Finnish economic system has been turning enormously fast in the recent old ages. It have been ranked as one of the fastest turning states in footings of GDP. This is partially due to the rank of EU and EMU, but besides due to the extremist structural alterations in economic system that Finland did after the crisis of 1990s. Nevertheless Finnish economic system have been vulnerable to planetary economic fluctuation in the yesteryear and besides during the recent economic crisis.
In this paper I would wish to depict some chief economic development issues of Finland and see how did integrating to European Union and European Monetary Union did consequence Finnish economic system. It need to be said that Finland is located in the boundary line of Euro zone and trade dealingss with Euro states is merely one tierce of overall Finnish trade. Trade construction of Finland is non extremely correlated with other centre European states. This might be vulnerable for Finnish economic system in the long position as Finland does n’t hold mechanism of seting their ain currency any longer. In this context I will besides give an overview of other seting mechanism that Finland could utilize based on Optimum Currency Area theory. This theory provides some standards that has to be applied to the state for acquiring more benefits and sustainability in the individual currency country. Due to the individual currency Finland demand to go more flexible in rewards and labour mobility. Besides to pull more foreign investings and increase trade between other states it have to hold believable pecuniary system and market should be more unfastened. In decisions I will garner pros and cons of Finnish economic system harmonizing to the OCA theory and integrating of Finnish economic system to the European individual market.
1. State Profile
The official name of alleged Finland is Suomen tasavalta ( Suomi ) , Republic of Finland. Its official signifier of province consists in a parliamentary democracy with a republican fundamental law. The highest executive power is vested in the president who at nowadays is Ms. Tarja Halonen. Finland has a unicameral parliament ( Eduskunta ) with 200 members. The members are elected for a four-year term by direct popular ballot under a system of relative representation. The state has been independent since 6th December 1917.
The entire country of Finland covers 338,000 square kilometers ( 6 % agricultural land, 10 % H2O and 69 % wood ) , 304 112 square kilometers are land country. Estonia, Sweden, Norway, Russia are neighboring states. The national resources chiefly include forest, Cu, Fe ore. The population of Finland is 5.326 million ( 2008 ) of whom 67 % unrecorded in towns or urban countries, 33 % in rural countries, exposing a denseness of 17 people per sq. kilometer. The life anticipation reaches 83,0 old ages for females and 76,3 old ages for males ( 2008 ) . Main towns to be mentioned are Helsinki as the capital ( 564,520 dwellers ) Espoo ( 235,020 dwellers ) , Tampere ( 206,370 dwellers ) . Helsinki, Espoo and Vantaa, organize the Helsinki metropolitan part, which now has more than a million occupants. Finnish and Swedish are the official linguistic communications, Russian and Lappish are some of the minority languages. [ 1 ]
The undermentioned timeline high spots some important events in the history of Finland:
1155:The first campaign to Finland by the Swedes. Finland becomes portion of the Swedish kingdom
1809:Finland is handed over to Russia by Sweden and becomes a partially independent Grand Duchy under the Russian Emperor
1917:Finland ‘s declaration of independency on 6th December 1917
1939-44:Second World War against Soviet Union ( with support of Germany )
1948:Soviet Union and Finland sign a pact of friendly relationship, co-operation and common aid
1955:Suomi joins the United Nations
1995:Finland becomes a member of the European Union
1999:Finland joins European Monastery Union ( EMU )
2002:Euro bills and coins enter circulation
Economy
Currency: Euro ( EUR ) = 100 cents
GDP ( 2008 ) : 184,7 bn a‚¬ , per capita 34,769 a‚¬ ( at current market monetary values )
Consumer monetary value rising prices: 4,1 % ( 2008 ) . 2009e: 0,1 % .
Unemployment rate: 6,4 % ( 2008 ) . 2009e: 9,0 % .
Monthly rewards ( 2008 ) : mean 2,876 a‚¬ ; ( m ) 3,185 a‚¬ , ( degree Fahrenheit ) 2,575 a‚¬
Main industrial merchandises: paper and board, electronics and metal merchandises.
Tax: corporation revenue enhancement ( 26 % ) Value-added revenue enhancement ( 22 % ) on most goods and services, ( 12 % ) nutrient and animate being provender, ( 8 % ) books, pharmaceuticals, rider transit services etc.
