"Investment in Finland" -seminaari
Ulkoasiainministeriö Kauppapoliittinen osasto Reijo Kemppinen
Luonnos 18.5.1992
Puhenuotit ulkoministeri Väyryselle
In general
The agreement for European Economic Area was signed 2.5. and will step into force in the beginning of 1993.
Finland has applied for a membership in the European Community.
Finland's well-being is best served by membership of the Community. This does not mean that the membership would solve our present economical problems or prevent us from getting into new ones. We are prepared and willing to find the solutions ourselves.
It is also quite possible that the membership does not take place as soon as might be hoped for. Community's internal problems may complicate the process of enlargement.
Nevertheless, Finland's application is a logical continuation of our traditional trade and integration policies. As an applicant, we can accept the present rules of the Community, the present forms of its political cooperationas well as the longer-term goals as set out in the Rome and Maastricht treaties and in the Single Act.
About Finnish economy
Finnish economy has been going through its worst recession since 1930's. Now the bottom has been reached and a slow recovery may be in sight.
There are clear signs that the economy is gradually returning to export-led growth path. Recent data on the balance of payments and price developments are encouraging. The surplus on the trade account is increasing, while consumer price inflation has remained on a low level, just below 3 percent.
(During past two years direct investments in Finland have dropped dramatically. 1970-85 net investments by foreigners amounted to some 150 million FIM a year. After 1986 and the liberalization of our capital markerts foreign capital rushed in. 1989 2095 million FIM. 1990 3023 million FIM. This year so far: no chaange for the better.)
The recession hit us hard in 1991 strangling the flow of foreign investments down to 131 million FIM, the lowest level since early 70's.
In the 80's most of the investments were made by Swedes (more than half). Other relevant investors were Dutch, Danes, French, Britons and Americans.
About legislation
The EEA Agreement will free practically all direct investments to Finland from the beginning of 1996. As a proof of the seriousness of our intentions the government has decided to speed up the process. Foreigners can set up new businesses in Finland freely already from the beginning of next year.
According to new legislation foreigners can be prevented from buying Finnish companies and property only when the aqcuisition is large enough and threatens vital national interests.
Government's proposal will probably be given already before summer holidays.
Even though the legislation has restricted foreigners rights, practice has ruled otherwise. Not a single merger or acquisition has been stopped by the
government during recent years.
EMU criteria
In tomorrows Europe the decisive factor might be Economic and Monetary Union. In the Maastricht summit the EC set out exact criteria which its Member
countries should fulfill before being able to join a full EMU.
1. Rate of inflation should remain close to the three best performers. Max + 1.5 per cent.
2. Long-term interest rates close to the best performers in terms of price stability. Max + 2 per cent.
3. Sustainability of government's financial position.
4. Participation in the narrow band of the EMS for at least two years.
At the moment our inflation is down, government deficit is over the limits but the public debt lies way below EMU target. We are looking into the ways of creating a new, closer tie between the European Monteary System and markka. Interest rates are too high.
Finland's intentions
We fully acknowledge that the markets are not yet fully convinced of our economic and monetary commitments. Partly because of this the interest rates are staying on a high level.
Firstly, our application underlines Finland's firm commitment to monetary and financial stability.
Secondly, the devaluation of markka last November helped to establish a wide consensus about the need for a fixed exchange rate. This may seem paradoxical but it is not. The unilateral pegging of markka to the ecu with its wellknown consequences brought a new sense of reality in to the Finnish way of thinking.
Thirdly, following the devaluation Goverment drew up an economical and financial reform package with severe budgetary expenditure cuts. Altogether these cuts amounted to 2 percent of the GDP.
Fourhtly, we are fully aware that these decisions may not be enough to carry us through difficult times. However, they serve as an effective demonstration of our will to succeed.
Fifhtly, we still have to introduce changes in the areas of fiscal reform (V.A.T.) and labour market flexibility.
Lastly, because of the chosen political and economical policies we can say that Finland meets the EMU criteria by 1995.