On the European model of integration in a global context

Because of systemic constraints in the so called leading nations we cannot wait for the Obamas and even Lulas of the world to show the way for the deep changes we need. Political, cultural and moral initiative that will inspire hope on all continents can and needs to come from many places.

In the golden age of the Nordic model, the small North European area that I come from, had disproportionate global significance in pro-people politics. Many of us in these countries still work to preserve and take further the Nordic tradition. We must, however, humbly admit that the Nordic identity has weakened in the last 15 years as we have been been overwhelmed by globalisation and EU-integration.

In this spirit I want to join the large number of people on all continents who enthusiastically welcome the recent wave of positive developments in Latin America, including also many smaller countries, such as Bolivia, Ecuador and Paraguay. I recognise the enormous difficulties you are facing, including the current crisis in Honduras. Nevertheless I want to welcome the quality and direction of development in many South and Latin American countries in the last few years and the efforts and the decisive contribution of ordinary people from the struggling classes to them.


Regional integration in the context of collapsing neo-liberalism, authoritarian capitalism and the search for cultural alternatives

1. “Neoliberalism died in 2008-2009. ” Is this statement true or false?

It is true in a limited sense. The state is back in the economy. Simultaneously deregulation, privatisation and trade liberalisation are all on a hold or they are rolled back. George W. Bush goes down in the books as the greatest socialiser of banks and enterprises in world history. Market fundamentalism will not come back easily as an economic orthodoxy. So far so good.

Nevertheless, as we have seen during the past months the demise of neo-liberalism does not mean the end of capitalism nor does it automatically change the balance of power or fundamental policies. Banks are bailed out and the costs of enterprise failures are carried by tax-payers. In the EU the centralising and liberalising Lissabon treaty is back on track. In India the elections were won by a centre right still pursuing growth through exports, international competitiveness, intensified exploitation of domestic natural resources and deepened integration into global markets. Obama brings the US back on a more Keynesian track and into multilateral cooperation, but his victory was more due to the catastrophic results of Bush’s politics than of a desire for fundamental redirection of US power. Financial regulation remains weak, tax havens still work as usual and even the Tobin tax awaits its implementation. In the global arenas, at WTO, the World Bank or even in the climate negotiations positive news are yet to come. All in all, it is clear by now that radical shifts in power structures, economic distribution or national or international policies are not easily within reach.

The main lesson of the past winter is that neo-liberalism was always only a radical fashion, a tip of the iceberg. When it goes away we can see again clearly that the modern state in most countries remains committed to a development model in which a mix of capitalist, growth dependent exploitative economy and consumerist, individualistic, civilisational values remains central. The global trend in the last years and months is not that neo-liberal capitalism is replaced by socialism, a new green politics or even social liberalism but, unfortunately, by authoritarian capitalism. In fact, what we witness on all continents is a colossal lack of political and cultural creativity in the state and corporate sector. Hence, and this is my first point today, people seeking social and ecological justice need to recognise that the shift to politics for sustainable futures that the world so badly needs will not come about just because neo-liberalism goes away.

The good news is that with neo-liberalism gone, with George Bush down and out and with the states and business sector at a loss both intellectually and morally we can begin to understand our responsibility and define our tasks and challenges more clearly than has been possible during the past ten years.

Everywhere people recognise that the ruling elites are failing and at a loss. We need a new internationalism that is not founded on state to state cooperation or market integration. The regional cooperation we are looking for must protect and build upon people-to-people solidarity and conviviality. It must draw its strength from the confidence and creativity of ordinary people who are engaged in a multitude of local struggles and in a plurality of efforts towards decolonisation and civilisational renewal.

2. Too often only the global and national level are recognized as relevant political arenas. They are important, but should not make us overlook the relevance of the local and regional levels. From the perspective of radical and comprehensive democracy building from below and strengthening the disempowered is essential in all responses to the crisis. Democratising the politics and economy of globalisation is important but difficult. In global efforts large corporations and states still have a relative advantage over other actors. Hence, as long as power structure are not altered, we should not expect too much good to come out from institutions working on global regulation of e.g. finance and climate.

The experience of the past years has shown clearly the inadequacy of the current structure, instruments and policies of global financial regulation and economic development. The Bretton Woods institutions and the WTO-framwork have been insufficient or even dysfunctional for development, ecological responsibility and economic stability, especially for the global South. This much should now be uncontroversial. It remains open, however, what the implications are for the politics of global governance and the role of regional and national politics.

Regional politics needs to be recognised more than before as a relevant arena of political initiative in its own right. The regional arena is too often considered to be only complementary to nation states and global institutional arrangements and global governance. Regional cooperation in the South can provide protection from dysfunctional and failing global institutions. It can also strengthen the bargaining power of the South, especially the smaller countries of the South, in global politics. Thirdly, regional political instruments may play a huge role in achieving at the regional level governance services and functions that are not available at the global level. These can include for instance protection and support of micro and small enterprise as well as of local knowledge systems and forms or democracy, the launch of local and regional currencies with high social and ecological value, and so forth.

3. State borders are becoming more porous than before, people are meeting and mixing more than before. The future belongs, as Indian social philosoper Lohia said fifty years ago, increasingly to “the bastards.” We see every day along the Southern borders of the US and the EU that efforts to keep borders closed and nations clean lead to disaster. Regional cooperation presents major opportunities if the physical and cultural mobility of peoples in the region and between them is enhanced. The opposite politics of regional integration which allows mobility only internally and is closed to the outer world, with exceptions allowed only for selfish reasons or on market premises is a false and dangerous model.

