Minister Toivakka's speech at the Institute of International and European Affairs in Dublin
- The case for structural economic reform
Ms Lenita Toivakka, Finland's Minister for European Affairs and Foreign Trade
The Institute of International and European Affairs, Dublin
1 October 2014
[Check against delivery]
Ladies and gentlemen,
Let me begin by thanking this great institute for inviting me. Knowing your great reputation and having looked at the impressive list of previous speakers, I feel truly honoured to be here today.
And I must say it is extremely refreshing to visit a European country in which the economy is really growing and things moving forward!
Your growth rate puts the rest of us to shame. But if there is one people that have really earned a brighter economic outlook, it is the Irish. You have endured many difficult years and truly deserve to be heading for the better.
Sadly, Ireland is an exception in today's Europe. Most of us are stuck in slow motion. My country, Finland, even more so than many others.
The worst of the financial crisis may be behind us but Europe's economic troubles are far from over. We desperately need growth to create jobs and balance public finances.
Without growth and jobs we risk witnessing more social problems and growing disappointment with the political establishment. We have seen this in recent elections across Europe.
But I did not come here to tell you what is wrong with Europe. There are more than enough columnists and analysts who do that.
In fact, I came here to discuss with you what is right about Europe, and how we can solve our shared problems. Let's not focus on what we have done wrong in past, but on what we can do right in the future.
As the new European Commission is preparing to take office, Europe is engaged in a lively debate about the future direction of Europe's economic policy. Some say we need more flexibility to make space for bigger public investments. Others say we should not repeat past mistakes and instead focus on improving the competitiveness of our economies.
I think Ireland and Finland have a shared commitment: That is to promote structural reform, innovation, open markets, free trade and fiscal prudence – in short: improved economic competitiveness.
The EU countries collectively and individually are faced with a stark choice: Reform or decline.
We cannot sustain the current level of prosperity and public services with solutions of the past. That is simply not an option.
The only way forward is reform. We need reform at the EU level but most of all we need it at the national level. In short, we must reinvent our economies.
The Irish certainly know that. I don't need to convince you.
I want to share with you Finland's agenda for reinventing Europe's economy. But before I do that, I must address one common misperception in the current debate.
Some people see competitiveness as a challenge to Europe's welfare model. They fear that reforms aimed at making our economies more dynamic will undermine the welfare society we built over the post-war decades.
This is simply not true. In Finland we see economic competitiveness as the only way of preserving and improving our Nordic model. In an open economy, such as ours, competitiveness and generous welfare society go hand in hand. The two are friends, not enemies.
It is no coincidence that the Nordic countries rank high both in competitiveness and in social justice. The German foundation Bertelsmann Stiftung just recently published its new index comparing the social justice of all 28 EU states. The top three countries were Sweden, Finland and Denmark – all strong believers in competitiveness.
Finland certainly has its own issues. We have unemployment and social exclusion. Our economy has been badly hit by the global crises and global shift in manufacturing. Some of our big reforms are proceeding painfully slow.
What should we do, then?
I will present four points that I consider to be essential for reinventing Europe's economies. These points require action at the national, European and global levels.
1) My first point is this: Let's do our housework. Each and every EU member state must get serious about structural reform. No one else can do it for them. Not Brussels, and certainly not other member states.
Some EU states are more advanced than others – take Ireland for example – but we all have more work to do.
In Finland we are reorganising our health and social services. We are about to raise the minimum retirement age by two years to 65. We are streamlining the public sector by cutting local government services. We are creating incentives for unemployed people to accept a job. And we are investing in education and research to create something new.
This is very much work in progress. Moving forward, Finland needs greater public investment in education, training and innovation. We need to get more people into the labour market. We need more productivity gains from ICT and digitalisation. We need more competition and less regulation. And so on.
Yes, such reforms are often painful and politically unpopular. It boils down to political leadership.
Jean-Claude Juncker once famously said: "We all know what to do, we just don’t know how to get re-elected after we’ve done it."
I have nothing but respect for the next president of the European Commission, but I respectfully disagree on this statement.
European leaders do win elections even after introducing difficult economic reforms. Chancellor Merkel got re-elected in Germany. President Anastasiades won the European election in Cyprus. And, without interfering too much with Irish politics, let me just say that your Taoiseach, Enda Kenny, seems to be doing quite well in opinion polls.
2) Let me move on to my second point: Let's use our common European instruments to boost innovate digital and green economy.
Digital technology is transforming our societies and economies. Europe has enormous potential to benefit from that transformation but first we need to catch up.
Europe has lost its leadership in information technology. Europe was the global leader in telecommunications – Finland's Nokia being one shining example – but the world around us changed faster than we did. We had no internal market and no common European standard for the digital economy.
The United States is now the leader in digital economy.
This is actually quite remarkable. It is not so long ago that we Finns with our fancy mobile phones were making jokes about Americans and their old-fashioned pagers. – You remember these little beepers?
Well, we are not laughing anymore. No, we take our iPhones, Google what we want to know and Tweet what we want to say.
So, Europe may have lost a set but we haven't lost the match.
