Paavo Lipponen, Prime Minister of Finland
A lecture at the London School of Economics
On 14th February, 2002:
Distinguished participants,
Ladies and gentlemen:
I would like to thank the organizers for giving me this opportunity to deliver a lecture on Finnish views on the future of Europe. This is an inspiring environment to speak and not the least because of the contribution Professor Anthony Giddens has made to the global debate on the third way.
The economic crisis of the 1990s was deeper in Finland than in any other western country. Since 1995 two successive rainbow coalition governments have successfully carried out fiscal consolidation and reforms in order to save and revitalise the Finnish welfare society. I believe our experience brings an additional dimension to the third way debate and I will reflect on some key conclusions in implementing what might be called the Finnish model.
Finland has recently been ranked in various ratings as a leading nation in competitiveness, sustainable development and lack of corruption. Our success is based both on domestic political choices and a successful adaptation to globalisation.
According to Professor Jeffrey Sachs, Finland has been able to organise its "brain power" better than perhaps any other country. Openness among our institutions and organisations in the research and development community has been a vital factor for a small country in mobilising its human capital.
Finland has also proved that promoting sustainable development does not harm economic competitiveness. On the contrary, economic and environmental performance go hand in hand.
Jeffrey Sachs also recognises the importance of an efficient welfare state in enhancing economic performance by providing both a safety net and equal opportunities for an individual to develop her capabilities. To take just one example, spending on health is relatively twice as high in the United States as in Finland, but I maintain that our health services are clearly better and accessible to all citizens.
How has Finland achieved this? The main factors at work are a high standard of education and training, a deeply rooted policy of equality, major investment by government and the private sector in research and development and a well-functioning regulatory environment.
Our successful ICT-sector, in particular, has benefited from open competition in the telecommunications market. Finland and the other Nordic countries pioneered in liberalising their telecommunications market - for the benefit of consumers and eventually also of the companies that are now the winners in global competition.
The consensus approach, a model based on cooperation between the social partners, has proved its strength in safeguarding sustainable economic growth. Finland's emergence from the deep recession in the early 1990s and our success in combating unemployment would not have been possible without joint efforts by the Government and labour market organizations.
A key element in Finland's emergence as a high-tech society has been access to foreign markets and capital. Without a larger market and multilateral trade system - and in fact without many other aspects of globalisation - Finland could never have developed as it has done. This is a two-way street: it has meant bold steps in opening our own markets, allowing capital flows and relying on multilateral institutions.
Participation in European integration has been Finland´s central goal since the 1970s, in fact, since the war. The process culminated in the European Union membership in 1995 and in joining the euro-area right from the beginning. Finland has benefited much from the membership. With our policy of active participation we want to contribute to the strengthening of the Union.
The European Union is approaching a crucially important junction in its development. Enlargement of the Union with several new Member States is just a few years ahead. At the end of this month the Convention on the future of the Union will start its deliberations with the aim of preparing what might possibly be major Treaty changes at the next Intergovernmental Conference in 2004.
Within a month the European Council will convene in Barcelona to examine successes and failures in implementing the Lisbon strategy. With the strategy adopted two years ago, the Union aims to be the world's most competitive and dynamic knowledge-based economy in the world by 2010. In order to attain that goal we need to put reforms on fast-track.
We must set some priorities for the upcoming months.
First and foremost we need a successful enlargement with up to ten new Member States in 2004. Secondly, the economic situation requires close attention and in particular focus on economic and social reforms. We need to enhance European competitiveness and prepare for an ageing population and diminishing work force.
Thirdly, an open debate is needed about the shape of tomorrow's European Union. We should start defining a clear set of tasks and goals for the European integration. The enlarging European Union needs a reformed Treaty, a restored institutional balance and a more efficient and transparent decision-making mechanism. And above all the Union needs a mission statement with which the citizens and businesses alike can identify.
Enlargement is the most important of the Union's present tasks. Incorporating Central and Eastern European countries into the Union completes the post Cold War reunification of Europe. The process of political change that started something over ten years ago created new opportunities. Now it is time for the Union to seize those opportunities fully with enlargement. Implementing enlargement will add a hundred million consumers to the internal market. The additional competition and economic growth will inject fresh dynamism into the efforts to reform Europe.
The year 2002 will be decisive for the process. At this point there are good chances for signing accession treaties with up to ten countries at the European Council in Copenhagen in December. After ratification, the elections for the European Parliament can then be held in 25 Member States in June 2004.
