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The Europeanisation of social protection$

Jon Kvist and Juho Saari

Print publication date: 2007

Print ISBN-13: 9781847420206

Published to University Press Scholarship Online: March 2012

DOI: 10.1332/policypress/9781847420206.001.0001

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Finland: towards more proactive policies

Finland: towards more proactive policies

(p.153) Nine Finland: towards more proactive policies
The Europeanisation of social protection

Juho Saari

Olli Kangas

Policy Press

Abstract and Keywords

A number of contradictory elements mark the Finnish attitude to the EU and to Europeanisation. Every political party has its own opinions of the EU, and the political colour of the cabinet has an impact on the government's official strategies on the issue. In addition to these political factors, a few institutional factors affect Finnish attitudes to the EU. This chapter discusses the stand of Finland on the EU-related initiatives. Finnish responses to the European social dimensions have fluctuated. Finland is not willing to define some policy areas or issues as belonging to the realm of national decision making or competence, neither is it prepared to sacrifice central institutional elements of its own social policy model. This dual emphasis is visible in the discussions of the roles of economic and social issues. Despite the strong emphasis on opening up internal markets and prioritising economic growth, Finland does not openly accept this at the expense of social protection, labour protection, health, and the environment. The dual approach, as contradictory it may seem, tries to balance the two major objectives, and accurately describes Finnish attitudes and responses to European integration.

Keywords:   Finnish attitudes, EU, Europeanisation, Finland, European social dimensions, national social policy, Finnish social policy, European integration

The Finnish attitude to the European Union (EU) and to Europeanisation is a mixture of a number of contradictory elements. Every political party has its own opinions of the EU, and the political colour of the cabinet has an impact on the government's official stances on the issue. The official opinion is formed in Parliament, where the Grand Committee, representing all parties, formulates the parliamentary will that does not necessarily need to coincide with the government's standpoints. Usually the Left Alliance and the Centre Party have been quite critical towards the EU, while the Social Democrats and the Conservatives have been more in favour. However, a great deal of political pragmatism rather than political puritanism characterises Finnish policy making (Kangas, 2007). A good example of this pragmatism is that the most EU-critical Centre Party was the leading party in the government (1991–95) that prepared the Finnish membership application.

In addition to these political factors, a few institutional factors affect Finnish attitudes to the EU. Traditionally, there has been a strong emphasis on public delivery of services and income maintenance in Finnish social policy. Since the underpinning motivation has been universalism, institutionalised solutions and equality, the role of various private individual or labour market-based solutions (like second pillar occupational benefits) has been marginal. However, we also find contradictory elements: although all major social benefits are legislated, they are not necessarily run by the public authorities or agencies, a situation in some cases resulting in some definitional problems in the EU context.

The European social model versus the Finnish model

Chronologically speaking, Finland has been a latecomer in the field of social policy (see, for example, Kangas and Palme, 2005). However, the extensive coverage of those reforms that established universal ‘national’ insurance schemes compensated for the chronological gap. (p.154) The explanation for this late-but-extensive developmental pattern lies in the peculiar interaction of structural factors (a huge rural population), political factors (a strong agrarian party and divided political Left) and a peculiar form of parliamentarianism in which a minority of one third could postpone the adoption of governmental bills in the next elections (Lane and Ersson, 2002). These strong minority rights provide the opponents of social reforms effective means of vetoing bills on social protection if these contradict their interests.

In Finland, the political Left was divided into two competing parties: the Social Democrats (SDP) and the Communists. Due to late industrialisation the proportion of the agrarian population, and consequently the importance of the agrarian party in Finnish politics, was strong, and the SDP never attained such a hegemonic position as its sister party in Sweden (Jäntti et al, 2006; Kangas, 2007). Social policy priorities were divergent between the agrarians and the SDP. The agrarians vehemently supported flat-rate universalism (the basic security model, or ‘people's insurance’), whereas the SDP and Conservatives were more inclined towards introducing earnings-related benefits. Up to the late 1950s the agrarians had the upper hand in Finnish politics and priorities in social policy reflected that situation. Since the early 1960s, the emphasis has shifted towards industrial workers' interests (or, more generally, employees' interests), and in the 1960s income-graduated benefits were in focus. Comprehensive sickness (1963), employment-related pension (1961) and unemployment (1959) insurance schemes were implemented (Niemelä and Salminen, 2006).

