The EMU experiences of Finland
MEP Esko Seppänen 30.8.2003
Finland joined European economic and monetary union (EMU)
and gave up control not only of its currency, but also its
monetary policy. Now Finland is not able to pursue its own
monetary policies: neither foreign exchange nor interest rate
policies. That has happened irrevocably.
The Euro is a federal currency with a supranational administration
. The European Central Bank (ECB) has the monopoly over monetary
policy, and the national central banks of the Member States
are its branches, lacking independence.
Central bank
The Executive Board of ECB has six members. From the beginning,
one of them was a Finn (Ms Sirkka Hämäläinen)
but once her term finishes in 2003, there will be no Finnish
representative on the board for decades. Then monetary policy
will be imposed on Finland from outside, by foreign decision-makers.
If monetary policy is not pursued nationally and if adaptation
measures are needed in case of economic difficulties , national
flexibility is required through finance policy (state budget)
or the labour market (flexibility of wages).
Such decisions are taken by the Executive Board of ECB, together
with the governors of the national banks (i.e. the branches
of ECB) of the Member States, which constitute the Governing
Council consisting of 18 members. It is the highest supervisory
organ of ECB where all the members are not equal: the central
bank representatives from bigger Member States have a permanent
right to vote, a privilege not enjoyed by those from the smaller
countries.
The ECB has been guaranteed total sovereignty, which in turn
takes the power away from the monetary policy decision-makers
in the Member States. The bank is controlling itself. The
problem of democratic deficit is obvious.
The European Central Bank is a one cause movement as its only
operational target is a fight against inflation. The fight
is going on even when there is no inflation.
Stability Pact
At the Dublin summit, the Germans pushed through their demand
concerning a so-called Stability and Growth Pact. A special
sanction system was created for those countries which do not
fulfil certain EMU criteria. The system became a deterrent
to the member countries, imposing a "financial"
style of political discipline.
On the basis of this pact, the Commission has warned the big
countries—Germany and France—for their slack budget
discipline: their economies are failing to fulfil the stabilisation
criteria. Nothing has happened. The sanctions have not been
executed. The system is biased towards big powers and is not
egalitarian. A different discipline is required from bigger
countries than from smaller countries. The system creaks.
The Euro is primarily a political currency, which is administered
according to the interests of its larger members.
The Finnish referendum
The Finnish people were not told the truth of what kind of
commitment their political leadership had made in the membership
negotiations.
Before the EU referendum in Finland, the electorate was told
that a separate decision on EMU would be made and that the
fate of their currency would not be decided in the context
of the referendum on EU membership. When the debate on EMU
membership became current, the political elite started sayingthat
the decision on EMU had already been made in the referendum
on membership.
Now the same people are saying that the future - federal and
federalist - European Constitution was also approved in that
referendum. This is not democracy. Many Finns feel that they
have been cheated.
The economics of EMU
The use of the euro as a measure of value is not problematic.
For those who are incapable of mental calculation, there are
calculators, and with a few touches of a button it is easy
to find out the value of property, goods and services, both
past and present, both in old and new currency.
The introduction of the new currency as means of payment was
carried out by changing all monies in circulation into euros.
That meant costs which were due to be paid by private citizens.
Existing prices were rounded off. That was done upwards, and
in this way the changeover to the euro was paid by consumers.
That was what happened in Finland already before the changeover,
and so all the costs of the euro cannot be calculated starting
only from EMU membership.
Before joining EMU, its proponents argued that it would enable
an inflation-prone national economy to get out of the so-called
devaluation-inflation circle. When EMU currencies have devalued
in relation to the US Dollar, just the opposite has happened.
At the outset, the euro was devalued by a quarter in relation
to the US Dollar. Because of the positive impact of this depreciation
on the value of the common currency and on the demand of export
industries, the overall economic consequences of EMU have
been slight compared to what may be coming.
Devaluation had a positive impact on the competitiveness of
Finnish enterprises. Exports increased and foreign debt decreased.
Firms paid record high dividends to their owners, and as well
asprofits, old assets of the companies were distributed to
their owners. It looks like that after joining EMU, the US
"shareholder value" concept was launched in Finland,
which entitles a firm’s present owners to all the money
that can be raised from the firm and shared out. Dividends
were tax-free to their receivers, and in addition, sales profits
were tax-free or under-taxed.