In societies atomised socially and empoverished culturally by late capitalism and consumerism nation states are often seen as competitors. The sense of competition fosters widely felt anxiety. As we have seen in South Asia, Europe, North America and elsewhere the consequence is often un upsurge of xenophobic identity-politics, increasing militarisation and securitisation and even terror by states and non-state agencies.

Regional protection and strategic cooperation should be built with a clear commitment to global solidarity. (More on this below.)

In building regionalism for a new internationalism it is essential that we go beyond the current logic of competetive identity politics. In this a people-to-people cooperation and diplomacy, as pursued for instance in the World Social Forum and by a multitude of innovative smaller groups and movements during the past years, can play an important role. The legitimacy and need for non-state political cooperation is obvious and in regional cooperation as well tax-payers money and other public resources should not be exclusively spent on state and market driven integration.

Having said this let me stress that our efforts must complement and give life to, but not undermine the UN centred multilateral system. The G-192 that met in June 2009 for a UN General Assembly on the financial crisis and its impact on development also needs strengthening.

4. Regional cooperation in the South should not only protect the weak today. It should also lead the world out of its multiple crises on the long-term. Globally the political debates seem to be moving from a discussion of separate crises to a discussion of inter-connected crises: of the finance sector, the world economy, political governance, food, water, development and climate. I welcome the synthetic framework of this conference. I only want to add that not only are the different areas of crisis interconnected and systemic. They should all be seen as symptoms of an underlying cultural crisis; a crisis of development models and the fundamental aspirations and ideals of modernization.

My fourth suggestion is that all political reforms and initiatives now of the short and medium term should be shaped so as not to hamper but rather support a civilisational shift in which the ultimate goals and ideals of development are reconsidered. It is clear that people, states and corporations in Europe and America must be pressed to responsibility and that those of us who belong to the global North must pay for the mess we have caused during five hundred years through exploitation of other continents and mother earth. Nevertheless, for historical, cultural and social reasons the global North cannot be trusted much in the search for new civilisational visions and new socially and ecologically enriching models for progress and development. The global South must take the lead. Regional cooperation in the global South and between increasingly self-reliant but co-operating Southern regional blocs can be essential for gaining economic, political and cultural autonomy from Europe and the US, serving global solidarity and environmental responsibility.
Latin America, with its strong tradition of mass participation in politics, progressive left movements, liberation theology and its great cultural variety should be a strong region in this search. In recent years the increasingly lively alliances throughout the region of indigenous and other emancipatory movements, that has given one country a president coming from the indigenous movements and another country a constitution that recognises Mother Earth is of particular interest for people on all continents who are searching for new political tools, ideas and visions. In decolonising development, articulating new visions of good life (buen vivir) and building radical democracy the movements South America are today a great source of energy and hope for people on all continents. It is important for us all that this political and cultural resurgence is placed at the centre of regional integration here.

5. Nuclear proliferation, the totalisation of war through the war on terror and anti-hegemonic insurgency with little or no dependence on states, and the largely uncalculable threats of new military technologies combining e.g. new IT, nano-technology and genetic engineering make 21st century questions of war and peace more intractable than before. For this reason pro-people regional cooperation should systematically promote cultures of sustainability and peace.

Peace-politics cannot imply thoughtless pacifism. We can still draw insight and inspiration from the Gandhian notion of and experiments with truth-force (“satyagraha”). This year 100 years have passed since Gandhi wrote his definitive statement, the pivotal pamphlet Hind Swaraj or Indian Home Rule on board a ship between Britain and South Africa. The new politics of global security that we need, must, as Gandhi and others have clearly seen long back, be linked to the construction of pro-people and environmentally sound development models. These can emerge on the basis of the variety of sustainable life-styles, democracies and civilisational values existing today especially in the global South.

The industrial growth centred development model that first emerged in Europe and North America in the 18th to 20th century needs to be seriously reconsidered. The global record seems to be that industrial growth economies are not capable of overcoming poverty and deprivation everywhere. Without a commitment to peaceful cooperation and civilisational alternatives zero-sum competition for growth and unsustainable life-styles among nations and regions is likely to dominate global politics in the 21st century. Then, regions are more than likely to develop into competing, protectionist blocs forming strategic alliances. Even under the condition of functional interdependence globally of the competing blocs, climate change, development failures and resource depletion combined with nuclear proliferation and the evolution of new military technologies may easily lead to completely new types of wars with planetary consequences. Hence, regional cooperation in Latin America, in other Southern regions and between them needs to be globally oriented towards cooperation and solidarity, not competition. It may be helpful in this regard to think of the global North in a new way: not as the developed regions that have made it, but as regions suffering from serious development failures. Even quite conservative new models for measuring overall success in development, such as the so called Happy Planet Index, indicate that life-conditions in the US, Sweden, Germany and other similar countries reached an all-time high in the 1970s and haved steadily deteriorated since then.


Since the early 1950s the emergence of the European Economic Community, the EEC, and its sequel, the European Union, these organisations have been the dynamic centre of European integration. The EU is now the most advanced model of regional integration globally. It has the largest internal market, the most ambitious common political instruments and the tightest juridical integration.

