Minister of Finance Sauli Niinistö: The Northern Dimension

Informal briefing for the EU Directors and Directors of the Northern Dimension partner countries, EBRD, London, 8 March 2000 by Mr Sauli Niinistö, Chairman of the EBRD Board of Governors Minister of Finance and Deputy Prime Minister, Finland

Ladies and gentlemen:

· Many thanks for giving me this opportunity to speak to you about a topic which will attract considerable interest within the EU and at the EBRD Riga Annual Meeting. This is the Northern Dimension. Partly related to this, I am glad to say that President Köhler will present his Baltic Region Programme at your meeting in Riga.

· The Northern Dimension in the policies of the EU builds upon the recognition of growing economic interdependence among the enlarging European Union, Russia and the other states of the Baltic Sea Region. It is important to involve also the non-members of the EU in the already deepening economic integration.

· Therefore, the applicant countries Estonia, Latvia, Lithuania and Poland, the EEA countries Iceland and Norway, as well as Russia are invited to participate as partners within the Northern Dimension.

· In November 1999, the Finnish Presidency of the EU organised, in partnership with the European Commission, the Foreign Ministers´ Conference on the Northern Dimension in Helsinki. The Conclusions of the Conference established the first common political platform.

· The Conclusions stress the role of the Northern Dimension in creating better preconditions for private investment and foreign trade. It pays special attention to support for small and medium-sized enterprises. In addition, efforts are proposed to stabilise the legal environment and develop the administration in the transition economies. Finally, measures to improve border crossings and harmonise transport regulations are proposed.

· A deepening normative divide between Russia and the EU was seen as a clear danger. It could negatively affect the development of the economic potential of the whole region. Stable and non-discriminatory regulatory frameworks are of course important preconditions for private sector investment especially in such areas as information technology and elsewhere in the high tech sector.

· These major investments require new financing arrangements and new thinking on risk management. From the very beginning in developing the Northern Dimension concept, it was clear that closer co-operation and co-financing with the EU instruments and between international financial institutions (IFIs) and private investors was needed. This co-operation should now be reinforced.

· The Northern Dimension supports the work of the IFIs in the region. At the Foreign Ministers’ Conference the IFIs including EBRD expressed their willingness to actively finance some projects related to the Northern Dimension. With the EBRD in the vanguard, the Baltic Sea area is seen as a region. Other regional approaches are also being prepared.

· The Northern Dimension has already affected the priorities of Tacis and Phare as well as other EU programmes and strategies. The Northern Dimension emphasises the interoperability and co-ordination of EU programmes. The aim is to strengthen the capability of Phare, Tacis and Interreg to finance cross-border projects.

· Another important step forward in implementing the Northern Dimension was taken last December. Then, following the recommendation of the Foreign Ministers´ Conference, the European Council in Helsinki invited the Commission to prepare an Action Plan for the Northern Dimension. The intention is to have it endorsed in Portugal in June 2000.

· The action plan will be prepared in collaboration with the Council. The partner countries will of course be consulted in this process. In its ambitious schedule for the preparation of the Northern Dimension Action Plan, the European Commission plans to open discussions in April with partner countries. The draft Action Plan will be presented to the regional bodies as well as to IFIs and business fora. This is the final opportunity to influence the content of the Action Plan.

· The strong commitment of the Commission to prepare an Action Plan is particularly encouraging. The Commission of course has a key role in turning the initiative into concrete reality. Commissioner Chris Patten put it in the following way in his speech at the Foreign Ministers´ Conference: "The Commission is determined to play an active part both in the preparation and implementation of the action plan that will be needed to take forward this important initiative".

· Commissioner Patten also called for active guidance from future Presidencies, which indeed have responded positively. The current and following Presidency holders, Portugal and France, have assured that they will give high priority to the Northern Dimension.

· Sweden, which will take over the Presidency after France, has announced its intention to hold a ministerial level follow-up meeting during its Presidency in the first half of 2001.

· As part of the whole intricate process, Denmark plans to organise a conference on Kaliningrad this spring. This conference in Copenhagen will offer a forum for the EU and its Member States and the Northern Dimension partners to prepare a concrete co-operation programme.

· Kaliningrad attracts particular attention within the Northern Dimension framework because of its unique future position as a Russian exclave within the enlarged Union. It is viewed as a test laboratory of co-operation between the EU and Russia. The recent Russian willingness to address challenges connected with Kaliningrad in the Partnership and Cooperation Agreement (PCA) framework is encouraging, as expressed at the Bonn Foreign Ministers´ troika meeting with Russia.

· Under the Northern Dimension umbrella Lithuania initiated joint preparations with Russia on an agenda for co-operation to be presented to the Union. A joint proposal was presented to the Union this February. The joint statement between Vice FM Usackas and Deputy FM Ivanov from 9 February are remarkable achievements within the framework of the EU´s Northern Dimension.

· Co-operation at sub-national level is one of the most promising features in the Northern Dimension region. My impression is that the Northern Dimension has already encouraged direct contacts at this administrative level, especially as regards Russia. There the division of competencies between the Russian Federation and its subjects is in a state of flux.

