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:
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.