MINISTRY OF FINANCE Rauno Niinimäki /1 Finnish experiences of EU and EMU The annual meeting of The Icelandic Travel Industry Association Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /2 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /3 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /4 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 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) Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /5 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /6 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /7 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /8 Practical preparations for the Monetary Union Started in 1996, coordinating responsibility on the Ministry of finance the new currency was born monetary policy in euro euro area wide capital and money markets in euro single currency, single interest rate 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 Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /9 Macro economic developments in Finland in 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% Reykjavik

MINISTRY OF FINANCE Rauno Niinimäki /10 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 Reykjavik