The political dualism is reflected in the institutional set-up of the Finnish income transfer system. Because there were political problems in implementing legislated earnings-related programmes through Parliament, important parts of those programmes were carried through labour markets. Thus, the Finnish institutional design contains a great deal of corporatist elements (see also Salminen, 1993). Since the 1970s, to ensure female labour force participation, the state and municipalities have invested heavily in child and elderly care facilities (Saari, 2001). Again, the controversies between agrarian-bourgeois vis-à-vis social democratic-Left orientations came into play. In contrast to many other Member States, the need for child day care bifurcated into municipal day care centres (what the political Left demanded) and home care allowances (what the bourgeois parties demanded), a kind of cash compensation for families that do not use public day care but either take care of children themselves or use private providers (Hiilamo, 2002). In addition, the Finnish health care system has mainly relied on public services, supplemented by sickness insurance that subsidises (p.155) private health care. This two-channel system of health care also reflects political tensions between those who prefer private services and the freedom of choice, and those who emphasise broad coverage and the responsibilities of municipalities to organise and provide it.

In the 1990s, the Finnish national economy fell into the deepest recession in the country's history. Due to economic and fiscal difficulties, most social policy schemes became targeted by retrenchment and downward adjustments (Saari, 2001; Heikkilä and Kautto, 2004). The welfare state muddled through the survival test of the turbulent period, acting as a buffer against the most harmful effects of the crisis. Surprisingly, poverty rates did not rise dramatically during the darkest year of the recession (see also Heikkilä and Kautto, 2004). However, the impacts of the crisis are gradual, as now, a decade later, income inequalities have expanded to the same level as in the early 1970s. Poverty levels, too, are higher than they have been for decades. In fact since mid-1995 poverty rates have increased more rapidly in Finland than in most other Organisation for Economic Co-operation and Development (OECD) countries (Luxembourg Income Study, 2007). The main reason is long-term unemployment and cuts in basic security benefits that are more and more lagging behind the general income development. Although the Finnish welfare state is leaner and meaner it has retained some of its basic elements. Following Saari (2005a) these can be defined as:

  • Close links to social risks: social policy programmes are designated to respond to specific social risks, such as unemployment, old age and work disability, not to specifically respond to poverty or social exclusion.

  • Individuality: social insurance benefits and taxation are based solely on the individual's work history, payments and income. Only in calculating widows' and orphans' pensions (and in some tax allowances) does the family situation play a role.

  • Independency: this also encompasses dependencies between adult generations. Adult siblings have no formal obligations to take care of their parents, and parents have no formal obligations to take care of their adult children.

  • Collectivity: in principle all citizens are covered by the same schemes, and the institutional set-up of the services and income transfers received by the claimant depends on the social risk, not on the insurance policies the individual has signed.

  • Coordination: individuals can move from one municipality to another or from one working place to another without losing their social rights.

  • (p.156) Legislated benefits: almost without exception Finnish social security is based on laws and statutes, and the role of occupational or individual social protection is negligible, although expanding. The expansion of private service and insurance markets has been rapid, but again the focus is on legally regulated benefits with different forms of tax incentives.

  • Residence-based benefits and services: the first criterion for receiving services and transfers is residence, not employment. Thus, social insurance coverage is wider than in other Member States, except for the other Nordic countries and the Netherlands. The same applies to services.

  • Emphasis on income transfers and social services: with very few exceptions, assets have no impact on rights to social transfers or services. The most important exceptions are various social assistance-related benefits.

European integration in some cases has had important ramifications for the institutional characteristics of the Finnish welfare state (Kattelus and Saari, 2006; Saari and Kari, 2006). Joining the European Economic Area (EE A) in 1992 and the EU1 in 1995 accentuated a clearer demarcation between social insurance and non-contributory benefits (including social and medical assistance of different kinds, and some forms of social services). The former is governed by the coordination regulation (1408/17), whereas the latter is left outside. Even in the EE A negotiations the central issue was the principle of symmetry, indicating that Finland tried to avoid a situation in which it would pay a benefit to a country where such a benefit does not exist or where those benefits were clearly lower, thereby discouraging welfare tourism and avoiding some public costs. This principle has formed a more or less explicit starting point for Finland's EU policy.