2. Economic overview of Finland
Finnish economic system is expected to worsen due to the economic crisis in 2009 and, accordingly, weak demand in export markets. The Finnish Ministry of Finance predicts a diminution of the Gross Domestic Product ( GDP ) by 6 % in 2009. Export will worsen by one fifth and growing of investings will be low due to lifting cost of finance. The authorities budget will fall into shortage for the first clip in more so 10 old ages. Some beginnings predict that Finland will be hit harder by this economic crisis than other European states and its recovering procedure will be slow.
The GDP of Finland in 2008 consisted of EUR 184,7 billion. Two tierces of it were generated in the service sector, 24,9 % in industry, 6,7 % in building and 3 % in the sector of agribusiness and forestry.
The development of recent old ages refering unemployment making precession period degree has worsened quickly once more in 2009. In September, the unemployment rate rose to 7,3 % from 5,9 % in the old twelvemonth. The forecasted unemployment rate for the terminal of the twelvemonth is 9 % and is expected to maintain lifting in 2010.
Since Finland joined the EMU it has been pull offing good with maintaining its rising prices rate low, even lower so OECD norm. Except for 2008 when rapid growing in energy monetary values moved the rising prices rate from below the Euro country norm up above it. Average rising prices was 4,1 % in 2008. Forecasted rising prices will decelerate down to an norm of 0,1 % and will stay comparatively low in 2010.
As an export goaded state Finland has been executing good in export for the last few old ages ensuing in its current history balance being in big excess. Nevertheless, the state of affairs changed in 2008 when the excess of current history fell to 2,6 % of GDP from 4 % in 2007.
As predicted by the Ministry of Finance, demand in the export market should besides stagnate in approaching old ages and excess might vanish. As a little and export goaded state Finland is dependent on foreign trade. After a record of 47 % of goods and services produced in Finland were exported in 2008, Finnish export is expected to worsen by 22 % . In 2008, the value of export was EUR 65.5 billion and import EUR 62.1 billion. Yet it is besides expected that export monetary values will fall well. It is besides forecasted that export will resuscitate by the terminal of 2009 as the cyclical mentality is said to better in export markets like Germany, Russia and Sweden.
Additionally, import will fall around one fifth and import monetary values will drop by about 10 % in 2009. It is expected that Finnish export will turn slower in the hereafter than the export market in norm. [ 2 ]
In 2008, Russia overtook Germany and Sweden as chief trading spouse for Finland. It claimed the first topographic point in export with 13 % and in import with 16,3 % . Export to the other chief export states declined with the exclusion of Italy and Spain. Import was turning due to oil demand from Russia. Besides, turning inclinations were observed from Germany, Sweden and Norway. Import from all other chief import states were worsening in 2008. Main Finnish export merchandises are machinery, metals and merchandises of the forest industry. Machinery held 43,7 % of the entire export yet growing was besides observed in crude oil merchandises, general industrial machinery, route vehicles and power bring forthing machinery. Paper export was worsening compared to the old twelvemonth. Machinery and equipment are besides chief import merchandises which occupied a portion of 34,8 % of entire import. On the 2nd topographic point were mineral fuels with a portion of 17,6 % . Oil and oil merchandises were turning quickly by 27 % due to high universe market monetary values beforehand. [ 3 ]
3. Economic Overview of Finland during recent old ages
Finland ‘s GDP has been turning quickly and ranked as one of the highest in mean one-year growing between 1995 -2005.
Merely the GDP adjusted to buying power or by the footings of trade has non improved. This is explained by the diminished trade and buying power.
Monetary values of electronics and paper, which are most of import export merchandises for Finland, have been worsening during the last 15 old ages. On the other manus, monetary values for energy, the most of import import merchandise for Finland, have been turning quickly.
Finland enduring besides from the weak buying power, which is consequence of below mean salary degree among other western EU states compared to monetary value and life costs. High income revenue enhancement is besides dejecting buying power.