Enlargement can be financed within the expenditure ceilings set for the Union's budget. A major reallocation of economic resources will take place after the present financial framework runs out and a new one is agreed upon by the Member States starting from year 2007. The new financial framework will have to be based on policy reforms in the Common Agricultural Policy and the Structural Funds. The CAP especially will be shaped not only by internal pressures, but also by international trade negotiations in the WTO.
At the same time, as we look at the immediate budgetary implications, we should acknowledge that the overall economic impact of enlargement will be beneficial for all countries involved. According to the European Commission's estimation the cumulative effect on growth will be 0.7 per cent over the period 2000-09 in the present EU-15 and up to 2 per cent in the ten candidates (excluding Romania and Bulgaria and depending on continued reforms).
Enlargement will naturally be a challenge to the functioning of the internal market, to the cohesion of the Union and to the decision-making process. A lot of attention has to be paid to the development of the administrative and judicial capacity and the practical implementation of internal market rules in the candidate countries. The Union's decision-making process and the functioning of the institutions can be developed both by implementing the already drafted reforms and by agreeing on more radical changes in the next Treaty reform in 2004.
When the Barcelona European Council meets in March, the Member States can take stock of the results achieved with the economic and social reforms launched in Lisbon two years ago. A great number of positive results has been achieved. The successful introduction of euro notes and coins has turned the Economic and Monetary Union into tangible reality for the citizens. Nearly 90 per cent of schools in the EU are connected to the Internet. New rules have been accepted for the telecommunications market. The economic fundamentals in Europe are in better shape than during earlier economic downturns.
But more is needed - especially to speed up the recovery. Europe still faces a higher level of unemployment than its competitors. Our labour markets do not work as well as they should. The Barcelona summit must give political impetus to various new initiatives designed to improve Europe's competitiveness. EU governments must issue a clear message of their commitment to continued reform.
Growth potential must be enhanced by continued efforts to reduce government deficits and reform commodity, capital and labour markets, while maintaining investments in education and training, and research and development, that are needed for rapid development of the information society.
Governments carry the responsibility for creating a climate favourable to investment. Europe's fragmented financial market must be integrated by 2005. Gas and electricity markets must be fully liberalized. Attention should also be paid to the regulation to which SMEs, and indeed other companies too, are subject. The quality and nature of regulation must be improved together with government services to companies. The development of the biotechnology sector should be promoted by a better operating environment; we need legislative reforms and incentives for investments.
The challenges ahead are formidable: the ageing of Europe's population, in particular, will create a labour shortage that will affect the whole of Europe. Mobility of labour within the Union is very weak: under two per cent of the working-age population live in a EU country other than their own. Potential migration from the new Member States is unlikely to alter this situation significantly.
The European Union needs an immigration policy, but that alone will not solve the problem. It is of utmost urgency that we can make people stay at work up to pension age, increase the time spent at work during their working lives, and ultimately adjust our pension benefits and social services to a situation in which the dependency ratio is far less favourable than before.
A Convention on the future of the European Union will start its deliberations at the end of this month. Its task is to prepare the next Treaty reform to be negotiated at the Intergovernmental Conference in 2004. Europe needs now an extensive and deep public debate on the future direction of European integration. The proponents of intergovernmentalism - cooperation between sovereign states -, a federal Europe or a Union based on the community method need to bring their arguments and practical solutions into public debate.
The civil society, including the business community, must be incorporated into the process as fully as possible. The European Union is not only a union of Member States, but a union for its citizens and businesses as well. The strength of integration is based on the fact that it brings added value for all Europeans by offering equal opportunities through common rules and policies and extensive cooperation. The Union should also be an effective global political and economic actor representing the interests and potential of its Member States.
What the Union needs is an extensive overhaul of its structures. The founding treaties must be simplified and the goals for the Union re-defined. Fundamental rights of the citizens - guaranteed already extensively by the Member States - should be formally established among the guiding principles of the Union. The decision-making capacity of the Union should be, for example, strengthened by simpler legislative procedures and more qualified majority voting. The competences of the Union institutions should be more clearly defined.
I call for an open debate on the course of the European Union's future development. The most valuable achievement of integration is, and will remain as enlargement continues, the elimination of old divisions in Europe. The principles of democracy, human rights and the rule of law - all essential prerequisites for well-being and civic participation and for a flourishing economy - are being consolidated in today's Europe in a more determined way than ever before. However, it will be a much more difficult task to guarantee a real equality of opportunity and the rights of Europe's citizens and businesses. This is where we need Community decision-making and common institutions.