Finland had several flat-rate benefits that did not fall clearly under either social insurance or social assistance, including child allowance, national pension, basic unemployment allowance and labour market support. In the membership negotiations Finland was prepared to change the institutional structure of these benefits in such a way that their characteristics – either social insurance or social assistance – would be fortified in the spirit of the symmetry principle. The main issue was if and to what extent these benefits are included in the scope of Regulation 1408/71. After EU membership, national pensions are regarded as belonging to the realm of the coordination regulation. However, the entitlement rules have been changed. Previously, the right to full national pension was given after residence of five years in the country. Since 1996 the amount of national pension is linked to (p.157) the number of years lived in Finland: to get the full national pension, the pensioner must have lived in Finland for 40 years. If the period is shorter, the benefit will be reduced in proportion to the missing years of residence. The sharpening of qualification regulations may lead to situations where the pension is lower than social assistance. In such cases the gap will be filled by social assistance.

Child allowance is also regarded as a family benefit for inclusion under Regulation 1408/71. The reason is the practice followed in many other Member States, where child allowance is (or was earlier) paid to the father in the form of increased wage or salary. The basic unemployment daily allowance (flat-rate unemployment benefit) was classified as insurance, whereas labour market support (a means-tested flat-rate unemployment benefit) was defined to be social assistance and, consequently, it is not included in the scope of the coordination regulation. A Finnish family policy peculiarity is the child homecare allowance. In principle, the homecare allowance was part of the social services system; consequently it was seen as compensation for families that do not use public day care facilities and as such should not fall within the scope of Regulation 1408/71. However, the European Court of Justice (ECJ) ruled in the case Maaheimo (C-333/00) that the homecare allowance should be included in the coordination regulation. Therefore, since 2002 homecare allowance has been within the scope of the regulation.

In addition to the coordination regulation, the public–private mix in certain employment-related benefits has resulted in some definitional and conceptual problems. The key issue has been to what extent insurance directives dictated by internal market principles (the four freedoms) should be applied to Finnish private sector employment-related pensions (TEL) or work accident insurance. Although totally legislated and mandatory, these schemes are run by private or semi-private insurance companies, resulting in some confusion over the correct classification. When it comes to the free movement of capital, and services and legislation on competition, the Finnish semi-private earnings-related pensions do not easily fit the three-pillar (public–occupational–private) typology that the EU applies. TEL pensions are partly organised through private for-profit insurance companies, which could, in some cases, be interpreted as occupational pensions, so that the companies running TEL pensions should be subject to certain insurance directives. On the other hand, according to the Finnish interpretation, the main objective of the TEL system is to safeguard basic social security and maintain social solidarity: therefore, these pensions should not fall within the scope of these directives. Thus the TEL scheme has some (p.158) traits of several pillars, leading to confusion in certain cases. To avoid any confusion and legal uncertainty, when Finland applied for EU membership it successfully negotiated a special clause against demands set by life insurance directives.

In work accident insurance Finland has revised its institutional structures. Again, according to the Finnish interpretation, work accident insurance is without a doubt part of social security and should therefore be left outside the non-life insurance directive (Council Directive 73/239/EEC). However, the ECJ took the opposite stand in a case applicable to the Finnish situation (The Kingdom of Belgium, C-206/98). Consequently, the Commission demanded that the relevant directive be fully applied, since private insurance companies carry the insurance. The national position was revised in 1996 when it became possible for EU-based companies to be insurance carriers in Finland.

In addition to direct social policy impacts, there are indirect impacts that in the long run may have important consequences for social policy. Alcohol policy and the national monopoly of the Slot Machine Association (RAY) are two such cases. In the Nordic countries (with the exception of Denmark) alcohol policy has been regulative, with health and other social policy aspects emphasised. The state has collected a substantial amount of tax revenues through its alcohol monopoly. In contrast, in the EU alcohol policy belongs to the realm of agricultural policy. In its entry negotiations Finland won the right to limit the amount of imported alcohol per traveller coming from abroad. Although the exception was extended to the end of 2003, from the beginning of 2004 both Finland and Sweden abolished (or were forced to abolish) the import restrictions. The big issue deals with the alcohol monopoly, whose position remains unchallenged. The few cases on the issue have not questioned the present monopoly situation.

Similarly, lottery and (socio-politically more significantly) gambling have been national monopolies. From its profits the RAY used to subsidise various social policy organisations in the third sector, and these have been heavily dependent on the RAY subsidies. So far, ECJ rulings have been positive for the monopoly. However, according to EU competition laws the RAY subsidies are seen as distorting conditions for competition among various service producers and this may have harmful consequences for the third sector, non-profit-oriented producers of services, as their ability to adjust to a new, more competitive environment is often quite limited. Thus, although the EU has not taken direct measures against the RAY, indirect measures may be significant in the field of social services delivery for some specific population groups.