Rapid economic growing in Finland has been chiefly pulled by the information and communications engineering ( ICT ) sector. Nokia gave a chief input to the ICT sector development in the late ninetiess. A strong growing tendency of the ICT sector and economic downswing in Finland in the early 1990s led the authorities to re-arrange some financial and pecuniary policies. During economic recession, the Finnish authorities used the opportunity to reconsider the development schemes to retrieve economic system. One of the structural alterations took topographic point in the educational sector by supplying an technology oriented instruction and was followed by the telecommunication equipment market through back uping the Research and Developing ( R & A ; D ) sector. Furthermore, during this clip the authorities managed to dicker moderate pay understandings along with sustained sound direction of financial and pecuniary policies. It besides restructured public sectors such as telecommunications, electricity production, and coach services in Greater Helsinki and other metropoliss. These sectors had antecedently been public sector monopolies. The alterations undertaken increased competition and improved productiveness. The authorities determination of apportioning resources was successful. [ 4 ]
Electronic industry generated over 20 % of Finland ‘s growing in productiveness between 1992 and 2003 and its portion was near to 5 % of the GDP in 2003. Later on, ICT industry had been switching towards turning markets, peculiarly Asia. On the one side, that increased end product, but on the other manus, employment in this sector started to worsen.
Changes made after the downswing were besides directed to pull more foreign direct investing by cut downing barriers to put in Finland. Due to low rising prices and slow pay additions every bit good as high educational degree, Finland became more attractive for foreign investings. [ 5 ]
By international criterions, overall productiveness has been good. This holds true particularly in sectors viing in planetary markets. Although different governmental determinations in political relations and labour market solutions made some detrimental structural alterations in international companies, it improved their fight and cost efficiency. [ 6 ]
The post-recession period in the terminal of the 1990s was good for Finland. Exporting companies became more competitory and opening up quickly turning new Russian and Eastern European markets turned really positive for Finland ‘s economic system. Since the beginning of the twenty-first century, demand has grown particularly in capital goods and semi-finished production, which besides boosted employment. Because of large and long investing rhythms into these sectors the transportation of production capacity to low cost states was slower so elsewhere. Even though the authorities supported technology instruction, shipbuilding industry suffered from a deficit of skilled labor. Besides another of import sector, that of paper industry, had suffered from low monetary values in universe broad markets throughout the bend of the century. Too high production capacity and high investings outside of the place state, particularly into Europe, maintain costs excessively high while paper merchandise monetary values are excessively low. The chief job seems that the Finnish paper industry did non put plenty to developing states.
The rate of employment could non maintain up the same gait like this rapid economic growing after 2000. It increased merely somewhat to little better so OECD norm.
Growth in occupations has taken topographic point chiefly in the service sector whereas they declined in primary production and industry, which is the chief tendency besides in other OECD states. This tendency occurs chiefly because of chief industrial sectors holding shifted production abroad. Existing unemployment is besides partially due to structural rigidnesss forestalling labour migration between geographical locations or industrial sectors. During concern upswings enterprisers were non willing to enroll extra employees. Besides, purchasing and bring forthing consumer services is expensive because of dual revenue enhancement cuneus in the revenue enhancement of service sector. [ 7 ]
4. Integration of Finland into the EU and EMU
Suomi joined the EU in 1995 together with Austria and Sweden. It did non seek to negociate out from the 3rd phase of EMU, as Sweden did, but joined the EMU in 1999.
As already mentioned above, Finland was merely retrieving from a terrible economic and fiscal crisis which in itself had changed the construction of the economic system in several ways. Finland was adapted to the EU and EMU without any important obstructions. Merely Finnish politicians and economic experts had to be concerned for a piece to see how good the rank would be for Finland – non merely economically but besides politically.
To analyze the grounds why Finland decided to fall in the EU and EMU, it is necessary to give a short overview on Finland ‘s history. After the Second World War, Finland was considered as a politically impersonal state. Having lost the war against Russia it was fortunate plenty to maintain independency, yet on footings of being politically involved with Soviet Union. This policy of political neutrality was followed through the whole station war period until the beginning of the eightiess. Because of its geographical location between Eastern and the Western blocks, Finland tried to keep a balanced relationship with both sides. The relation with the Soviet Union was defined by a Treaty of Friendship, Co-operation and Mutual Assistance in 1948. Since so until prostration of Soviet Union, Finland ‘s economic system relied to a great extent on the exchange of manufactured goods for low-cost Soviet oil.
