Economy

The EU is not an entity separate from its members; the very purpose of the EU budget is to benefit the member states. The closely monitored principle of subsidiarity means that the EU aims to carry out precisely those functions that are most sensible and effective to carry out at Union level. Examples include harmonising the EU single market, financing the sustainable transition and matters related to European security. At JEF Finland we do not, however, take EU spending as a given — we want the budget reformed to serve the common good of Europeans and a more sustainable future even better.

The EU budget is in itself very small: only about 1 per cent of the member states’ combined economy, while member states themselves spend on average about half of their entire GDP on public expenditure. The size of the administration is also exceptionally small for such a large union — the claim of a particularly big bureaucracy has no real basis. Nor does it make much sense to calculate net recipients or net contributors between member states, as “net recipients” and “contributors” are found in every member state. For example, many regions in Finland already benefit significantly in monetary terms from the EU’s investments in agriculture and infrastructure.

In a single market like the EU, economic cycles are also shared. Many economic crises start outside the EU and hit all member states alike, which is why it pays to respond to them in a coordinated and consistent way. Diverging fiscal policies create inefficiency and allow some smaller countries to “free ride”, as one country’s boost to demand is transmitted directly to its neighbours in the single market. Looked at from the citizens’ level, “net recipients” and “contributors” are found in practically every member state.

In an interdependent world, economic self-sufficiency is an impossibility.

Finland is an export country, and over 50% of its exports go to EU countries. It is therefore of primary importance to Finland that the EU single market works flawlessly.

All EU member states belong to the single market, so disruptions can occasionally occur. Good examples are the euro crisis and the COVID crisis. They were different kinds of crises and affected different things. The euro crisis affected the EMU countries — those using the euro — while the COVID crisis affected the functioning of the single market more broadly. In the euro crisis, Greece in particular had, through its own actions, ended up in a situation where it could no longer service its debt and became insolvent. The other EMU countries then supported it financially to preserve trust in the euro.

Greece, however, was subjected to severe austerity: its public finances were cut back considerably and state assets were privatised. Although the countries that had managed their finances by the rules had to come to the rescue, the heaviest burden fell on the over-indebted countries, which had to make painful cuts in many areas — above all in public services such as education and healthcare. In some cases even state water resources were privatised so the country could cope with its debts. The crisis led to new mechanisms allowing the European Central Bank and other countries to intervene better in another country’s spending if it did not follow the rules. With the COVID crisis, these requirements and rules were (temporarily) put on ice.

The COVID crisis affected all member states, as they had independently locked down their societies to stop the virus from spreading. This led to a serious economic standstill, from whose consequences people and businesses now had to be rescued. As a common solution, a new financial arrangement was created in which the EU borrowed from the markets — so-called joint debt. The public spending funded this way aimed to revive paralysed private demand and to invest in renewing the structures of the economy.

For Finland, too, it was important to get the economy running again after the COVID lockdowns, because uncertainty among key trading partners is poison for an export-driven country. Finland’s exports are largely based on goods that are produced only after the deal is made: companies make high-tech, customised products in small batches rather than mass-producing in advance, and order books can stretch years ahead. During the first COVID shock no new orders came in, because uncertainty about the future scared customers away. That is why it was important for Finland to restore confidence in future demand, so that exports would not stall and the state would not lose considerable tax revenue.

The recovery package restored confidence in future demand, so that exports would not stall and the state would not lose considerable tax revenue. The alternative could have proved far more expensive.

It is clear that the euro system would no longer be built the way it is today. A common currency has been difficult to reconcile with the member states’ differing economic conditions and the needs arising from them. For one euro country the interest rate may be too low, for another too high. The euro system does not give member states enough incentive for responsible fiscal management, and the lack of a common fiscal policy makes the monetary union incomplete in itself and prevents the smoothing of economic cycles at EU level.

Despite its problems, the euro’s benefits clearly outweigh its drawbacks. The general stability the euro brings is underrated, as is its great importance for security policy. For a country like Finland, the value of a common currency in a crisis like the Second World War would be immeasurable. The euro is ultimately a political project, justified as a deepener of European integration.

Dismantling the euro system would be an extremely problematic solution. It would lead to an immediate economic crisis and an even greater political crisis that would threaten the very foundations of the EU at a time when European unity is needed more than ever.

A considerably easier path to improving the current situation is the systematic fixing of the euro system’s design flaws — for example by increasing member states’ responsibility for their own debts, enabling orderly debt restructuring, and completing the banking union. In the United States, the states operate in many ways as independent economic units and, despite the common currency, in practice always answer for their own debts. There is no reason why the euro system could not be built the same way.

Despite its problems, the euro’s benefits clearly outweigh its drawbacks. Dismantling the euro system would lead to an immediate economic crisis; the far easier path is the systematic fixing of its design flaws.

Like everything else in the world, the economy itself is political. Organising the economy on free-trade terms is in itself an ideological choice. Whenever decisions are made about how resources are used, politics is being made.

There is no economic union without politics — all trade agreements without exception contain political obligations, because functioning decision-making and consistent policies are preconditions for working free trade. A political union can also rein in harmful competition, for example in taxation or regulation, guaranteeing citizens and businesses a level playing field.

A small export-driven country has little real power over, say, product regulation, because the legislation of its major export partners inevitably determines what kinds of products can be manufactured, and on what terms. A political union with our biggest trading partners — EU membership instead of mere free trade — gives Finland a genuine opportunity to influence the rules that concern it. Norway, the United Kingdom and Iceland have no such power, even though they still have to make sure their export products meet the requirements of their major trading partner, the EU.

An economic union is already politics in itself. A political union can rein in harmful competition, for example in taxation or regulation, and EU membership — instead of mere free trade — gives Finland a genuine opportunity to influence the rules that concern it.

The energy renovations in Italy’s recovery and resilience plan are essential in the fight against climate change. It is to our common benefit that we help countries that find it hard to finance the sustainable transition themselves: that way, for example, coal-dependent Poland gets a genuine opportunity and incentive to move away from coal power. And even where the money exists, the measures may have seemed too expensive to be worth undertaking — something we can see in Finland as well. Different countries have different weaknesses and needs; for instance Finland, as a country bordering Russia, benefits from common defence considerably more than the countries of Western and Southern Europe. In return, it makes sense for us to help these countries in the areas where they need support.

Strengthening market discipline in the EU’s bond markets is absolutely necessary, but it is worth remembering that Italy already runs budget surpluses repeatedly and pays a significant share of the Union’s budget every year. The benefit of transfers within the EU depends on how they are implemented. Investments in fighting climate change, for example, are truly urgent and benefit all Europeans equally.