Finland is prepared for a period of economic uncertainty

Our exports diminished due to weak international development. Finland's total output was even estimated to have contracted during the first half of the year. Economic growth, if only slow, seems to have recovered in the autumn.

The problems facing the global economy became accentuated in the aftermath of the terrorist attacks of September 11. Production diminishes or grows at a very slow pace in the United States, Japan and Europe alike.

Economic prospects for the near future are, however, becoming more favourable. Positive developments both in employment and domestic demand signal that Finland's economy is on the path to recovery. We cannot, nevertheless, disregard the possibility that weak international development might again bring Finland's nascent growth to a halt. We are living in the midst of utmost economic uncertainty.

Unlike in the 1990s, Finland now stands prepared for the situation. TheGovernment has adopted a strongly reviving budget policy. The domestic market is enhanced by the European Central Bank's decisions to lower interest rates this has been made possible by slowing inflation. Wages have developed positively in relation to the general economic growth and consumers' purchasing power has strongly improved in the conditions of slow inflation.

Reviving would be impossible had the margins in the general government finances been used up during the prosperous years or the attempts to curb the soaring of interest rates with, i.e., successful incomes policy measures failed. The practice to agree on the incomes policy in good understanding with the labour market organisations demonstrated, once again, its viability.

There is no disagreement on the long-term direction of budget policy. The foundations of general government finances must be further strengthened as economic development ameliorates. The ageing of population makes it essential to reduce government debt before the large age groups reach retirement age resulting in diminishing tax revenues and increasing demand for services and income distribution measures.

Employment must be secured

Employment has continued to grow and the unemployment rate has, each month, been lower than the corresponding figure last year. Positive news on the recovering exports and domestic market give reason to prudent optimism.

Yet, as employment might temporarily start to grow also in Finland next spring, we must not abandon our efforts to reduce unemployment even further.

Rapidly changing global economy demands for increased adaptability of economic policy. The experiences gained in amending the budget proposal in November were very encouraging. More resources were directed to active employment policies and an agreement was reached on the need to reassess the adequacy of the existing job creation schemes in spring 2002.

The decision to postpone the budget cycle to a later stage in 2003 reduces the interval between decision-making and action.

The economic policy instruments available for promoting employment will be kept at a high state of alert until the prospects of the global economy show clear signs of improvement.

Welfare society expands and deepens

The years of and following the recession marked the period of protecting the fundamentals of the welfare society. It was imperative to safeguard the financing of public services and secure sufficient income distribution measures. Adherence to a responsible and persistent management of finances has enabled to return to the development of the welfare society.

The Government has emphasised reforms that improve the position of citizens in danger of social exclusion. In the service sector, this means free pre-school education for six-year-olds, greater dental care coverage and additional resources in the psychiatric rehabilitation of children and young people and action to combat drug abuse. As regards income distribution, this can be noticed in improved unemployment benefits, higher national pensions, decreases in the pensioners' raised health insurance payment and increases in the benefits paid to veterans.

Extensive efforts have been directed to improving expertise. The level of municipalities' state subsidies have increased in the field of education. The functioning of polytechnics has been strengthened and opportunities to life-long learning improved.

The economic situation of municipalities will be enhanced by the reforms to be effected at the beginning of 2002 aimed at guaranteeing that also the poorest municipalities will be able to provide their citizens with adequate services. The decision to restructure the system of the value added tax in relation to the local governments and to reform Government transfers to the municipalities will bring about effects that are billions in nature.

The challenges of the upcoming year

The main aim of social policy will remain unchanged: to decrease unemployment. Employment improves economic possibilities, provides a social network and improves individual's chances to run his own life. The most effective way to prevent social exclusion is to promote employment.

The strengthening of skills goes hand in hand with improving employment. Expertise and the development of established strengths are the weapons with which Finland and Finns will survive in the harsh international competition.

Not everyone is able to provide for oneself in a satisfactory manner. Prolonged unemployment, social exclusion, illness, death in the family and psychiatric problems may crush even the most diligent of a toiler. In most cases the need for help is temporary in nature but the society must be adequately equipped to provide long-term support, too.

There are three projects, in particular, to be furthered to alleviate the hardships and improve the situation of the most disadvantaged.

The situation of the young people that risk of becoming socially excluded has been discussed in numerous connections this autumn. The number of young people dropping out of school and abandoning studies is too high. This is a weak foundation on which to build a society based on skills. Labour market organisations are aware of the problem and have reacted accordingly. As a result, a cooperation project to prevent social exclusion will be launched in 2002. Apprenticeship and learning-by-doing must be seen complementary to traditional education provided in institutions. It is also imperative to analyse the reasons behind the current problems.