In the sixtiess, Finland was set uping connexions to the Western states by going an associate member of the European Free Trade Agreement ( EFTA ) but got full rank merely in 1986. This impersonal policy was due to stop when the Soviet Union collapsed and Finland, together with Sweden, decided to use for community rank in 1992. [ 8 ] This determination was non merely influenced by the banking crisis of that clip but besides constituted a political determination to travel the state ‘s perspective towards a Western geopolitical Centre. The political purpose was to acquire rid of the impersonal image which might be judged as excessively unstable and hazardous to collaborate with or put into. Finland ‘s integrating into the EU was seen as instead a political determination than an economical one.
However, fall ining the EU turned good for Finland in economic positions besides, particularly agricultural issues were most of import negotiated benefits. Finnish husbandmans were good supported by the authorities before fall ining the EU which had been promised to be continued after going portion of the EU. EU rank did assist to increase the mean size of farms and boosted productiveness. Yet since 1995, the economic construction of Finland changed and the agribusiness sector declined quickly since the growing of hi-tech industries emerged. Other benefits for Finland are chiefly related to overall free trade and labour motion between member provinces.
It was expected that the EU rank would increase trade with EU states, but this did non really go on. Finland ‘s portion of export and import in the EU has really even declined due to slower growing of cardinal European states than it was the instance in Finland. Another factor that prevent growing of trade between Finland and EU was the lifting impotents of Russia and Asia. [ 9 ]
5. OCA and asymmetric dazes
The theory of Optimum Currency Area ( OCA ) originates from Robert Mundell ( 1961 ) . This theory proposed that a state would happen it more good to hold a common currency with other states if the concern rhythms of the states extremely correlated. In world it is improbable that such correlativity is of all time perfect. But the theory encouraged the thought that every bit long as factors of production are free to travel between states and parts with flexible labor market and financial policy, traditional accommodation methods of exchange rate can be replaced by individual currency. [ 10 ]
In this chapter I will give an overview of Finish economic system in the visible radiation of OCA. This includes how Finland is capable to use mechanisms like labour mobility and pay flexibleness and the inquiry whether the insurance system provides an option to set economic system if asymmetric dazes appear. We will besides take a expression on Finland ‘s economic features, on the openness of economic system, credibleness of financial policy and how extended agglomerations of industries appear in Finland. There is ever a hazard that if the member states of the EU do non carry through the standard for an optimal currency country, the individual currency can non respond to the asymmetric dazes in the same manner as the national currency could.
Before fall ining the EMU, Finland had to see whether a individual monitory policy would be suited for the economic system. Monetary brotherhood was seen as benefit in footings of economic efficiency, such as exchange rate stableness, lower cost of currency exchange, better monetary value comparison and increased competition. Additionally, the fiscal market would go more efficient.
On the other manus, Finnish economic construction or macroeconomic tendencies were different from other EU states such as Germany, France and Benelux states. These states were considered similar in nucleus inclinations with one another. Finland varied chiefly in timing of the fluctuation in economic system and the amplitude of the fluctuations because of concentrated economic construction, which was greater in Finland than elsewhere. Other debatable issues about fall ining the EU were related to pecuniary policy, which would be tuned harmonizing to the economic state of affairs of the whole Euro country.
During the procedure of fall ining the EMU, Finnish economic system, particularly the construction of production and trade was different to the 1 of Central Europe. Finland was considered more prone to asymmetric dazes in the wood industry. Production and export of forest industry, although worsening, is much larger in Finland so other EU states. The same concern was voiced about nomadic phone and web industry, which had much larger portions in Finland so elsewhere. This could hold lead to instability of the whole Finnish economic system if negative development would hit the telecom sector.