· The Northern Dimension and the corresponding initiatives of the United States and Canada share many common goals. This makes it possible to seek synergies through parallel or joint activities. The value of transatlantic co-operation was discussed at the EU-Canada and the EU-USA Summits in December. The Arctic Window initiative introduces a link to the circumpolar co-operation.

· The EU considers that the Northern Dimension should bring clear added value through better co-ordination and increased synergies. The Action Plan will focus on a wide array of sectors: energy, transport and telecommunication, environment, nuclear safety, public health, trade, business co-operation and investment promotion, human resources development and research, and cross-border co-operation.

· The implementation of the Action Plan will start during the French Presidency, in the second half of this year, if Portugal´s ambitious schedule can be kept. However, the Northern Dimension has already generated concrete projects or initiatives in the fields of energy, environment, forestry and public health, to mention a few examples.

· In the energy sector, for example, the achievements of the Conference of the Energy Ministers in Helsinki last October were considerable. The Commission’s communication entitled "Strengthening the Northern Dimension of European Energy Policy" and the conclusions of the Energy Council on that communication already provide excellent guidelines for the Action Plan.

· Now to the political side. Even if the Northern Dimension process is well on track, a number of external political developments have had some negative effects on the Plan, especially regarding the speed of project implementation.

· Firstly, the Russian financial crisis in 1998 had a paradoxical effect from the Northern Dimension´s point of view. On the one hand, the need for a stabilising concept became even more urgent. On the other hand, project implementation in Russia became even more complicated, which especially the IFIs are only too well aware of. The up-coming Presidential elections may create the necessary political conditions for a more stable investment environment in the foreseeable future.

· The next set-back was the conflict in Kosovo. Financing of reconstruction necessarily inflicts cuts in existing external programmes of the Union.

· And now we are witnessing the humanitarian catastrophe in the Northern Caucasus. One observation is obvious. The longer Russia continues to use excessive force in Chechnya, the more difficult it will be to achieve positive economic results and co-operation in the North between Russia, her northern neighbours and the EU.

· The Tacis 2000 programme is being refocused as part of the implementation of the Helsinki declaration on Chechnya. Without reorientation of Russian policies the programme 2000 will include only projects on democracy and rule of law as well as networking and institution building, partnerships and civil society. This would exclude core sectors of the Northern dimension and thus delay implementation of the Action Plan. Freezing technical assistance for a longer period would be equivalent to shooting ourselves in the foot.

· However, the Northern Dimension is a long-term process which produces results step by step. Possible short term set-backs due to the political situation should not lead us to the wrong conclusions. The basic reasons for introducing the Northern Dimension initiative have not vanished.

· The underlying philosophy backing the Northern Dimension concept is very similar to the founding principles of the European Union. As mentioned already in the beginning, positive interdependence constitutes the analytical starting point of the Northern Dimension.

· This interdependence is manifested in the energy sector in a most tangible way. An indication of the EU´s increasing dependency on outside energy resources is that its imports of natural gas are estimated to rise from 40 per cent to 70 per cent of total gas usage by the year 2020. This emphasises the strategic importance of North-West Russia´s vast gas reserves. Their volume exceeds significantly the potential of other potential producers. The EU would be a natural buyer of Russian gas in growing volumes, if Russia were capable of increasing its production capacity. The Russian Law on Production Sharing, passed in February 1999, is a clear signal to international investors to participate in the massive investments needed for the renewal of production facilities.

· The impact of the Northern Dimension rests on the stronger presence of the EU in Northern Europe. This contributes to raising the Union´s profile in the region and achieving more visibility for its policies. To put it more succinctly, its added value derives from three factors:

· Firstly, from the format. We have brought together the Union, its Member States and the countries of Northern Europe to address issues of common concern in a dynamic phase in the Northern region. But we have to be more efficient, more coherent, more productive.

· Secondly, the concept is horizontal. It enhances transparency, assists actors and partners concerned to find each other. It also facilitates a political assessment of what is done. A central aim is also to promote private investments.

· Thirdly, the horizontal process is creating more favourable conditions for progress in terms of concrete projects within appropriate sectors. This can already be seen in areas such as energy, environment and public health.

· In conclusion, I believe there are a lot of possibilities for the IFIs, the European Commission and other partners to co-operate in the context of the ND. There already is a strong common interest in developing a more favourable investment climate, in providing support for the SMEs and financial sector, environment, energy and nuclear safety as well as transport and telecommunications and sustainable use of natural resources.

· The new Tacis regulation approved under the Finnish EU Presidency at the end of 1999 opens up remarkable investment possibilities. No doubt it facilitates increased co-operation between the IFIs and the Tacis programme in Russia and other CIS countries. I believe that a first example of the opportunities provided by the new Tacis could be the financing of the South-West Wastewater Treatment Plant in St Petersburg. The EBRD could play a major role there, as it has wide experience in St Petersburg and in Russia as a whole.

· Finally, the EBRD already has a strong Northern Dimension in its lending programme. I am looking forward to EBRD’s new contribution to the ND, the Baltic Region Programme. As you well know, this programme will be presented at the Annual meeting in Riga by President Köhler, and I discussed it with him today. I am certain that your Bank will continue to be proactive in promoting integration in the Baltic Sea region in the future too.