(p.159) Main principles in national reforms

Six main challenges for social policy penetrate all Finnish policy making (Saari, 2006). These challenges are:

  • balancing the public budget

  • maintaining competitiveness

  • increasing employment

  • adapting to markets

  • improving the position of the consumer/client

  • adapting to the greying population.

Balancing the public budget has been the underpinning rationale in social policy measures aimed at dampening the growth of social spending. The budget balance of various public actors – the state, municipalities and social security funds – has varied considerably since the late 1980s. The general picture in the early 1990s was that social security funds have been strongly in surplus, the municipal sector more or less in balance and the state budget in deficit. Thus the government targeted the recalibration measures mainly at state welfare spending. One major measure to balance the state budget was the reform of the state subsidy to municipalities. Previously, the state had subsidised municipalities via earmarked contributions. But with the 1993 and 1996 reforms subsidies have been paid on a lump-sum basis, that is, the state partially solved its budget problems by transferring them to the municipalities. To fortify the financial basis of pension funds, Finland has allowed investments abroad since 1997 (Kangas, 2006). Before that pension funds were obliged to invest solely in Finland.

The most important social policy measure for improving national competitiveness was the agreement on re-sharing social security contributions between the employers and employees. The process was initiated during the first recession years of the early 1990s, when the employees' pension and unemployment insurance contributions were introduced. Taken together, these reforms shifted greater financial responsibility to employees and the insured.

Employment-enhancing measures fall into four categories. First, to increase the employment rate, the government has introduced various incentives. Benefits are more closely related to contributions, and streamlining the social security system has abolished poverty/income traps – but ironically enough, also increased poverty! Second, by shortening periods in education and sick leave, by better reconciling family and work life and by screening the pension system, Finland has (p.160) increased its labour supply. Third, there have been attempts to create partial or sheltered employment for disabled people, to better match their qualifications and skills demanded in work. Fourth, corporate incentives have been changed in such a way that it is no longer easy for enterprises to ‘externalise’ the surplus labour into the public social policy programmes. Enterprises now have to pay more of the costs for redundancy, early retirement and unemployment.

The adaptation to market principles has been accentuated in many ways. The 1993 Reform of Municipality Act gave municipalities more scope for producing and organising social, health and education services. However, once the municipality decides to open its service production to competition and rely on private service providers, it must fully follow competition legislation. A growing number of municipalities have used this option (for example, in childcare, services for disabled and elderly people, and health services). Yet there are attempts to improve competition within the TEL system. As previously explained, although the TEL is a part of social security, it is organised by private companies that to a limited extent compete with each other for customers (employers). The key – and still partly open – issue is how to satisfactorily unify the endeavour for pension security, uniform pension contributions, collective responsibility and competition.

The position of the consumer has been emphasised since the early 1990s as part of a more general phenomenon called consumerism. Citizens are getting the possibility to choose services freely from a wider set of providers. At the beginning of the 1990s new laws on claimants' and patients' rights in social and health services were introduced. A number of subjective rights were also implemented: the most important claim rights were guaranteed to disabled people and children. Finally, in health and elder care services customers' rights to choose among service providers have been increased.

One common denominator for most western countries is the growing proportion of elderly people. In Finland a number of proactive measures have been taken to tackle the challenges of ageing. The early 1990s saw a gradual reform of the existing pension schemes, culminating in the ‘big’ 2005 pension reform (Ministry of Social Affairs and Health, 2006a; Kangas, 2007). The objective was to create incentives to lengthen work careers, fortify actuarial principles and make the pension system more resilient to demographic pressures. In service systems there is a shift from institutional care towards more open forms of (non- or semi-institutional) care, municipal homecare services and homecare allowances payable to those who perform care by themselves. However, the shift from institutional care to open or non-institutional care has (p.161) not been problem-free. A significant proportion of municipalities badly fail to invest as much as needed in community or non-institutionalised services. The problem will be accentuated by the pace of the population ageing and the municipalities will be obliged to further invest in such services.

National responses to the EU initiatives

Since the early 1990s, the Finnish government has on several occasions debated the various social policy implications of EU membership. It took its first explicit stance in 1990 during the EE A negotiations, which emphasised possible problems of symmetry and demanded that the Finnish system meet certain related demands. The conclusion was that the central characteristics of the Finnish social policy system should be maintained in the future. The Parliament's Social and Health Affairs Committee gave a similar report in 1992 when the EE A was established and in 1994 when the country was about to join the EU. In 1995 the government clarified its position by declaring that ‘Finland supports the development of the social dimension in working life and social security in such a way that common minimum standards are jointly agreed and Member States can if they will exceed these minimums but the ways of action should be preserved under the national decision-making’ (Finnish Government, 1995). The central role of the Member States in social protection systems was the underpinning rationale of the Finnish stances. In 2001 the government report to Parliament emphasised that the EU should be developed as a community of independent Member States, taking care of dynamic economic growth and social and ecological responsibilities.