Besides the fact that merely one tierce of exports went to the Euro country meant that Finland is vulnerable refering perturbations from outside the Euro country. Single currency could besides be vulnerable sing trade and fight with Sweden, Great Britain and USA in instance the Euro would go a stronger currency. [ 11 ]
5.1 Mobility of Labour
Harmonizing to OCA theory labor mobility is one method that could be used in footings of economic equalization. If states can supply fortunes for free labor motions between each other, this can be an effectual tool in a period of economic fluctuation. Work related in-migration and out-migration is a positive phenomenon and of import for covering labour deficits. Due to the Euro zone and European integrating, exchange rate and foreign trade policy have lost their significance as instruments of economic flexibleness. Labour markets, hence, have become more flexible during the recent old ages. [ 12 ]
However, some Finnish industry sectors still suffer from labour deficits. Besides future developments expected in the Fieldss of labour migration do n’t look assuring for Finnish economic system. Harmonizing to Statistics of Finland, 29,100 individuals immigrated to Finland and 13,650 emigrate from Finland in 2008. Both in-migration and out-migration now reached the highest point since post-war period. [ 13 ] Intermunicipal migration applied to 269,800 individuals in 2008. The parts of Uusimaa had the largest migration addition of 2,800 individuals. More migration were noted in other industry concentrated countries. This consequences seems to be a respectful proportion for a little state like Finland, but the forecasts for Finland are non as optimistic.
Finland is confronting large challenges in the hereafter. Population is ageing and more immigrants will be needed. Yet immigration entirely can non decide the challenges. For maintaining the same economic growing and employment rate like today, Finland would necessitate some 750,00 immigrants of working age by 2020. Employment rate would necessitate to be about 75 % to accomplish the same GDP per capita. Reality looks different.
Immigration would besides necessitate to run into the labor demands of a peculiar sector and that would be difficult to accomplish for Finland because of competition with other states for the same experts. Other states can offer better inducements so Finland, as curtailing factors like revenue enhancement government, clime, linguistic communication and general attitude towards aliens are still bing and cut downing Finland ‘s attraction. [ 14 ]
Figure:
Beginning: MIGRATION STATISTICS AND DIAGRAMS ( 31.12.2006 ) www.mol.fi
5.2 Wage flexibleness
Wagess have been stiff in Finland in comparing with other EU-countries. Finland has a mostly centralized pay bargaining system which has been based on the rules of ‘solidaristic ‘ wage policy since the 1970s. However, recent tendencies have moved towards variable payment systems ( VPS ) , which means that the Finnish wage system is traveling from the stiff wage theoretical account to a more flexible system.
In 2006, for illustration, the fabrication industry paid consequence and net income based fillips to 31,5 % of their workers. An even higher per centum of 63,9 % was paid to white-collar workers. [ 15 ]
Figure:
Beginning: Cardinal organisation of Finnish Trade Unions, www.sak.fi
5.3 Insurance against asymmetric dazes
The OCA theory suggests that if states are hit by asymmetric dazes, besides pay flexibleness and labour mobility it is of import to hold mechanisms that allow income transportations to the states most influenced by dazes. In other words, the EU budget presents is that mechanism, covering with the allotment of money to the states or parts which need to better their economic systems most. Yet this mechanism is non working on behalf of Finland as it contributes more so gets out of it. Overall part volumes are comparatively little in EU budget from all states which means that their impact on economic systems are comparatively little excessively. Finland contributed merely 0,17 % of its GDP to the EU in 2008. The Figure ( X ) below shows that Finland has been chiefly net subscriber to the EU budget between 1995-2005. Merely in 1995 and 2001, Finland received more so it paid. Finland besides claims that about one ten percent of the Finnish part is due to low payment of United Kingdom. [ 16 ]
Figure: Finnish net part to European Union 1995-2005
Beginning: www.hs.fi
5.4 Market openness
Finland was a comparatively closed economic system until the late eightiess. Finnish economic system had monetary value ordinance government, trusts, monopolies and, as already mentioned before, Finland had a important bilateral trade understanding with the Soviet Union. Foreign investors could non purchase land or stocks in the Finnish companies. Yet since the beginning of the 1990s, Finnish economic system has changed dramatically as respects both industrial reforms and regulative.
Presents, Finland is considered as an unfastened economic system with competitory concern environment, in which trade contributes over 45 % of Finland ‘s GDP. ( Exhibit )
Along with market openness, corruptness and black market decreased aggressively below the international degree. Reorientation, undergone in the early 1990s, from wood, paper and metal merchandise economic system to knowledge intensive economic system growing has served international market needs reasonably good. Early stairss of deregulating and denationalization of the telecommunication sector forced companies to better their fight on the international market. Long traditions in trade with neighbouring states and high degree instruction and linguistic communication cognition [ x ] , has contributed to Finland ‘s engagement in international concern today.