European integration has gained popular support and political legitimacy from two great promises. It has been seen, first, as a peace project and, secondly, increasingly in later years, as a project for benign, political governance of corporate driven globalisation. Without these impressive ideas European integration could not have been brought to its present level. Both ideas are now in a crisis.

I wish to bring out some lessons for regional integration from the fifty years of building the European Union:

(1) Peace ambitions may undermine democracy:

Since its inception in the 1950s the EU has been seen as a device to overcome the belligerent tendencies of nation-states. Drawing on analysis and inspiration coming from the 18th century German enlightenment philosopher Immanuel Kant and others, the idea has been to promote peace through functional integration of the national economies in the region.

The dark side of this idea was that EU integration has worked top-down. The people have been seen as prone to aggressive sentiment. Integration has proceeded on the initiative and under the leadership of bureaucratic elites. Economic integration has intentionally been built as a device that will promote political and other integration later, behind the backs of the reluctant citizens. This top-down heritage has contributed to the creation of the so called democratic deficit of the European Union. In recent years this deficit in Europe has become obvious to all. The repeated side-stepping of the outcome of national referenda on EU-issues, such as the French and Dutch rejection of the EU constitution and the Irish rejection of the Lisbon Treaty is rapidly leading Europe to a very serious and deep crisis in democratic legitimacy and participation.

The deficit is structural: decision-making in the EU is so undemocratic that, ironically, the EU, if it would be a nation, would hardly qualify for membership in the EU. Because of the post-war technocratic logic of EU-integration the democratic crisis in Europe is also very deep-seated. It will take time to overcome it. At the moment, the effort by EU-leaders to enforce the Lisbon treaty show that so far the EU is on the wrong track in this regard.

The lesson to be learnt is that regional cooperation must, much more than has been the case in Europe, be built democratically, with explicit consent and support by the citizens.

(2) Peace ambitions regionally may be counterproductive for peace globally:

In the aftermath of the second world war the sound ambition of the architects of European integration was to prevent the outbreak of war between European nations. Less attention has, for understandable reasons, been paid to the contribution of Europe to global security. The consequence is that wars between the leading countries of Europe has become highly unlikely. Simultaneously the integration between them runs the risk of becoming, or has perhaps already become, counter-productive for global security. In the great wars of the Bush regime – on Iraq and Afghanistan – a new obscene division of labour is emerging between the trans-Atlantic forces. The USA carries the main burden of classical warfare, the EU steps in economically and logistically in the aftermath of the war, taking care of crisis management. This, it may be argued, is the new logic of Western, imperial military hegemony.

If other regions follow the EU model and turn to regional integration of foreign policy, security policy and trade policy as instruments for selfish and hegemonic ambitions the ensuing world order may easily end up repeating the calamities of what we in Europe call the westphalian order of competing, sovereign nation states, at a new, higher level.

(3) Regional cooperation for global governance needs to be built democratically from below. Special care must be taken at every step to keep economic policies within democratic control and to avoid spill-over from economic policies on social protection, environmental protection and other vital policy areas:

Since the 1980s the main left and centre argument in favour of deepening European integration has no longer been the argument from peace. The new argument has been the argument from globalization. The main ideas are familiar to all by now. Technological changes have made possible deep changes in the economy. Deepening economic interdependence between nations and regions, the increasing importance of a globalised capital market and the increasing size and power of transnational corporations have overburdened the steering and regulating capacity of nation states. For these reasons new instruments for political regulations are called for. The European Union has been seen by many as a much needed instrument for improved global governance of the economy at first, and now increasingly also of climate change, migration etc.

For this and other reasons the primacy of economic policy instruments is a deep-seated feature of European integration. The creation of a common internal market and of common external economic policies, especially as regards trade, has been a priority in European integration.

In this tradition markets and trade have often been given politically very expansive interpretations: in the EU (as in the WTO) liberalisation of trade in goods has not been enough. Free movement of capital, labour and services have been seen as equally natural parts of economic integration on liberal premises. In consequence, the more the economic instruments have developed the more they have dominated over other policy areas in which decision-making has been more confined to the national level. Social policy, workers rights, health and education, environment have all suffered from a subordination to common economic policies. The strong efforts by trade unions, left governments, environmentalists, women’s movements and others to change the balance of forces in Europe have so far met with, at best, half-success. Recent key developments, such as the text and ratification process of the Lisbon Treaty, the formation of Europe’s new global economic policy, and the struggles over the working time, services and chemical legislation at the European level, show that corporate interests and narrowly defined economic goals still tend to dominate EU-policies.

The lesson for other regions is again negative. It is extremely dangerous for democracy, ecology and social justice to make economic cooperation the heart of regional integration.

(4) Regional integration is possible but needs to be democratic:

Let me close on a more positive note with some recommendations drawn from the European experience:

(i) Regional integration needs to be built democratically. Economic integration should be subservient to social justice and radical democracy.

To this end, there are four fundamental conditions:

One: the fundamental principle of democracy, that all state power and all power of regional authorities belongs to the people, must always be recognized formally. (In the EU this is still not the case!)

Two: It is imperative that the juridical hierarchy, including the effective control of constitutional rights and freedoms of people and nature, is never subordinated to economic policies or juridical agreements regulating the economy. In the European Union the primacy of economic rights and freedoms at the level of the common regional market and in trade agreements infringes more and more on the human rights achievements. This is not only a concern at the international level where bilateral and multilateral free trade agreements are known to undermine human rights. Also internally in Europe social rights achievements have some times been undermined by the economic logic of integration.

