Minister Heinäluoma at the Committee on Economy and Monetary Affairs

I would first like to extend my warmest thanks to you for this opportunity to present the work programme of the Ecofin Council during the Finnish EU Presidency to this Committee.

In Finland, Parliament plays a major role in the preparation of EU matters. Once a month before every Ecofin meeting, I am summoned by the Grand Committee of Parliament to a hearing. The situation in which I find myself today is thus very familiar to me.

Creating economic and monetary union is a historic achievement. Reflecting the ideas presented by Jean Monnet, European integration ever since the 1950s has been based on economic integration even if the objectives of the process were political. The euro has often been called “a currency without a state”. The unique architecture of the euro lends some validity to this description.

A clear division of responsibilities and smooth cooperation between the actors involved ensure a stable foundation for our common currency. Part of this architecture is formed by the Council and the European Parliament, and the ECON Committee of the European Parliament is a vital link. I consider it very important to have this opportunity to discuss our plans with you.

* * *

I would venture to say that Finland has a reputation for being an efficient and practical country. The Finnish approach to business is direct and pragmatic. Finland, and the Nordic countries in general, are also seen as proponents of transparency. Indeed, transparency was one of the key themes of the June European Council. We consider transparency very important and will pursue it in the Ecofin sector too.

However, we should not delude ourselves by imagining that simply making certain agenda-points public will magically make our citizens take a more positive attitude towards the EU. If anything, transparency is a necessary part of a democracy.

I would like to stress two points here. Firstly, citizens want results, and we should do our utmost to deliver results. Secondly, we should be able to tell citizens why we do what we do. I believe that we have to some degree failed to tell citizens how exactly the matters decided at the EU level promote and safeguard the welfare of ordinary citizens. These are challenges that we all face.

In order to succeed we need more flexibility in our economies. At the same time it is necessary that flexibility is combined with security. We have to take care of both. I hope that during the Finnish Presidency we can make progress with both of these goals.

* * *

First, I would like to say a few words about the enlargement of the euro zone. Yesterday, the Ecofin Council decided to accept Slovenia into the euro zone. This marks the beginning of a process in which several new Member States will be joining. The fulfilment of the criteria will be evaluated in November when the Commission and the European Central Bank will draw up the regular Convergence Report. The Report will be discussed by the Council, and the question of to what extent the Member States with a derogation fulfil the criteria for a high degree of sustainable convergence and the prerequisites for adopting the single currency will be addressed.

The viewpoints made by the European Parliament will also be taken into account. Sustainable convergence is the key. The euro zone is a demanding environment, and all new euro countries must be able to stand up to its challenges, also for their own good.

In economic policy, Finland’s general aim is to promote a stability-oriented fiscal policies and structural reform promoting growth potential.

The sustainability of the public finances requires sound fiscal policies. Experiences of the revised Stability and Growth Pact have been good. The new Pact takes the individual needs of countries better into account, and consolidation of the public finances is now proceeding in the right direction.

In implementing the Pact, the Finnish Presidency aims to reinforce a clear and equitable interpretation of the new Pact. The new framework is based on the idea that Member States set their own national medium term objectives and are thus more committed to consolidating their public finances. A clear set of objectives makes it easier for the Council to evaluate the performance of the Member States and to issue recommendations if needed. Stronger national ownership emphasises the responsibility of national governments, which ultimately must take the relevant budget decisions.

The evaluation of the sustainability of the public finances is of vital importance in the economic policy coordination. Debate on this will be further pursued during the Finnish Presidency as the Commission reports on the sustainability and implicit liabilities of the public finances.

* * *

Another broad topic involves the speeding up of economic and structural reform. At the EU level, the purpose of this is to boost the efficiency of the single market and at the national level to improve the environment for employment and economic growth.

The Lisbon strategy will progress during Finland’s Presidency in that Member States will be reporting for the first time on the implementation of their national reform programmes. The Ecofin Council will be discussing the matter in November and will examine progress in four essential areas: energy policy, innovations, the labour markets and reducing the administrative burden on businesses.

Many Member States have in their national reform programmes highlighted their principal challenges in improving growth and employment. Multilateral surveillance of these programmes is a useful way of bringing out horizontally the most important shared challenges and examples of best practices. Later in the winter, theme-specific discussion will give way to country-specific evaluations with the aim of updating the Broad Economic Policy Guidelines at the spring European Council.

* * *

Taxation and financial markets issues are also important for the smooth running of the single market. With regard to the first of these, Finland will be continuing the promotion of the proposals included in the VAT package. With regard to alcohol taxation, the aim is to deal with the Commission?s upcoming proposal for an amended Directive on the EU minimum excise duty rates on alcohol in order to adjust the rates according to the inflation rate.

