Speech by Mr Jukka Valtasaari, Secretary of State: Security-integration-the EURO, current challenges for Finnish foreign policy, UPI, October 22, 1997

Speaking notes: The Finnish Institute of International Relations, October 22, 1997

Mr. Jukka Valtasaari,
Secretary of State,
Ministry for Foreign Affairs of Finland


SECURITY-INTEGRATION-THE EURO:
Current Challenges for Finnish Foreign Policy

Observers of international relations like to talk about change and challenge. Throughout the 1990's this was justified because many important decisions awaited implementation. Today, the decision to initiate the third phase of EMU including the euro, the enlargement of NATO, the signing of the Founding Act between NATO and Russia and the enlargement of the EU represent a fundamental change in the European paradigm. I would like to suggest a few conclusions from the Finnish perspective.

There is a historical inevitability about all this. In the 1940's when the paradigm last changed, the recipe was to promote security eastward, first by economic means (The Marshall Plan), then by consolidating security through military alliances. Today, the situation is not altogether different: stability is promoted eastward by several means in parallel.

Military security and economic and political integration remain interrelated. For most of the time since WW II, integration proceeded smoothly in Western Europe partly because hard security was taken care of elsewhere, in NATO. Today, such compartmentalisation is no longer practical. Economic, political and military developments function in parallel each seeking the best available course. Threats have changed, and requirements for cooperation have reached new levels.

One of the new fundamentals is globalisation, with the result that a regional or insular approach simply is not sufficient. The core issue for Europe is competitiveness. Regional stability helps but the real test for countries and regions is the ability to combine resources effectively on a national, regional and global basis. From that point of view the introduction of a common currency, to include countries with abundant and less expensive resources as well as the enlargement of the EU and NATO make eminent sense.
New requirements apply for the EU's external relations in the fields of security, economy and monetary policy. Instability only produces lost opportunities.

Let me analyze in more detail some of these developments and suggest what action and reaction they will produce in Finland.

First security. The decisions to expand NATO and to involve Russia in the future development of European security were made a few months ago. A mechanism, the EAPC, was created for those who did not aspire to membership of NATO and those who had not yet succeeded in their aspirations.

As a non-member of NATO, Finland's right to speak about enlargement is limited. Yet we have a justified view as to what we consider necessary for promoting stability and cooperation in Europe, in the new circumstances, particularly in northern Europe. Our conclusions are based on two guidelines: security should be promoted in such a manner that no new dividing lines are created and each government has the right to choose its own security arrangement.

In the short run all partial enlargements of institutions create new dividing lines. It is thus important that the first phases of the enlargement of NATO and the EU do not include the same countries. It is even more important that measures are taken to involve all applicants in the enlargement process. Consolation prizes are not called for, joint measures to speed up the necessary transition in applicant countries are. In the security area for instance, it is important that meat is added to the bones of the EAPC and that all countries involved participate in its deliberations. A minimum requirement is, for instance, that countries participating in crisis resolution activities should also be able to participate in the relevant decision-making for which the EAPC is a good forum. Over half of the participants in SFOR are not members of NATO.

The enlargement of NATO has great symbolic value in addition to guaranteeing the American presence in Europe and meeting the security needs of the applicants. Yet it is only one part of the process. More important for us is the decision by the alliance to open its structures to non-members. Finland chose this path by joining the PfP programme in 1994, PARP in 1995 and the EAPC in 1996. She decided to participate in IFOR and SFOR at their inception. Future steps will no doubt follow this practical path, while the option for other decisions remains open.

The Founding Act between NATO and Russia involves former adversaries in discussion of a broad array of issues affecting European security. For Russia the decision to engage with NATO was a complete change of course which, we hope, will be followed by other decisions in the direction of engagement.

This is likely to happen soon in the Baltic region. Existing infrastructural interdependencies are among the reasons. The speech of Prime Minister Chernomyrdin in Vilnius in September was the first high level sign. Together with other proposals it merits further discussion in order to determine the common ground for progress. The northern agenda contains issues that not only merit international cooperation on a broad front but require it.