These Finnish positions strongly express the wish or a political consensus to preserve the present institutional model of social policy rather than to launch a new European social model (ESM) and change the present one accordingly (on the early debate see Saari, 2002). In sum, the Finnish responses and attitudes have been rather reserved, especially in the coordination or merging of internal markets and social security, particularly health services. In recent years, a number of ECJ decisions have fortified the market (or functional) principles, for example, in the health sector; sometimes these rulings have not been fully compatible with the policy objectives of the Finnish government (Grand Committee, 2003).

(p.162) Lisbon Strategy and reformed Lisbon Strategy 2005

The Finnish attitude to the Lisbon Strategy was from the start of the 2000s very positive, although some key politicians were doubtful as to whether some other Member States could really keep and implement their promises. From the Finnish point of view the Strategy's strengths were the coordination between separate EU-initiated processes and the overall clarification of the European approach in social protection. Finland welcomed the initiative, particularly as Broad Economic Policy Guidelines (BEPGs) and employment policies (European Employment Strategy, EE S) were already under way, whereas no similar progress was visible in social issues.

The reformed Lisbon Strategy (the Growth and Jobs Strategy, 2005) was also received positively. Behind the positive attitude was an attempt to further promote the efficacy of EU policies that clearly needed some revision if they were to implement promised reforms. Furthermore, the emphasis on economic growth and maintaining economic competitiveness – traditionally with a strong foothold in the Finnish public policy priorities (Kosonen, 1987) – was welcomed: ‘By concentrating on economic growth and employment the economic competitiveness of the EU can be safeguarded – which is necessary for the guaranteeing of the other elements of sustainable growth. The government agrees with the Commission's view that concentrating now on growth and employment is in concordance with promoting social and environmental objectives’ (Governmental EU-Secretary, 2004).

In its response to the reform proposals, the Finnish Parliament (Grand Committee, 2005a) blamed the initial strategy for having too many pillars and sub-objectives or targets, and said that the administration of the process was too dispersed and heavy. Therefore, in general Finland welcomed the reform. However, there was also some criticism. The Lisbon Agenda drafted by the Commission set a number of concrete objectives for Member States in 10 core policy areas. From the Finnish standpoint, the programme was too wide, including inconsistent and partially overlapping recommendations. Thus, they felt that the renewed Lisbon Strategy should not be accepted as such but be re-discussed and redrafted (Social and Health Committee, 2004a), and that was what happened with the revised Strategy in 2005.

The main philosophy in the reformed Lisbon Strategy was a clear concentration on growth and employment (and some structural reforms). This meant pushing social protection cooperation at least partially outside the realm (or the core) of the Strategy. In some Member States the ministries of social affairs regarded this change as undesirable (p.163) and presented their criticism in, for example, the Social Protection Committee (SPC). In addition, many national and international grass-roots organisations and globalisation-critical action groups saw these changes as indications of EU policies gliding towards neoliberalism, a position in conflict with the objectives of sustainable development.

Despite the critical remarks the Finnish government was in agreement to the reformed Lisbon Strategy and adopted a more proactive approach, emphasising that social protection issues needed fortification within the strategy. The motivation for this stance was that many of the integrated guidelines dealt de facto with social issues (albeit from the perspective of balancing the public economy and creating stronger incentives). This attitude was condensed in the opinion of the parliamentary Grand Committee: ‘The committee agrees with the Commission and the government in that the future emphasis should be in growth and employment. However, the other aspects of the strategy must not be neglected, since sustainable growth can be achieved only if simultaneously there is a strong commitment in the social dimension and sustainable environmental development. Sustainable growth and an environmental approach and the fortification of the ESM are those basic solutions which the concrete actions of the Lisbon Strategy should be based on’ (Grand Committee, 2005a).

The Finnish National Reform Programme was written in such a way that it balanced different approaches, including those of the Ministry of Social Affairs and Health, which had representatives in the working group that drafted the Programme. The Programme contains no new and innovative ideas but rather the guidelines relied on in previously accepted documents. In negotiations on the EU Constitution Finland welcomed the idea of including the Lisbon Strategy as part of the Constitution, as this inclusion would strengthen coordination and synergy among different policy areas.