Three: the peoples must always have effective control, before the fact and after the fact, of the balance of powers between regional and national authorities. In practice, referenda about the division of power between the regional and the national level is an important instrument. It could be complemented by the power of national parliaments to question and interfere in the formation of this balance by.

Four: the political logic of democratic regionalism by the people and for the people should be pluralistic and decentred. When the peoples are in effective control of the balance of powers different countries will participate in different ways in regional cooperation, taking exceptions as they see fit and forming sub-units of tighter cooperation as they see fit. This should not be seen as a problem. The example of the European Union shows that even when integration is rigidly designed to create a Union of just one kind of members the end-result is unlikely to conform with the plan. In actual fact different European countries have different between them quite different kinds of membership in the EU both politically and juridically.

(ii) Economic policies of regions should learn from the failures of the neo-liberal experiments in the EU and elsewhere:

  • A Latin American Central Bank issuing a common currency that may in the long run function as a reserve currency should work under democratic political guidance and may then pursue socially and ecologically responsible monetary policies;
  • The political weight and influence of large corporations tends to be relatively greater on regional than on national and local levels of political decision-making. In order to curb excess corporate influence strong measures must be taken at all times. They need to include very tight transparency regulation and, as I believe, innovative, radical anti-trust regulation. One possibility is legal regulation of the maximum size of private corporations and another is sealings on individual ownership and other engagement in corporate activity.

(iii) Regional cooperation may have democratizing effects on the relations between big and small countries. For this, effective, almost excessive formal veto powers by smaller members states in the regional organisations are needed to counter the effective and lasting, greater political weight of larger members.

(iv) Regional, elected parliaments can play an important role in a new regionalism. The elected parliament should not be subordinate to regional non-elected bodies, but the extent of its powers needs to be controlled from lower levels.

(v) The world has seen the emergence of many special economic zones lately. In a new kind of regionalism special zones for people’s power from below can be created, where people and nature are protected against corporations and states. In Bolivia there seems to be encouraging experiments along this line that could serve as a model for further work.

(vi) The European experience shows that regional cooperation can be effective in enhancing the power and economic and social status of oppressed minorities and underprivileged regions. The mechanisms to achieve this need careful attention.

(vii) If we manage to correct the imbalances mentioned the European Union shows that cultural and social solidarity between peoples with a long negative record of wars is possible and can be promoted through regional cooperation.

(viii) Lastly, as compared with Europe, Latin America (as well as e.g. South Asia) has four distinct advantages as compared with Europe in its effort to build pro-people, ecologically sustainable regional cooperation to the benefit of the global community.

  • The first is a commonality of cultural values and identity. I do not want to under underestimate the cultural diversity of the Americas. But it seems to me as an outside observer that the experience of more than 500 years of colonialism and imperialism serves as a source of solidarity between the peoples in Latin America.
  • The second is common languages: Spanish and Portuguese are closely related. Again I hope that I do not offend the many people with other languages as their first language if I say that the conditions for a common public space, and hence for radical regional democracy, is more happy in Latin America than in some other regions. In view of recent experiences elsewhere this is likely to be more important for post-national democracy than computer-intensity.
  • The third is common interest. Again, I do not want to overstate the case, but it appears to me that all countries in Latin America could gain in economic and cultural terns from deepened cooperation between them and also with other Southern regions, even if it has to happen at the cost of laxer links to Europe and North America.
  • The fourth is the mere fact that Latin American efforts towards regional integration can learn from the European experience, positively and negatively. For instance, it appears to me that it can be advantageous to build relatively more on existing sub-regional organizations than has been done in the European context where Benelux, Nordic and other sub-regional cooperation structures have been eroded by European institutions when a better policy could have been to sustain and strengthen them as parts of a multilayered regional cooperation structure.

Latin American regional cooperation may also benefit from solidarity and cooperation with regional cooperation in other regions of the South. Together the cooperating regions may make historic contributions to a post-colonial and post-imperial, pluricentric and peaceful world order.

With these remarks I wish Paraguay and all countries in Mercosur and South and Latin America at large determination and democratic energy for regional cooperation that will enhance a new internationalism and civilisational renewal world-wide.

Thank you for your attention.

Thomas Wallgren
E-mail: thomas.wallgren(a)helsinki.fi

Asunción del Paraguay
International Conference of governments and social movements
”Regional Integration: an opportunity to face the crises”
21 and 22 July 2009
Consejo Nacional del Deporte

Welfare Finland – Gone with the EU

TEAM, International Conference 24.3.2007 Wil, Schwitzerland

Thank you very much for inviting me to this conference in Wil. I have to apologize that I cannot stay until Sunday, but I have to be in Helsinki early on Sunday.

We are living very interesting times. Tomorrow, on the 25th of March there will be a lot of celebrations of the 50th anniversary of the Treaty of Rome, which was the foundation of European integration.

At the same time there is a growing amount of people that say no the European Union. According to the opinion polls 71 % of the Finnish people oppose the EU.

The population of Finland is now 5,2 million around 8,7 % of the EU. We do not have much to say in EU, even if our politicians say that Finland is in the hard core.