Digitalisation is now transforming manufacturing and industrial processes. Europe can take a key role in that and win back some of the competitive edge we have lost to the emerging economies.
Take for example the "Internet of everything" which connects machines and industrial processes with countless new applications and smart solutions. It will improve resource efficiency and productivity of manufacturing, and hence improve Europe's competitiveness.
E-solutions change the way we provide health care and other public services. And while doing so, they will generate new economic activity.
Another key area is green growth, enabled by cleaner technologies. Just last week our leaders met at the UN in New York to reaffirm our commitment to curb climate change.
We should see climate change not only as a threat, but also as a driver to create new demand for clean technologies. Europeans have the knowledge and expertise to take lead in that. We have a head start with energy technology, because we have taken climate change seriously. We just need to give our businesses the freedom and incentives to grow.
Green growth takes many forms. Take advanced biofuels as one example. And here I mean second and third generation biofuels made of waste and by-products of industrial processes – not food crops.
Busses in parts of California run on European biofuels.
The Finnish airline Finnair just last week operated a test flight from Helsinki to New York using biofuel partly manufactured from cooking oil recycled from restaurants.
Increasing the use of advanced biofuels across Europe will cut emissions, create jobs and improve Europe's energy independence. For that to happen, we need EU level incentives and policies to encourage investments in sustainable renewable energy sources.
Europe should not waste its waste.
3) My third point, then: Let us embrace open markets. We cannot – and should not – shy away from competition, because openness is the key to Europe’s economic future.
We have to work with the markets, not against them.
Yes, globalization means intense competition, and yes, Europe has not being doing particularly well in recent years.
But globalisation will move ahead with or without us. Europe alone cannot change the nature of modern, global economy.
Looking ahead, it is essential that Europe is strong and dynamic and will thrive in this global economy.
New technologies and global value chains are changing the dynamic back in Europe's favour. The advantage is shifting away from emerging countries with cheap labour to countries with higher skills and innovation.
When one part is made here, the other part there, and the product is assembled elsewhere, the greatest value often comes from the creative process. Automation and robotics are making manufacturing less dependent on human labour.
Europe with its advanced societies, skilled people and stable institutions will thrive in this new environment.
If we want to see growth in Europe – and my goodness we do! – we must get serious about completing the internal market. After all these years we still don't have one. There still are barriers where none should exist. We should be making sure there is a genuine digital single market, a well-developed market in services and capital markets and the realization of a European energy market.
We need market access also beyond Europe. Trade and investment agreements with the United States and other key partners are an enormous opportunity to generate growth and jobs.
Finland is a strong supporter of the TTIP agreement. We see it as a billion euro opportunity Europe simply cannot afford to miss. The European Commission estimates it would create hundreds of thousands of jobs in Europe. We see it a great opportunity also for Finnish businesses, big and small.
4) This brings me to my fourth point: Let's make Europe an attractive place to do business and make investments. After all, it is our businesses that generate growth and create jobs – not the public sector.
Ireland is probably an exception, but it's not always easy to run a business in Europe. I know because that is what I did for ten years before entering politics.
One issue is the quality of legislation and the weight of red tape. Finland has been active in the debate about better European legislation. For us it is not just about cancelling EU regulation. More than that, it is about the quality of it.
We cannot have a functioning internal market without EU legislation and standards. In most cases one piece of European legislation is better than 28 different national laws.
But the EU should not regulate everything, and when it does, it should keep businesses in mind.
I think the Juncker Commission has got this message and will take it seriously. Appointing a Vice-President for better regulation is a most welcome step. In fact, the Finnish government proposed that already last year.
One essential way to create new jobs is to boost our small and medium size enterprises. According to the Commission, SMEs provide two thirds of Europe’s private sector jobs. In many ways, SMEs are the backbone of our economy.
But in many European countries, smaller businesses struggle to get financing for their viable investments.
A great deal has been achieved to stabilise the euro zone's financial markets. We have a banking union. The EU has launched a programme to ease access to finance for SMEs.
I have covered my simple four-point agenda for reinventing Europe's economy.
Being in Ireland, I would be surprised if there was something you don't agree with. I look forward to hearing your reactions.
But before I stop, I wanted to raise one final point:
To change our economies for the better, we must not only make that change happen, we must also believe in it.
If we Europeans don’t believe in ourselves, who will?
I think it’s time Europe regained its self-confidence.
I say this because economy is also a matter of expectations and confidence.
Europe has a great deal to be proud of. European integration has delivered stability and wellbeing to European citizens on a scale never seen before in the continent’s history.
We have managed to combine free market economy with social and environmental responsibility. Our schools, health care systems and other public services are next to none.
The pressure from this historic economic crises has made us think in new, innovative ways, and implement reforms that otherwise would have not happened. Our economies are getting stronger after a very difficult period. We are already seeing that here in Ireland and elsewhere.
With a bold reform agenda Europe can prosper economically and maintain a generous welfare system.
Europe can regain the upper-hand in new technologies and industries if it invests in innovation and unleashes the potential of open markets.
I believe Europe will emerge from the economic crises stronger than before.
Thank you for your attention.