Social Policy Agenda

The Finnish government was satisfied with the Social Policy Agenda 2000–05 because it paid satisfactory attention to the dynamic interplay between economic, employment and social policies. The Parliament, however, was more reserved, worrying about the division of competencies at different levels (Grand Committee, 2000). The Social Policy Agenda 2005–10 also received a positive response in Finland (Grand Committee, 2005b). The national response, again prepared jointly by the Ministries of Social Affairs and Health, and Labour, regarded the Social Policy Agenda as successful and underlined the (p.164) central objectives of the Lisbon Strategy. In addition, Finland strongly supported the life-cycle perspective.

However, the government also underlined that it saw no need to start any new EU-level (sub-)processes. Rather, all focus and energy should be devoted to implementing and streamlining existing policies and processes. As to the adjustment policies, the Finnish government agreed on the issue but also repeatedly emphasised respect for the independence of labour market partners and third sector organisations. This attitude mirrors the continuous debate on the proper balance of competencies between the EU and the national levels. To what extent can the EU give tasks to Member State social partners and non-governmental organisations (NGOs)? It is likewise unclear the extent to which agreements made at the EU level may constrain national activities and agreements between social partners. Finland has stressed the competencies of the individual Member States and their social partners and NGOs in these issues.

The government was satisfied with the inclusion of the external or global dimension of social and employment policies in the Social Policy Agenda. Furthermore, Finland agreed with the Agenda on the promotion of decent work, just as the Commission had proposed, and regarded corporate social responsibility as essential. Finland criticised the Posting of Workers Directive for having stagnated in the Council. Despite the fate of the Directive, Finland argued, the Commission could consider proper measures for controlling and regulating private enterprises hiring and selling labour over state boundaries. Such measures would also benefit the legal and controlled labour force migration from non-EU countries to the EU.

The Social Affairs and Health Committee expressed its more critical attitudes and dissatisfaction. According to the Committee, the Finnish approach in EU social and health policy issues had been too vague and passive. Consequently, it strongly endorsed more active measures: ‘According to the committee Finland should be more active in emphasizing the role of strong social and health policy when preparing EU initiatives. According to information the committee has received the quality and content of the governmental stances are very often affected by the tight timetable set for the preparation of these stances. Tight time schedules also affect possibilities to hear various organisations in the process of preparation. The committee regards it important that the government tries to affect the timetables in order to give enough time to get in the issues before the national responses are formulated’ (Social Affairs and Health Committee, 2005). The differences of the parliamentary Committee's position in 2000 (when (p.165) it emphasised the principles of subsidiarity and proportionality, and underlined the key role of the Member States in social protection) and 2005 (when it demanded a proactive approach) indicate that the EU has attained an important role in Finnish social policy discourse.

Open method of coordination

During its EU membership Finland has prioritised the Community method over the open method of coordination (OMC) in social, economic and employment policies. Consequently, it has demanded several times that the preparations and decision making, especially including the OMC, taking place outside the Community method should be abandoned altogether (Grand Committee, 2002, p 5). Thus it is not surprising that when preparing for the second EU Council follow-up Lisbon meeting (March 2002), Finland was frustrated with the OMC, not seeing it as a useful tool. Preliminary experiences indicated that the efforts that the OMC demanded were considerable, further straining the very heavy workloads of a small number of national experts.

Consequently, before the Barcelona Summit in March 2002 the Finnish Cabinet Committee on EU Affairs demanded that measures created for the OMC should be as light as possible. Strengthening the Lisbon Strategy called for limiting the overlapping of different measures and jettisoning the preparation processes. Instead of the full-scale OMC, less heavy methods would be more cost-effective. Finland expressed the same attitude during the Greek and Italian presidencies in 2003 (Saari, 2003).

In 2002, the government delivered its report to Parliament, summarising its view on the OMC, with a few issues falling on the positive side. The government saw the OMC as a good means of promoting systematic exchanges of information on different policy solutions between Member States, as well as helping to promote the social objectives in the Lisbon Strategy. However, there were also negative aspects, and to eliminate these problems the government defined a number of unmet conditions:

  • the OMC should have a concrete goal

  • the OMC should be the most relevant measure for achieving the goal

  • the OMC should be as light as possible

  • the use of the OMC should not change the institutional division of competencies

  • Parliament should have a say on EU issues.