Our unemployment rate is still high, its 7,3 %. For young people less than 25 years it is 17.8 %

(Fig.1, Eurostat, jan. 07).
We have a labour force of 2.575.000.

Finland is paying to EU 930,8 million Euro during 2006 – 2007. During the 13 years we have been members of EU we have paid a total of 2,55 milliard Euro. The depression from the 90’s has not improved as fast and on all the sectors where it should do. We still have enormous problems with elderly care, children’s day care, the seriously disabled and public health services (a shortage of doctors and nurses). Some of these problems could have been helped with the money we have paid to EU.

Finland is now richer than ever

Last year’s economic growth in Finland was the best over the last ten years. The growth of GDP was 5,5 %. The average growth is 3 % in the euro-zone. (Fig. 2. Statistical Central Office, HBL 2.3.07). The main reason to this growth is that the export grew 11 %. A very ironic fact is that the forest- and paper industry that really shows a big growth, nearly 20 %, has just in the end of last year closed down two big mills in Finland. One mill is in Voikkaa and the other one in Kuusankoski. These areas are in the eastern part of Finland where the unemployment has been high and is getting even higher now. There are no other jobs for people in these areas.

At the same time the Finnish households have bigger loans than ever. The households are taking year after year bigger loans and they show now a deficit of 5,4 milliard Euro. A great deal of the loans are for housing and now, when the European Central Bank, ECB is increasing the interest rate, which they did already once this year, people are struggling. The banks in Finland are expecting an increase of the interest rates still two or three times this year. The situation is going to be very serious for a lot of families.

The poverty in Finland

Last Sunday we had the parliamentarian election. Unfortunately there was hardly any public debate on EU and only 67,8 % of Finns voted. Centre Party is still the biggest party, Matti Vanhanen is starting the Governmental discussions and most probably we are getting a right wing Government. Maybe Antti Pesonen will tell you more about the election tomorrow.

The big parties promised less taxes and more money for the students, elderly care, child day care and health services. Everyone can understand that this is not possible.

Before the election campaign started the director general of the economic department at Ministry of Finance Jukka Pekkarinen warned the politicians not to let the economical growth bluff them. He said that the labour force in Finland is decreasing very fast, in fact fastest in EU, because of the ageing.

(Fig 3. EU:n talouspoliittisen komitean ikääntymistyöryhmä).
In 2008 the need of the labour force is decreasing very rapidly And the critical period is going to be during these coming four years. The structural changes have to be done very fast.

Income disparity has grown during the last years in Finland

Vappu Taipale, general director of the National Research and Development Center for Welfare and Health (STAKES) is very worried about the poverty in Finland. It does not seem to be enough that a country has a good economy. The real problems are still there, we have the long term unemployment, single parents, parents with more then three children, mentally ill people. These categories seem to be very stable and nothing is done for them, says Vappu Taipale.

(Fig. 4. Social assistance and poverty, Stakes and Statistical Centre)
(Poverty in %, poverty under 18 years,
red = persons who get social assistance,
blue= children in families that get the social assistance)

The poverty in Finland has increased. We have now 600.000 people below the risk-of-poverty threshold, which is 12 % of the population; in EU25 the per cent is 16 % and a total of 72 million people.
Who are the ones that live at risk-of-poverty in Finland? They are:

  1. single parent households 27 %
  2. families with three or more children 26 %
  3. one-person households + 65 years 24 % and
  4. one-person households under 35 years 41 %

(Fig. 5. Pasi Moisio/Yhteiskuntapolitiikka 71/2006:6, Stakes)
During the period from 1990 to 2004 all the other figures have increased, but not the one-person household over 65 years.

(Fig. 6. Eurostat, At-risk-of-poverty rate after social transfers)
Here one can see that at-risk-of-poverty has increased in Finland with 4 % from the year 1996.

This so called welfare Finland has long bread queues all around the country. The church and different organisations distribute food for free to people. In these queues one can find also working people. Working poor has also grown in Finland. Working poor are often women that are working part time or/and even full time but have very low salary. Some of the people have two or three jobs, which means that they do not have any time for their families.

The social expenditure has grown year after year. In 1995 34.644 million Euro and 2005 it was 42.001 million Euro.
(Fig. 7. OSF Statistical Summary 4/2007)

Financing of this social expenditure comes mainly from the local authorities and state, total of 45 %. The local authorities pay now 19,2 % as they paid in 1995 16, 7 % and the state paid 29,3 % as they pay now 24,8 %. There has also been an increase on the amount that the employers pay; it is now 38,5 % as it was 33,7 % in 1995.
(Fig. 8. OSF Statistical Summary 4/2007)

Lisbon Strategy and the ‘Paras’ Project/Framework Act in Finland

The Lisbon Strategy that adopted in 2000 by European Council is an action and development plan for the EU. It aims to “make Europe, by 2010, the most competitive and most dynamic knowledge – based economy in the world”. Wonderful words!

The Lisbon strategy is heavily based on the economic concepts.

The Deputy Managing Director of The Association of Finnish Local and Regional Authorities, Mr. Kari-Pekka Mäki-Lohiluoma said in one of his speeches during the Finnish EU presidency, that “the European competitiveness comparisons have proven that the Nordic countries have succeeded in carrying out structural reforms without giving up their high quality welfare services.” He also said that the Lisbon Strategy has been put in practise the best in countries in which administration is decentralised.

I do not agree with him at all. The situation in Finland looks serious in many areas.