At the unveiling ceremony of the statute erected in honour of Arvo Kustaa Parkkila and his work to improve the situation of the homeless two weeks ago, I proposed that the municipalities in the metropolitan area establish a programme to promote the building of socially subsidised housing. The town managers have shown commendable Christmas spirits and received my proposal in a positive manner. The state is ready to participate in the financing of the programme. I request that the Finland's Slot Machine Association, RAY, contribute to the project as well. With determined action, the number of homeless could be reduced even by a thousand persons annually.

A number of projects to advance the circumstances of the excessively indebted are under preparation in Parliament and the Ministry of Justice. This does not translate as a general debt pardon but by cutting exorbitant interests, developing provisions governing debt restructuring and refraining the liabilities to distrain we may able to reach conditions where the indebted can start contributing to the society without slackening the overall moral of loan payment. The Finnish Bankers' Association is, on my request, examining ways in which banks could meet the borrowers in the matter.

The world needs cooperation

The terrorist attacks in the United States on September 11 were a concrete proof that security threats have changed. There is not a country, not a nation that can feel completely protected from international terrorism. Therefore, the fight against terrorism is a common cause.

The cooperation among the United States, Russia and Europe has been accentuated in the operations to combat terrorism. The position of the UN has strengthened in the maintenance of international security a fact that can only be a source of increased contentment.

The Afghan nation has suffered long decades of war and chaos. The human rights of the population, particularly those of women, were blatantly violated by the Taleban rule. At the moment, it is crucial that the temporary administration and the people of Afghanistan be supported. A wide-ranging international humanitarian aid campaign is already under way. The United Nations is preparing for a two-stage peacekeeping operation in which Finland is also to participate.

The situation in the Middle-East is becoming more and more alarming. The central problems remain the continuing whirlpool of violence and lack of confidence between the parties. Finland, as member of the European Union, has stressed the need of equal treatment of the parties; in the serious situation each party must shoulder its responsibility and the use of violence must be brought to an end. This calls for determined action from both the Palestinian and the Israeli government.

Any peace settlement must be based on UN resolution 242 and 238 resulting in an incontestable adoption and recognition of the rights of the Israeli people to live in peace and safety within the internationally recognised borders and in the establishment of a viable, independent and democratic Palestinian state ending the occupation of the Palestinian areas.

Finland's relations with the neighbouring regions were activated during the past year. Contacts with Russia, the Nordic countries and the Baltic states were frequent. Discussions with the Russian President Vladimir Putin and Prime Minister Mikhail Kasyanov advanced trade and economic projects in a concrete manner. Particular emphasis was attached to the improvement of smooth traffic flows at the borders, which demands constant work. A summit on forest issues between Finland and Russia will be held in Moscow in March 2002. The Finnish chairmanship of the Nordic Council of Ministers consolidated cooperation among Nordic countries within the European Union and the relations between the Nordic countries and the Baltic States.

Euro replaces the Finnish mark

The turn of the year will see the introduction of euro banknotes and coins. With the common currency, the Union's internal market will become a concrete reality in the citizens' everyday life making it easier for people and enterprises to act in Europe. The introduction of the new currency is an enormous achievement. Therefore, it is time to extend thanks to all parties that have contributed to the efforts.

The introduction of the euro marks a significant milestone in the European integration. In 2002, eyes will, however, be directed to the future construction of the European Union. A broad-based Convention is to begin its work at the beginning of 2002 with the task to consider the Union's future development.

The Convention, composed of representatives of the 15 EU Member States and the candidate countries, is to prepare a proposal on how to simplify and increase the efficiency of the enlarging Union. The successful fulfilment of the Convention's mandate calls for the involvement and contributions of the Member States' civil societies.

The year 2002 is also pivotal in regard of EU enlargement. The accession negotiations with the 12 candidate countries have progressed satisfactorily. Finland works towards bringing the negotiations with the candidate countries that are ready to a successful conclusion by the end of 2002. The enlargement of the European Union to the Central and East-Europe strengthens the respect of human rights and the rule of law in our continent and creates enhanced opportunities to promote well-being in Europe.

The Northern Dimension for the policies of the European Union was reinforced during the past year. The European Commission and international financial institutions committed themselves to the realisation of concrete projects. An Environmental Partnership Fund has been prepared under the European Bank for Reconstruction and Development, EBRD, and the European Commission and the Finnish Government has promised to contribute 10 million euros to the fund. The Northern Dimension Environmental Partnership Programme provides more wide-reaching instruments to control environmental risks in our neighbouring regions.