I have defended the status of strong institutions, and particularly the Commission, because actual decision-making in the Union has shown that a Commission watching over the compliance with the common rules is ultimately the best guarantee against the domination of selfish and narrow national interest. The Council, too, must work efficiently and be capable of controlling the Union politically. The European Council must be able to identify what is in the Union's joint interest and to show leadership when this is needed as the Union strives to become a global player.
What the citizens and businesses expect from the Union are swift decisions, transparency and dialogue and concrete results as the product of the European-wide political process. The ability to adapt to the rapidly changing international environment is a crucial test for the Union.
The terrorist attacks of September 11 were not only a ruthless attack on innocent human beings. It was an attack against the values on which democratic and open societies are built, values that the European Union must defend. Europe's response to the crisis has been strong and we have remained united. Fifteen Member States have been able to work together, with the United States and within the wider international coalition against terrorism. That is no small achievement and we should continue to build on that.
Military and diplomatic means are not enough to win the fight against terrorism. A lot of intelligence work and smooth international cooperation between justice and home affairs authorities is needed too. During the Finnish Presidency of the EU in 1999, in the Tampere summit, the Union began a new era in the field of Justice and Home Affairs cooperation. Developing internal security, control of external borders and a just asylum policy has proved difficult at times, because we are dealing with issues that are close to the Member States' sovereignty.
Since September 11 the goal of creating a true area of freedom, justice and security has been strongly reaffirmed by the Union. It is now clearly understood that enhancing security in today's globalised world is a task that demands close and operational cross-border cooperation between authorities responsible for law and order. National sovereignty needs to be pooled.
Our commitment to common internal policies has to be supplemented with intensified external cooperation.
Cooperation with the United States is extensive. Justice and Home Affairs cooperation is now a priority in our relations with Russia. The fight against terrorism has become an integral element of EU's foreign policy.
But there is a lot more for us to do.
Our citizens have justifiably expected the Union to play a key role in many aspects of global politics. The Union is the world's largest trading block and by far the largest provider of development aid. The Union has taken a leading role in global efforts to protect our environment and our role has been instrumental in the Kyoto process of combating climate change.
Despite successes in different fields of external action, we still lack the coherence that would make the Union as strong a political actor as it potentially could be judging by our economic resources. Inter-governmentalism has understandably a strong foothold in CFSP. But, if we are to defend the interests of the enlarging Union and play a constructive role globally we have to pool the sovereign powers of the Member States more effectively. Common institutions, and especially the Commission, should play a leading role in achieving this.
As Prime Minister Tony Blair puts is, the European Union must become a super-power if it is to play a full role on the world stage. A super-power of its own kind, true to its social values and nature as a unique community that does not primarily rely on military force in defending its interests and goals.
The fight against terrorism is a good example of the need to pull the European act together. We underline the importance of human rights and the role of the Untied Nations in combating terrorism. We are for an even-handed treatment of the parties to the conflict in the Middle East. We have a vital interest in the stability of the Balkan region. But how much are we ready to invest in what is necessary in order to be an equal partner to the United States?
Adopting a prosecution lawyer attitude towards the United States would only weaken Europe's credibility globally. The American people feel threatened. Consequently, the administration wants to continue the fight against terrorism as effectively as possible. Europe must play a moderating, not uncritical role, while leaving no doubt about our trans-Atlantic solidarity. This is not the last common effort - there might be more coming with Europe needing the involvement of the United States on our continent.
A super-state? Here I also agree with Tony Blair: the European Union must remain a community that incorporates both sovereign states and the sovereignty that they have pooled in the Union. But as we need to assemble even more sovereignty at the Union level to mobilise our capabilities, it will become necessary to reform the institutions.
We ought to recognise that the subjects of the Union are not only Member States, but also our citizens and businesses. Even some regions have a special status within the Union. We will not succeed in making the Union the most competitive economy in the world unless we can guarantee the basic equality of all citizens and businesses. This means that big Member States cannot have any privileges based on 19th century thinking.
I have never wanted to provoke conflict between big and small Member States. The real problem lies in developing a decision- making system that is based on two principles: the equality of Member States and population, that is, on objective criteria, not on a privilege, such as being a founder member or having been a great power. With these two sets of votes we would have a system that gives the big member states what they deserve and the small members the protection they need.