A project to restructure local government and services is in progress in Finland. The Council of State launched the project titled ‘Paras’ Project in spring 2005. (The word ‘paras’ means `best´ in Finnish, and is shortening of service and structural changes). A proposal for the Framework Act was forged in June 2006 and it came in force in February this year and expires at the end of 2012.

The aim is to:

  • improve the productivity of operations of local governments
  • restrain the growth of local government expenses
  • ensure that municipal welfare services remain of good quality and are available for all Finns
  • maintain municipal democracy close to municipal citizen

Finland has been a country with a good reputation of its social security work. Finland has now 416 municipalities; only 54 of them have 20.000 inhabitants, and only 19 that have over 40.000 inhabitants. It says in the Framework Act that health services are to be taking care of in areas that have a population of at least 20.000.

I would say that this Framework Act means that all services that are now close to people, such as

  • health services
  • schools
  • child day care
  • elderly care

are not possible after 2012.

We have already seen a lot of action towards this so far. Last year over 300 schools were closed. This has been a trend already for some years and we cannot see an end to it. The schools are getting bigger and bigger and the teachers are having more pupils in their classes.

Another example is merging from the health centres. Some of the health centres in the capital areas of Finland are not open 24 hours a day. This means that one has to fall ill only during the daytime, not before 8.00 a.m. and not after 4.00 p.m.

As this Framework Act requires a population ground of 20.000 for the health centres we can count that in future Finland we will have only a few health centres. As you know Finland is very sparsely populated country, with long distances. Now all the people have to move to the centres (Fig. 9. map), which in fact has been introduced in this Framework Act. The Government has put forward to the 15 regions to make their plans to merging municipalities.

This also means privatising of the services. Already now the municipalities buy some of services from private sector. Merging of the municipalities and working in bigger units, also means reducing the democratic rights of the citizens.

Privatising the services means that fewer people are making the decisions. One of the aims of the Framework Act is also to increase the productivity. In Finnish this means less labour force, more unemployed people and bigger profits for the private companies.

There is also a great fear that once the social services are privatised, there is no way to have employees on the municipal sectors if needed.

The Lisbon strategy says that the decisions are to be taken to the local level. But already this Framework Act in Finland shows that the decisions have been made by our Government and the local municipalities, and the local councils have had very little to say. This privatisation is narrowing the democracy and people don’t have anything to say. The social services are moving further away from the people.

More than 60 % of the population in Finland would like that the local authorities take care of the social services. People are even ready to pay more tax if they are sure that they can get the services.

There is no guarantee that the private sector gives a better value or has a better productivity of labour in the social service field. In fact researches show that in the private health service the productivity of labour and the value added has been declining all the time since 1975.
(Fig. 10. Olli Savela, Kuntapuntari 2/2006).

Lea Launokari
production manager, activist, Alternative to EU Information Centre, chair person
Kaksosmäki 24, 02400 Kirkkonummi, Finland
+358-9-298 1588 home, +358-50-5522330 mbl. Job
e-mail: lea.launokari(a)nettilinja.fi

EU, or how to make a colony of a free nation-state

Thessaloniki, 21 June, 2003

In this paper, I firstly want to describe some characteristics of the Nordic welfare state. Secondly I will try to contrast this ideal of a welfare state against the policy performed in Finland as well as in the union since the end of the 1980-ies. My aim is to show, that there has been more of serving European union interests than Finnish interests, and that the welfare losses we have experienced are in fact due to the severe harmonisation policy we have been going through.

What is a welfare-state

Much of the public services are traditionally produced by the state in the Nordic countries. Publicly produced services are one trait of the Nordic welfare states. They are so called service-states in the sense that the public expenditures are more than sixty percent of the gross national product (62 % in 1995).

In other European Union countries they were around fifty percent 1995. If the state just transfers social services, which are mainly privately produced, it is a transfer-state. There is a third alternative to service-states and transfer-states, and that is the night-watchman-state. In a night-watchman-state the emphasis is mainly on defence, administration, security and law and order.

The traditional Nordic welfare state rests on four pillars: solidarity in wage policy, active labour market policy, active trade cycle policy and public sector expansion. Much of the welfare is the result of trade union work, or there would be no Nordic welfare state. The classical Nordic welfare state can be called an interventionist state, a social-state and a class co-operation state. Interventionism includes economic activity for welfare through tax collection, responsibility for securing full employment and fixing of public services as well as production regulation. The access to the public services and whether those services are obtained free of charge or must be paid for, must be examined as closely as their supply. Moreover, welfare societies must be judged on the basis of whether equal opportunities exist for all, and the manner in which we tend to the socially disadvantaged.

EU into the limelight

The welfare strategy in Finland and Sweden has clearly changed over the last 15 years, however. There is a tendency in the European Union, which is very strong in Sweden and Finland, which both became members of EU in 1995, to switch away from the service-state towards the transfer-state and to increase the role of private companies in welfare production. This, our governments declared, is necessary due to the high public indebtedness, high rate of interest costs, and to the continuous high unemployment eating public resources. We are moving in the direction of night-watchman-states as well. Guard companies came up like mushrooms. You can hardly pretend any more that the Nordic countries are exporting the Nordic economic model to the European Union, as many hoped when we entered the EU. The case is rather the opposite.