Second, integration. Political and economic integration are among the great achievements of Western Europe in the post-war years. Today, enlargement presents us with a historic opportunity to promote democracy, respect for human rights and the rule of law throughout Europe. Openness of institutions remains as valid a principle today as it was in the past. The Union should embrace all European countries which meet its criteria for membership. In the process, the same criteria must be applied to all countries. Those who do not meet them now should receive assistance. Programmes of support should be tailored to the needs of individual countries.

Enlargement cannot be concluded in a short time. It is a notable challenge for the Union as well as for the applicant states. The Commission has published an assessment of the applicant countries' preparedness to join the Union. In our view the assessment is fair, thorough and balanced. There is every reason to expect a decision along its lines in the European Council meeting in Luxembourg in December.

We support all Baltic states in their endeavour to join the Union. The Commission's proposal to include one, Estonia, in the first phase of negotiations, paves the way for the rest.

It is most important that decisions be made in such a way that all applicants retain a clear perspective of membership, that regular reviews are carried out to determine the applicants' preparedness and that work within the Union is organised accordingly.

Third, the EURO. Finland's policy toward the third phase of EMU, including the common currency, the euro, can best be described as determined. Some years have already passed since the government decided to change the course of economic and fiscal policy in order to meet the Maastricht criteria. Early on, the government declared its preparedness to "join the third phase of EMU among the first nations". Today, a better expression is, "among the majority of members of the European Union".

Finland's position on EMU starts from the assumption that the introduction of the euro has the potential of being among the most important developments in the international monetary system since the adoption of flexible exchange rates in the 1970's. If the euro is successful, the present dollar-based monetary system will be replaced by a bipolar system, following the example of trade policy, which in all important matters has been bipolar for decades.

We further assume that the euro will be introduced within the agreed timetable and that over time most European countries will participate in EMU. If that happens, the euro should fare well, if judged on the basis of the volume of global trade underpinning it, its independence of external constraints and exchange controls, the depth of capital markets and the euro area's external position.

From a national point of view our decision to join the third phase of EMU was not dramatic. Our own recent economic history suggests that small currencies are vulnerable particularly in times of rapidly growing indebtedness. Meeting the Maastricht criteria makes sense and earns respect among the market forces, as the development of long term interest rates indicates. That the criteria require determination and strict discipline in economic and budgetary policies is another matter.

The introduction of the euro requires a dramatic change in international financial cooperation if the adverse effects of portfolio diversification and -protectionist reactions, which may follow fluctuations in the dollar-euro rate, are going to be avoided. Co-ordination carried out within the G-7 and the IMF to date is nowhere near sufficient.

The political impact of the euro will be at least as great as the economic. The participants will create a core group of decision makers guiding Europe's development towards increased global competitiveness. Their decisions will have an impact on domestic, foreign and external trade policies. In addition, if the dollar-centered system is replaced by a bipolar system of dollar and euro a quantum leap in transatlantic cooperation will be required to handle the transition as well as the long term effects. Europe's external policies will assume an entirely new dimension.

The domestic adjustments are too complicated to cover in a short time. It suffices to say that Finland's economy will adjust to external impulses with or without the euro.

Fourth, the Northern Dimension and geopolitics

In geopolitical analysis, Europe is often divided into three parts: southern and northern flanks and the center. On the basis of this division it is obvious that development toward stability in the post- cold war Europe is uneven. With the accession of Finland and Sweden the European Union, too, acquired a northern dimension. It obviously needs a northern policy as well, Finland remains active and the Commission submits a report for the Luxembourg summit in December.

The point of departure of the Finland's involvement is that the northern area offers ample opportunities for cooperation which has regional, European and global implications. Among them are:

Three new Baltic nations have applied for membership of the Union and embarked on a transition process enabling them to qualify.

With Finland's accession, the Union acquired a common border with Russia. With new members joining, this border becomes longer.

In the far north, in the areas of the Barent's Sea and Kuola Peninsula many so-called global issues loom large. Environmental challenges such as the safety of nuclear reactors and the cleaning up of nuclear waste are among problems which only can be solved through international cooperation. On the other hand, large reserves of energy, forests and mineral deposits offer ample opportunities for industrial cooperation