In its meeting held in Turku on the 26 and 27 of April, the Board of Akava discussed, among other things, the current societal situation. The topics also included the impacts that the war of aggression by Russia on Ukraine has on the security and economy of Finland.
The statement is found below in its entirety.
Statement by the Board of Akava on 27 April 2022
Conditions for competence, growth and security shall be reinforced
Russia’s war of aggression on Ukraine has changed the settings related to foreign and security policy rapidly and deeply. Within Europe, in an area very near to us, a cruel war is being waged also against the civilian population. The new situation will have substantial impacts on the security and economy of Finland. These impacts can already be seen and will continue for years in the future. We cannot go back to conditions we were accustomed to and, therefore, we must invest in taking action in a new situation while, at the same time, building conditions for future success.
The war has manifold impacts on the economy
The ongoing war affects our society in many ways and, at the worst, will continue to do so for a long time. The public expenditure will increase and, at the same time, prospects for growth have receded.
The public finance has been showing a deficit, in practice, since the financial crisis. Increasing expenditure together with the economic growth coming to a halt will increase the deficit in public finance. Although we are taking out billions of new loans in the present difficult situation to cover the necessary costs caused by the war, we must, at the same time, be concerned about the rapid and continued incurring of debt, year after year.
The interest rates for Finland’s sovereign debt are increasing. This is not a problem yet but continued indebtedness and prolonged problems caused by the war are a dangerous combination. There is a risk that too high a proportion of the public expenditure will have to be allocated to debt servicing. This drains away funds from providing public services for the affluent society.
The attractiveness of Finland shall be ensured
When it comes to economic geography, our position has become weaker. Our former competitive advantage, our logistic position as a “gateway to the East” has been lost in the case of Russia and weakened as regards Asia. Instead, our remote location on the shores of the Baltic Sea is unchanged.
The so-called country risk for Finland is being evaluated outside our borders from a new perspective. Our attractiveness in the eyes of foreign investments and international professionals is in danger of becoming weaker.
As a recent Government report on changes in the security environment states, “Finland’s strengths in the evaluation of investment projects continue to be a stable and democratic political system, predictable legislation, an educated and skilled workforce, innovation activities and a good operating environment for companies.” Akava emphasises, that every effort shall be made to hold on to these strengths.
The way in which Finland’s country risk is perceived may affect, in particular, large-scale, foreign and private investment decisions that may be postponed or even cancelled. Major, far-reaching investments require a stable and secure environment with a high level of competence and other features of competitiveness in relation to the countries it is compared with.
Measures taken to ensure security increase trust
Finland has rapidly decided upon significant and necessary investments in internal and external security, cyber security and security of supply. Simultaneously, the green transition is being boosted to accelerate the detachment from our dependence on fossil energy, which is largely of Russian origin. These have been right decisions.
For all states, the cornerstones of external security, prevention of attempts to interfere as well as security of supply include internal security, strong rule of law and independent judicial system. In security sectors, it is particularly important to ensure the status of the personnel across all levels of preparedness.
As for external security, our national defence is based on both credible national defence capability and international multilateral and bilateral partnerships. Changes in the security environment require a re-evaluation of the security policy. It is important for Finland to reinforce its security and defence capabilities and to co-operate more closely with its long-term key partners in response to the changed security situation.
The Government, Parliament and political parties are currently undergoing a thorough debate on how security in Finland is best improved in the future. It is important that the decision on Finland’s possible alliance is made without delay but, however, based on careful evaluation. The more united Finland is, the stronger we are against potential external attempts to interfere and disruptions. The significance of mental perseverance and resilience is emphasised in our time.
Strong Finland needs sustainable growth
When considering sustainable economic growth and our affluent society, it is of crucial importance how much capital assets and high-level competence, work and productivity we will have in the future. We need a growing private economy to enable the public sector to carry out the invaluable duties related to welfare, education and security.
In its discussion on spending limits, the Government made good decisions to advance sustainable growth. The decisions were based on the outlines of the parliamentary Working Group of Research, Development and Innovation (RDI). The decisions will advance an increase of the RDI expenditure to four per cent of GDP by 2030, which is a key objective for Akava as well. Also, the tax incentive for RDI activities worth a hundred million euros was a very positive decision. The realisation of the objective to keep RDI expenditure at 4 per cent of GDP shall be guaranteed from one term of government to another.
In addition to growth investments, to improve the financial capacity it is essential to ensure that as many people of working age as possible are employed. Therefore, as high an employment rate as possible, 80 per cent, shall be aimed at.
The problems of the future are solved together
Sustainable management of finances brings security. The resilience and financial latitude of the public finance must be ensured in case of future crises. In future, financial latitude shall be reinforced by expediting growth but also by prioritising public expenditure. It is the task of political decision-makers to determine the duties of affluent society as well as their extent, and to see to it that sufficient resources are available to accomplish these duties. The purpose of the procedure that sets spending limits for public finance is to relate the expenditure to the income and to determine the order of importance for justified expenses.
At the time of crisis, Finland has always acted as a united front. The Board of Akava emphasises that we need to take action for competence, growth and security in good co-operation. This is highlighted in many ways during uncertain times. It is, however, certain that the success of Finland has been based and will in the future be based on high competence, growth and stability.