(p.166) In recent years signs of more positive attitudes towards the OMC are re-emerging. In the context of the mid-term review of the Lisbon Strategy in 2004 the Finnish government admitted that Finland was previously quite reserved about the OMC. However, since it has become an integral and permanent part of the Lisbon Strategy, its usefulness and national positions need re-evaluation. Furthermore, the government stated that a more proactive approach would improve Finland's possibilities for affecting how and to what purposes the OMC is applied (Finnish Government, 2004). The government suggested that the OMC should concentrate more on finding best practice and benchmarking. It is hard to say in which way the more positive views of the OMC will manifest in Finnish policy definitions.

Several reasons explain Finland's lukewarm attitude towards the OMC. First, it was seen as going against the national priority of emphasising the traditional Community method over the new mode of governance, that is, a question of competencies. Second, Finland feared too rigid and bureaucratic an application of National Action Plans on social inclusion, pensions and health care, which reflected the basic difference and discrepancy between the Finnish and EU way of looking at social policy issues (see Saari, 2005b). In the Finnish tradition social policy responds to various social risks, such as childhood, sickness and ageing, or deficiencies in education or housing, lack of employment, or problems in the reconciliation of work and family life, and so on. Within this framework, poverty or social inclusion/exclusion is not a separate social risk but rather a consequence of inadequate socio-political combating of social risks. Consequently, if a Member State has proper social policy measures against social risks, separate poverty measures (or action plans against poverty and social exclusion) are strictly speaking unnecessary and may often be harmful, as they generate unnecessary social divisions in the institutional structures of social protection systems. So, in the initial phases of the OMC the nomination of best practice to combat poverty in particular was considered problematic (and Finland actually decided not to name or nominate individual projects). From the Finnish perspective this approach was inadequate, as the existence of such best practice reflects the failure of social policy aimed at combating social risks.

A third problem deals with policy cycles. In Finnish political culture major social policy reforms and objectives are defined after elections in cabinet negotiations, not in separate strategy papers. For example, the report on social protection and social exclusion that was delivered in September 2006 could not include new openings or policies from the Finnish side, as new strategic lines were not drawn up before the (p.167) 2007 parliamentary elections and cabinet negotiations. Fourth, there was some aversion to the EU Commission's behaviour of sometimes drawing its own conclusions before proper SPC discussions. After criticism from several Member States the Commission changed its procedure, influencing the Finnish attitude in a more positive direction.

Demographic change

The ageing population is a common problem for all Member States. Most Member States have initiated national activities to meet this demographic challenge. The Finnish government has invested significantly in evaluating the magnitude and scale of the problem, and related social and economic costs (Prime Minister's Office, 2004). All agree that the challenge is quite formidable, that policies must be proactive and that producing maximum added value calls for coordination among the ministries. However, it has been somewhat unclear what EU-level actions would be required and what the value-added contribution of possible new EU measures would be in comparison to existing national social protection reports, programmes and strategies. These issues are visible in the Finnish responses to the Green Paper on demographic change (Grand Committee, 2005c).

Finland's answers were often quite general, thereby leaving much scope for interpretations and further policy making. Some questions, such as that on the VAT policies, were left unanswered. On the other hand, Finland's answer also indicated that the (perhaps) needed measures (for example, flexible retirement ages, investment on the quality of work life, and better reconciliation of work and family life) are well in line with the existing Finnish model. More broadly, a main frame of reference is global, with the 2002 United Nations' (UN) decision on the ageing of the population as its starting point.

The Finnish emphasis was that the main responsibility and competence lies with individual Member States, which must find their own solutions. Nonetheless, dialogue with the EU may help Member States to learn from each other. In the EU, the demographic issue should be part of European economic policy making, employment and social protection strategies. Consequently, Finland underlined that separate EU-level actions or new processes were not needed. Demographic considerations could also be included in European Social Fund (ESF) policies. Typically, Finland also emphasised that demographic change should be considered an opportunity and that measures should be proactive (aimed at adjusting existing institutions (p.168) to changing circumstances) rather than defensive (aimed at maintaining the status quo) (Finnish Government, 2005a).

Services of general interest

Services of general interest (SGI) is a wide area, and stances have been formed in discussions led by the Ministry of Trade and Industry, with various partners. Finland has been an active participant in discussions on this issue, expressing concerns about the extension of the concept from gas, electricity, post and telephone services to social and health services (including social insurance and housing). In short, Finland believes that the concept of SGI is too vague and unspecified and that its implications for health and social services are not properly spelled out.