Integrated, efficient and competitive financial markets are essential for ensuring the international competitiveness of the EU. What is essential in financial services is to ensure efficient national implementation of existing legislation and its uniform application throughout the EU. If we fail in this, any rules drawn up for implementing the financial market action plan would have little practical meaning. Member States carry a great responsibility in this. What is crucial for the functioning of the single market is how the common rules work in practice, not how much new legislation the EU is able to generate. To improve the effectiveness of regulation, it is important to pay even more attention to the quality of regulation.

During the Finnish Presidency, we will be pursuing legislation that is currently in preparation, in close cooperation with the European Parliament. With a view to making the single market more efficient, I feel that priority should be given to the Payment Services Directive. The goal should be lower costs for both consumers and businesses, better competition and therefore higher competitiveness. The proposed directive will affect the lives of practically all citizens, since in modern society virtually everyone makes use of payment services in some form or other. At its best, this directive could significantly improve exploitation of the full potential of the single market. The challenges facing legislators are thus great. It is important to achieve an end result of high quality.

Our own financial markets must be competitive for us to be a global player. The consolidation of markets in various sectors has in my view strengthened our position, and we should therefore act to remove any unfounded obstacles to consolidation. In this context, the Finnish Presidency will do its best to reach agreement on the proposal clarifying the criteria on the basis of which the supervisory authorities may make assessments of the acquisition of qualifying holdings in the financial sector.

At the same time, we must remember that deeper integration poses new challenges for the stability of the financial markets. Issues of cross-border crisis management, deposit guarantees and supervision of the financial markets will be cast in a new light. We should discuss these issues now instead of waiting for a crisis to erupt in the financial markets. Although the current structures are sound enough now, it is important not to just imagine that they are good enough to withstand future challenges as well. A lot has already been done to identify the necessary short-term steps. But there has not yet been very thorough discussion on the needs and objectives for developing the current supervisory framework on the longer term. In our opinion, this more far-reaching debate is crucial. Our aim is that the Council could agree on a mandate for this work

I am particularly happy that the Parliament, the Council and the Commission have reached agreement on comitology. This solution improves the potential for flexible development of the regulation of the financial markets and guarantees that regulation can react to changes in the market quickly enough. It is important to ensure that this work can continue uninterrupted, and I feel that the solution now achieved provides a good foundation for this.

* * *

There are two further important points with regard to the single market that I would like to mention. One is related to innovations and the other to energy.

Promoting innovations will be featured in several formations of the Council during the Finnish Presidency. From the point of view of the Ecofin Council, innovation policy is important both for the efficient use and allocation of R&D funding and for the creation of growth potential. An efficient single market will provide an important foundation for innovations and productivity growth. The single market is still hampered today by legislative and structural obstacles. Europe also has a problem in that the financial markets is not supportive enough of growth enterprises and risk-taking. At the informal Ecofin Council in September, we will be discussing innovations, on how they are put to use and their effects on productivity. We will be paying particular attention to eliminating obstacles to risk-taking and growth oriented entrepreneurship. These are key issues when the foundations are being laid for future competitiveness and increasing growth potential.

However, this is not a topic that can be approached narrowly. Dynamic and expertise-oriented economic growth will not progress if the people and the labour markets are not involved in the change. We would do well to remember this point in the discussions.

Another current and strategic issue facing the EU is energy. This is also an issue related to development of the single market, but energy has also its external aspects. Trends in the energy market are increasingly important for macroeconomic stability and long-term growth prospects. In the autumn, the Ecofin Council will be discussing how the security of the energy supply could be promoted for as competitive a price as possible, while also taking into consideration the objective of sustainable development.

* * *

Finally, I would like to say a few words about two important projects featured during the Finnish Presidency.

The first is the renewal of the European Investment Bank external lending mandates, which the Council is expected to decide on in autumn 2006. The decision will define the loan guarantees assigned to different geographical regions. New general external lending mandates may cover new regions, taking into account enlargement and the EU’s revised neighbourhood policy. Finland’s aim is that the new lending mandates support the EU’s neighbourhood and partnership policies in a balanced way.

In a recent meeting, the European Council paid attention to undue administrative regulation and to burden it causes to businesses. Better regulation will be debated at the October meeting of the Ecofin Council with the specific aim of reviewing the Commission’s experiences so far in estimating the administrative cost of EU legislation projects. The reduction of administrative burden will be more conspicuously featured at the spring European Council in 2007.

* * *

Ladies and gentlemen,

It is of key importance to the long-term prospects of the economy of the EU to create a smoothly and flexibly running economic area. Vigilance in fiscal policy and determination in reforming the structures of national economies are crucial factors in this. These are long-term challenges that cannot be resolved during a six-month Presidency. Europe does not need new processes; it needs better implementation of existing processes. We want to work with you to serve our citizens better.

I will now be happy to answer any questions you may have. Thank you for your attention.