Finland had an economic boom in the 1980-ies, but after that we experienced the worst economic crash ever seen in my country. It is called The Big Recession (Suuri lama). The main question is thus: was the recession due to external pressure on the Finnish governments, Sorsa 4. 1983-1987; Holkeri 1987-1991; Aho 1991-1995 and Lipponen 1995-1999, in order to incorporate Finland into the European Union and not the least into adopting the single currency, the Euro? Because before, until 1989, Finland experienced a boom with full employment, low debt and a good regional balance. Since then the policy and regime shifted in the direction of full European integration. There was no great demand among the public for any run on EU, however. The government made an insidious propaganda for something they could not be downright on. The Central Bank of Finland, during the 1980-ies, the steering national macroeconomic policy instrument, of course, step by step was used in order to deregulate banking and money markets, encourage foreign indebtedness, even by municipalities, and to slacken its own power and reason for being. I will return to the Central Bank of Finland later.

The currency, the Finnish Mark (FIM), was not an option, I mean threatened, at the time, they told us, although the Maastricht top meeting in December 1991 agreed upon the single currency union in three steps, and the Finnish negotiators did not care for any opt-outs in their EU-negotiations between March 1992 and March 1994. A consistent EU-friendly policy started in Finland favouring the export sector, stabilising the exchange rate, shrinking the deficits of the public sector (6.8.1992). The new monetary policy was put forward by the Central Bank of Finland aiming at a permanent inflation of 2 % towards 1995 (4.2.1993) .

The Finnish unemployment rate boomed in the process:

1990 1991 1992 1993 1994
3,4 7,6 13,1 17,9 18,4

When the Finnish people voted about EU-membership 16 October 1994, EU was offered us as the only solution to our big problems, the unemployment the biggest of them all. Unemployment rates provide an indication of the socio-economic health of the nation . Finland had become a sick nation.

The European Union aims at growing flexibility in the member states, so that the convergence criteria and the stability-pact of the economic and monetary union can be observed in face of the suppressed liberty of action in fiscal and financial policy matters in the member states. This means that people must move and flex, when the economic policy does not care to make politics to the benefit of people any longer. Previously Finland as a nation-state used to solve its own problems successfully. But Finland is now handicapped to do so, and suffers from mass-unemployment, uneven distributions, weaker welfare, environmental problems, powerlessness felt by people and brutal working life experiences, problems completely opposite to the ideal Nordic model.


There is a heavy propaganda for international market liberalism solutions, but the international market liberalism is not capable of solving big macroeconomic problems anywhere in the world. Such problems are best solved by the nation-state itself. But then the problem is: Is there a nation-state named Finland with full competence to solve Finnish problems any more, or have we become a satellite? If we have become a satellite, then how big are our political problems, not to speak of the economic ones, if the borders of our nation is not equivalent to the borders of our state?

No one has yet suggested that Europe constitutes a nation.

Could it be that the whole thing and most of all the monetary union with its forerunner mechanism, the ERM, is part of a programme to subvert the political as well as economic independence of Europe´s countries? The person who came to realise this as a fact was cut down, becoming one of the first dissidents of the European Union. People instinctively know that their democracies have been overthrown. The proofs are given on the 427 pages of Bernard Connolly´s book ”The Rotten Heart of Europe, The Dirty War for Europe´s Money”. For it he was sacked from his work in the European Union and tried in court and condemned. Bernard Connolly was head of the EMS National and Community Monetary Policies Unit in the Commission. He wrote his book when on leave from his job. He was told that he had no right to do so, or to analyse the ERM, not even to think about it. Sokrates, Galileo Galilei were they tolerated. No. Heretics are never tolerated. But why on earth, call it freedom, democracy and openness in 2003.

Finnish Depression and ERM

The Finnish events can clearly be connected with the conclusions drawn by Connolly. The official propaganda, however, said something else. As already mentioned the scenario was that we had a boom in the 1980-ies and then a crash, which hit Finland even harder than the crash in the 1930-ies. Before, during and after the crash the government, leading politicians and media presented the one alternative plan to the Finnish people. This plan was about taking Finland smoothly into the union without disturbing debates.

Below are selected a few of the happenings concerning the Finnish road to the EMU.

1. In 1979 EMS (European Monetary System) was introduced in the EEC countries.
2. In 1986 Finland became full member of EFTA (European Free Trade Association).
3. During the Finnish boom in 1988 housing prices rose at a rate of over 30 % annually.
4. In 1989 the first company crashed on the Exchange.
5. In 1989 the Finnish government informed the parliament that they supported a common European Economic Sphere for EFTA and EEC in Western Europe.
6. In 1989 the chief of the savings-banks union (SKOP) committed suicide. In 1990 the unemployment rate in Finland was 3,4 %, the lowest since 1975.
7. In 1990 (autumn) the unemployment started to grow.
8. In 1990 the two German states united.
9. In 1991 the Swedish crown was tied to the Ecu.
10. In 1991 (May) president Mauno Koivisto declared to the government that at the moment Finland officially excludes EU-membership.
11. In 1991 (July) Sweden applied for membership in the EC.
12. In 1991 (December) the EC top meeting in Maastricht, Holland decided about the economic and monetary union with a single currency, a common central bank and a common monetary policy.
13. In 1992 (March) Finland decided to apply for membership in the EC
14. In 1993 (February) Finland starts negotiations about EC membership in Brussels accepting the Maastricht treaty.
15. In 1993 (August) has the unemployment risen fivefold to 500,000. Finland has 5 million inhabitants.
16. In 1994 (March) Finland and EU signed the negotiation result in Brussels.
17. In 1994 (October) Referendum about the EU-membership. 56,9 % voted for and 43,1 % voted against. A referendum o today might give the opposite result!
18. In 1994 (November) The parliament accepted the EU- membership for Finland.
19. In 1995 (January) Finland joined the EU and the EMS (European monetary system) and left EFTA.
20. In 1996 (October) Finland joined the exchange rate mechanism ERM.