International investings and amalgamations have played a important function in the Finnish concern environment. Amalgamations have occurred chiefly between Nordic rivals. Already by the twelvemonth 2001, tierce of the 500 biggest companies were owned by foreign investors. In 2007, foreign investors held half of Finnish portions. ( Exhibit )
The gap up of Finnish economic system is besides visualised by the fact that 99.1 % of International Market Directives have been applied into the national jurisprudence, holding an execution shortage of merely 0.9 per cent. [ 17 ]
5.5 Agglomeration in Finland
Technological development in the early 1990s and a turning ICT sector enabled the Finnish population to go less dependent on location. However, there are still strong inclinations of constellating activities. Rapid growing in this sector, peculiarly the growing of Nokia, has led to a state of affairs in which Finland has become divided into different economic countries. The economic recession was followed by fast development into fewer nucleus countries. This besides boosted migration between parts. The most successful parts in Finland have been those with universities and a strong ICT sector. Areas like Uusimaa, Varsinais-Suomi, Pirkanmaa and Pohjois-Pohjanmaa had the highest GDP growing ( 6.5 % ) . ( Exhibit ) NokiaA?s industry is concentrated chiefly in these parts. The remainder of Finland had an mean approximately 3 % merely. This is a common phenomenon in Finland and in the other developed states.
Other industries are besides located in some peculiar parts. Forest industry is concentrated in Kymenlaakso and Etela-Karjala. Engineering industry in Satakunta, Kanta-Hame, Pirkanmaa, Paijat-hame and Keski-Pohjanmaa. ( Exhibit ) The concentration of houses and occupations creates procedures of agglomeration. However, urbanization in Finland is still quiet low. Of class, it is possible that agglomeration will develop farther. This will heighten the hazard to these specialised parts to be affected by any national or planetary economic fluctuation. Besides, strong trust and part to these sectors can damage freshly created economic activities in the part or forestall them wholly. It is non ever good to the part what is good to houses. [ 18 ] / [ 19 ]
Figure:
Beginning:
5.6 Credibility
Finland had long struggled with credibleness of pecuniary policy. Finland besides did devalue their currency markka many times during history and for a last clip in 1992. Finnish Finnish mark was considered as a hebdomad currency. Joining the EMU was chiefly connected to the credibleness of Finnish pecuniary policy. Finland suffered from a deficiency of credibleness, which caused perennial balance of payment jobs ( deficiency of foreign militias ) and market involvement rates were high. By fall ining the EMU it was hoped that high credibleness of the Euro country pecuniary policy would take down involvement rates. It was besides expected that pay moderateness would be better within pecuniary brotherhood. Better credibleness would take down rising prices outlooks and that would besides intend that smaller rising prices premium would be applied to rewards.
By fall ining the EMU, Finland did go more believable. In the terminal of the 1990s, GDP growing in Finland was one of the highest in the EU. Inflation was kept under control and the pay moderateness was good, in footings of the profitableness and external fight, until 2007. As mentioned in the old chapter, pay flexibleness has been increasing in Finland and this caused overheating of the labor markets when rewards increased over productiveness growing in the terminal of 2007. Nevertheless, rising prices has been sensible during Finland ‘s whole EMU rank and remains close to 2 % ( except the twelvemonth when oil monetary values went up in 2008 ) . [ 20 ]
6. Visible benefits of EMU
6.1 Banking crisis 1991-93
As mentioned before, Finnish economic system was enduring from a banking crisis in the beginning of 1990s. This crisis besides was a trigger for fall ining the EMU while it demonstrated that Finland had jobs with credibleness of the fixed exchange rate and overall pecuniary policy.
The ground for the banking crises started with a big recognition roar in the mid-1980s when plus monetary values, investings and ingestion increased quickly. Besides, the involvement costs were deductible in revenue enhancement. This, together with a turning rising prices rate deteriorated the existent involvement rate. This once more led to tightened pecuniary and financial policies to support the exchange rate. An overheated economic system with high rising prices and high cost force per unit area influenced fight and the credibleness of the fixed exchange rates negatively.
