies
• Reykjavik 2.4.2003

6
Main argumets for joining the Monetary Union

• Economic efficiency
• enhances competition
• creates more investments and more jobs
• widens the markets for SMEs
• Macro economic stability
• low inflation
• stable and low interest rates
• no exchange rate risk between euro area countries
• Decision making
• opportunity to participate in the formulation of
  economic policy in Europe

7
National economic policy in the Monetary Union

• Exchange rate is not any more a domestic issue
• Too high inflation detorriorates the price
  competitiveness and it cannot be restored by
  depreciation of exchange rate
• Labour markets and wage formation in important
  role in formulating economic development
• Asymmetric shocks have to be neutralized by
  strong balance sheets of enterprises and by
  sustainable public finances
• Reykjavik 2.4.2003

8
Practical preparations for the Monetary Union

• Started in 1996, coordinating responsibility on
  the Ministry of finance
• 1.1.1999 the new currency was born
• monetary policy in euro
• euro area wide capital and money markets in euro
• single currency, single interest rate
• 1.1.2002 introduction of notes and coins
• consumers in euro
• conversion of ATMs in 4 days
• change in euro in 4 days
• cash payments in euro in two weeks

9
Macro economic developments in Finland in
1995-2002

• Average GDP growth 3,8 p.a.
• Employment rate from 61,1 to 67,7
• Unemployment rate from 15,4 to 9,1
• Consumer price index 1,6 p.a.
• Long term interest rate (governement 10 year
  bond) from 8,8 to 5,0 (latest figure 3,95)
• Public sectors annual surplus from -3,9 to
  4,7
• Public sectors debt from 57,1 to 42,7

10
Monetary Union and firms

• Improved money- and capital market services
• Abolition of exchange rate risk inside the euro
  area. Euro area like home market
• Easier accounting, easier cash management
• Reykjavik 2.4.2003