The change of regime was not properly discussed. Hardly anybody knew that Maastricht meant the abandonment of the national currency. The policy was forced through by kind of decrees, only afterwards people realised what was going on. Because the decision process was too quick, people will not stop recapitulating afterwards. The book of Bernard Connolly is about why the Exchange-Rate Mechanism, the ERM, was damaging to the economies in its clutches. The attitude in my country is, however, that we caused our difficulties ourselves. There are since 1994, in compliance with the Maastricht treaty, a deepened economic and monetary policy cooperation governing public finances, overall economic policy and the position of the central bank . This means, of course, the traditional Nordic model cannot resist. Alarming unemployment and imbalance of public finances, typical of almost all Member States, which is also recognised by Finnish economists, no doubt upsets people and they naturally blame integration in the way it is pursued. A single market is one thing, which is acceptable to many. A single currency is something that came on top of it and is not demanded. A monetary union cannot resist without a political union. This can be seen here in Thessaloniki 2003 top meetings.

Maastricht = political union

Why should any country subordinate its domestic policy goals to the defence of the exchange rate? There are two possible answers. Firstly domestic policy goals, which are not economic, might be furthered. Secondly domestic goals might be subordinated to the exchange rate, if that advances the goals of some wider political entity.

The success of the Maastricht strategy depended on three conditions.

1)A price was promised – participation in a single currency (1997) so anything that threatened to derail the Maastricht timetable would reduce the incentives for the authorities to whip on the population to go through the pain barrier (starvation cure) in striving for the prize.
2) The authorities must continue to lust after the prize – or be allowed to by their electorates. Any doubts about their commitment to the single currency might lower their convergence pain threshold, or make them loosen their severe policies.
3) Third, the pain of convergence within the ERM must not become unbearable. If it did, then the markets might expect the runner to retire from the race, to rest outside. The markets, might consider factors such as recessions and unemployment be more important fundamentals than the Maastricht convergence criteria.

The Finnish rainbow governments in the 1990-ies can be explained by the fact that they tied all parties to the common goal and it was easier to show the population ”Look this is what everybody wants”, because a government that was not friendly towards EU could not be allowed to reach power. The Finnish governments were unwilling to miss the ”train”. Finland got the highest unemployment (together with Spain), almost 20 %, and a recession deeper than ever, but was completely overrun by the euphoric rush towards an unconditional EU membership performed by its governments even before anyone had heard a word such as ”convergence criteria”.

The Finnish government, indeed, had learned the lesson of Bundesbank: ”Aspirant members of EMU should demonstrate their commitment to a sworn co-fraternity – all for one and one for all – on advance of full monetary union” . I would say that this fairly well reflects what really happened in my country. People in Finland are used to hardships and indeed the situation was unbearable, but the politicians pursued energetically something their electorate had not chosen them for. In the absence of information and discussion the helplessness of the people has been and still is paralysing. Not in their wildest fantasy could people then believe that they were cheated on their most precious possession, the independence of the country. The people felt, however, that the politicians played a double play and started to despise them. There is still a great confusion around.

The Finnish nightmare 1990-1993, debt-deflation, is not extraordinary though. Debt deflation, was described 1932 by Irving Fisher in ”Booms and Depressions”. Indebted people become over-indebted when incomes and interest rates do not correspond to their expectations. The over-indebted households meet with liquidity problems, they have to sell out their properties and when this happens on a mass scale, prices go down, they loose their houses while their nominal debts remain high. What is extraordinary is that we had to go through it all in order to place ourselves into a political union. A monetary union cannot last unless there is a political union. Who wants a political union, or who cares about one?

A dream came through

It is an old dream, is it not! Germany intended a Grosswirtschaftsraum in the Third Reich where the Reichsmark would be the leading currency in a German economic area. Within the German currency bloc, fixed exchange rates would be introduced to ease the way later to a currency and customs union. There would be a Bank of Europe, but ´For political reasons it could be undesirable to damage the self-esteem of member states by eliminating their currencies´. Initially individual countries would maintain their own currencies and would agree to permanently fixed exchange rates against the Reichsmark. The members would be Germany, Austria, Bohemia, Moravia, the Netherlands, Belgium, Denmark, Norway, Sweden, Slovakia, Romania, Bulgaria and Hungary. This scenario from the 1940-ies did not include France.

In the 2000-s progress has been made by unionists. National currencies and national Central Banks have been eliminated. Finland is the only country in Scandinavia so far, which has eliminated both its currency and its Central Bank. Denmark and Sweden have pursued a more clever policy. Norway and Island are not members of EU. The new law about the Central Bank of Finland came into force 1, December 2000. The Central Bank of Finland no longer is the instrument of the Finnish parliament and people. It is by law subordinated only to the European Central Bank (ECB) in Frankfurt.