The reunion of Germany wholly led to a higher existent involvement rate tendency in Europe every bit good as impairment of the economic clime. The state of affairs in Finland intensified and brought guess against Finnish currency ( Finnish mark ) which eventually led to fluctuation of Finnish currency in fall of 1992.
( Exhibit )
The large depression started with the rise of existent involvement rate to support the exchange rate. GDP fell along with plus monetary values while unemployment and budget shortage increased quickly. This led to severe banking crises and long economical depression.
Because of this experience, Finland was concerned about the individual pecuniary policy and exchange rate. That means if they join the EMU they would free one of import method to protect their economic system from external dazes. Single pecuniary and the exchange rate of the euro would non react to these asymmetric state specific dazes. Finland would non be able to utilize traditional tools like devaluation of local currency ( Finnish mark ) to cover with unfavorable dazes. [ 21 ]
6.2 Finland proving the individual currency
Yet the frights mentioned supra did non turn out to do Finnish economic system more vulnerable after fall ining the EMU. This has been demonstrated by the recession of the telecom industry around the bend of the century. Neither was Finland badly threatened by the fluctuation of exchange rates of the Euro vis-a-vis confronting the dollar, when the Euro foremost depreciated 30 % and so appreciated 50 % . Not even increased oil monetary value pushed Finnish economic system into an inflationary spiral.
It can be said that the individual pecuniary policy has suited Finland ‘s economic system reasonably good. Of class, it is difficult to state clear benefits after a comparatively short period of the EMU ‘s being. Finland managed to maintain rising prices comparatively low and largely remained within the European Central Bank ( ECB ) definition for monetary value stableness. The recent old ages were really the lowest 1s in term of rising prices in the EU. Besides other factors like employment, end product and profitableness of Finland ‘s industry have been on a comparably good degree. To reason this chapter it can be stated that even in a little and asymmetric state the ECB ‘s believable pecuniary policy can offer a sound pecuniary environment. [ 22 ]
7. Decision
It can be said that the individual currency has been good for Finland so far. More over as the old illustration showed that little fluctuations in planetary economic system and asymmetric dazes could be handled much better since Finland have joined the individual currency country. In title we can besides state that states which have been remaining out of EMU did pull off besides surprisingly good, which might besides turn out that individual currency wo n’t be needed overall. Like for illustration Sweden had stayed out from euro zone and still holding one of the best economic development in EU. On the other manus we can besides state that stable economic system in EU during the recent old ages have been chiefly due to the individual currency and this have been besides good for states like Sweden. In more simple manner we can reason that if all of the EU states would hold had still ain currency it would hold non been every bit stable as it is now.
For Finnish position EU and EMU were more good so harmful. Finland has been enduring from deficiency of credibleness in station EMU times and for today this state of affairs have changed to more sustainable one. Nevertheless its excessively early to state how good will Finland manage recent crisis and will it return in same fast growing degree as it had before. If the tendency of falling monetary values in chief exportation merchandises for Finland will go on and oil monetary value will go on to turn, Finland will confront a job in monetary value competition between other states and this will cut down Finnish export.
In footings of OCA theory Finland is more vulnerable so most of cardinal European states in sense of chance of asymmetric dazes. Finland has reasonably concentrated economic construction and different from cardinal European states. Finland has a bigger portion of wood industry and ICT sector harmonizing to GDP. This means that if in this sectors will happen some economical fluctuations Finland will be hit much harder so other EU states.
Besides labour mobility and pay flexibleness is pretty nice to be used as mechanism to set dissymmetry. Finland has still pretty strong centralised pay bargaining system which can be utile during the large economic crises but if fluctuation or crises will hit merely to one specific industry sector this system can non respond every bit fast as decentralized pay system. Labour migration is non every bit bad as it could be but still non making the degree of one of the best preforming states in Europe. Finland has good opportunities of utilizing immigrants of neighboring states but opportunity to cut down unemployment would necessitate more specialized labor and that makes it clearly much more hard. Finland has a low degree of attraction of labor in comparing with other EU states. Besides ageing population is one of the chief issues for Finland to work out in the close hereafter.
No affair to all above mentioned rigidnesss in seting mechanisms, Finland was seen profiting from EU and EMU in economic efficiency, such as exchange rate stableness, lower cost of currency exchange, better monetary value comparison, increased competition and the fiscal market has become more efficient.
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