The revaluation of the US Dollar in respect to euro had a
remarkable influence on the Finnish stock market. In terms
of US Dollars, the value of the Finnish stock exchange was
low, and as a consequence, some 70% of the stocks have ended
up in foreign ownership. Economic power flowed away from Finland.
The influx of foreign currency in Finland distorted the internal
distribution of income, and income disparity has become wider
than ever before.
As money from dividends and sales profits was not distributed
through taxation to those Finns dependant on social security,
in the midst of all the new wealth, Finland experienced breadlines,
with hungry people seeking food offered by voluntary organisations.
Uneven income distribution
In no other EU country has the functional income distribution
changed as much as in Finland, benefiting the capital owners.
It can be read from the following table. This describes the
share of wages from the national gross product between the
years 1990-2000.
...................1990.................2000
Sweden.....…..69,0 %.............64,9 %
Britain..….......63,0 %.............62,7 %
Denmark...…..64,6 %.............60,7 %
Germany.........62,2 %.............59,9 %
France...….......58,6 %............58,6 %
Austria.......….59,8 %.............58,3 %
Belgium.......…57,3 %............57,9 %
Holland......…56,2 %.............57,7 %
Luxembourg...58,9 %............55,8 %
Spain..........…56,1 %............55,4 %
Portugal......…49,6 %............54,5 %
Finland......…..64,2 %...........54,1 %
Italy................50,7 %….........45,6 %
Ireland.......….51,6 %.…........45,3 %
Greece............37,1 %...…......37,3 %
During those 10 years, the Finnish labour market lost more
than 10 percent of its units from its share of the national
income. It happened in those years when Finland was being
moulded into the EU and EMU shape. The biggest changes happened
after the launch of EMU. That was the gold rush of the capital
owners according to the philosophy of shareholder value capitalism.
The purchasing power of wage earners has increased, but this
is a result of the political decisions: the state has collected
less taxes. While the rich and those with high income have
been given tax reliefs, this policy has resulted in reduced
welfare benefits. The state has financed its expenditure by
selling state-owned companies, by privatisating public services
and by increasing the cost paid by the beneficiaries themselves.
The labour productivity has increased in the long run by 3,5
%, but the increase in salaries only by 2,1 %. This difference
has been exploited from the labour to the capital.
EMU is federalism
Finland has been led away from its former foreign policy of
political neutrality.
Unlike Sweden, Finland's goal is to join the federalist core
of the EU. The political elite are prepared to give up the
independence of the country by accepting a new constitution
for the Union as designed by a Constitutional Convention in
Brussels. This incorporates the concept of supranational decision-making:
political decisions are made depending on the size of population
of each state. There will be no political or economic democracy
in the Union of 500 million EU citizens.
The EU is being turned into a federal state. The new Constitution
has an article about a common EU flag, an EU anthem, an EU
motto, an EU national day and the federal money: the euro.
EMU is part of the federalisation process of the Union.
There is also on ongoing militarisation process of the EU.
The Union is being militarised by placing at its disposal
permanent military organs and a European army. The non-allied
countries are made Nato-compatible, both politically and militarily,
through the new EU structures. The new EU, which will be established
by the new constitution, is a highway to Nato. All countries
must be alike.
In that sense, the federal basis of EMU is interconnected
to the militarisation of the Union and the Nato-membership
of the majority of the member countries.
The biggest problem from a small country's perspective is
the lack of democracy in the federal state and weakening of
democracy on a national level. That is what EMU represents
The Finnish economical situation
Today the Finnish economy is in a low-growth situation.
The export demand is low, and the devaluation of the US dollar
in respect to euro is taking its toll.
The state budget for the year 2004 is in deficit, and the
new tax reliefs to the rich are financed by loan money.
The biggest bubble in the Finnish EMU discussion have been
the so-called buffer funds: the funds were to be used in a
low conjuncture situation to pursue a Keynesian finance policy.
They have been forgotten. They could be needed now, but the
buffer funds have been only virtual. In Finland, the EMU was
marketed to the labour unions in the form of buffer funds,
but it has been a bubble. There are no EMU buffer funds against
unemployment or dismissals.
After the benefits of the euro devaluation have now been lost
(and after the profits of the devaluation policy have been
transferred to the capital owners), there are only two alternatives
for a small country to adapt itself to the federal EMU policy:
the finance policy (cuts in the welfare state) or the income
policy (lowering salaries).
There is no such thing as free choice of policy in EMU. Every
member country, except the larger ones, must obey the rules
which may lead to overall stagnation in the fight against
non-existent inflation.
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