Transcript Finnish experiences of EU and EMU

Finnish experiences of
EU and EMU
• The annual meeting of The
Icelandic Travel Industry
Association
• Reykjavik 2.4.2003
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/1
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
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/2
Fiscal relations between
EU and Member States
• EU’s 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
• Finland’s contributions and revenues
at about the same level
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/3
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)
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/4
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
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/5
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
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/6
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
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/7
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 ATM:s in 4 days
• change in euro in 4 days
• cash payments in euro in two weeks
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/8
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 sector’s annual surplus from
-3,9% to +4,7%
• Public sector’s debt from 57,1% to
42,7%
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/9
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
MINISTRY OF FINANCE
Rauno Niinimäki
1.4.2016/10