The Finnish opinion is that it is up to the individual Member State to define what services must be guaranteed to everyone and on what terms. The ESM allows national decision makers to define what services should be solely under the public domain and what could be opened to profit-making competition. According to Finland, ‘for the reasons of justice and the functioning of the systems it is important that legislated, obligatory social security schemes including income maintenance programmes and public social and health services are in the future left out of the economic sphere and are not subject to regulation on economic issues. General directives on other than economic services of general interests should be avoided’ (Social Affairs and Health Committee, 2004b).

In its 2004 memorandum the parliamentary Social Affairs and Health Committee concluded that the concept of SGI was not clearly defined in Finland. Finnish legislation did not clearly distinguish between SGI and other services. The Committee deemed it important to clarify relations between national and EU competencies, particularly the role of the Services Directive on the internal market, state subsidies and competition (when discussing social and health services). Doing so was seen as necessary because solving these issues at a more general level than case-by-case before the ECJ was preferable. The Finnish government believed that it was necessary to establish the criteria that described national institutional differences in service production, and to define those principles; Member States could then decide how to organise their social and health services.

(p.169) Proposal on the Services Directive

Preparations on the Services Directive in Finland lie with the Ministry of Trade and Industry. The Ministry of Social Affairs and Health has been involved in issues dealing with social and health services, pharmacies, the gambling monopoly (one of the main financers of the third sector) and alcohol policy. In principle, the ministries have agreed on all issues and on the scope of the Services Directive: which services should be included and which should be left out. The common starting point was that although the scope should be as wide as possible, covering social and health services, guaranteeing the rights of patients and the quality of services called for not applying the country-of-origin principle in social and health issues.

Parliament's Grand Committee that delivered its report on the Services Directive in 2004 regarded the Directive as necessary for realising the Lisbon Strategy in general and for maintaining European competitiveness (Grand Committee, 2004). The Committee also had more national reasons: it thought that the Directive might open new possibilities for Finnish enterprises to enter European (Central European) services markets.

As to the interplay between the Services Directive and health services (and certain other socio-politically motivated themes), the tone was less enthusiastic. The report strongly stressed that the Directive must not violate a Member State's right to decide on the structure of education, and the production and financing of social services. More concretely, there were demands that issues such as the alcohol and gambling monopolies should fall outside the scope of the Services Directive. Pharmacies, too, should be left out unless equal access to medicine in all parts of the country could be safeguarded. Neither must the Directive be applied when a municipality bought services from a health service district or from other municipalities. In particular, in health and social services the country-of-origin principle should not be applied, and all services providers regardless of origin should cover risks through patient insurance that fully corresponded to Finnish standards. In short, the rationale in the Finnish discussion on the Services Directive has been that the scope of the Directive should be defined as widely as possible for commercial services, with more reservations in social policy questions and demands for preserving and strengthening the national characteristics of service provision.

(p.170) European Economic and Monetary Union

When joining the EU in 1995, Finland had no reservations on membership and never seriously considered opting out of the third stage of the European Economic and Monetary Union (EMU). In this respect the Finnish approach was different from the Danish and especially Swedish decisions to keep their currencies. However, in the mid- and late 1990s came heated discussions on the fate of social policy under possible EMU membership (after the third stage).

The 1997 government report stated: ‘The adaptation to changes in national economy may change indirectly preconditions for social policy. When making social policy decisions demands of economic efficiency and social justice must be coordinated. The government emphasises that it is necessary to map social and economic consequences of the monetary union and other forms of integration’ (Finnish Government, 1997). Both the government and various interest organisations provided such ‘mappings’; the results varied, depending somewhat on the colour of the ‘mapper’. The governmental conclusion was that the EMU would not cause such severe problems that the country should not join. ‘In the short run the EMU impact upon social needs can be considered neutral…. In a longer run the EMU, if successful, can enchant economic growth and facilitate the development of social policy’ (Finnish Government, 1997, part 5.2). In its report to Parliament in February 1998, the government further asserted that its aim was to maintain the Nordic model of welfare state under the EMU criteria (Finnish Government, 1998).

However, the common currency was seen as a problem under certain conditions. The previous way of improving competitiveness through repeated devaluations would be excluded, and there was a danger that during a recession wages would have to be adapted through ‘internal devaluation’, that is, by decreasing wages, leading to detrimental effects on the demand side. To solve this problem and a number of other problems, the government implemented buffer funds. The idea was quite simple: during an economic upturn buffer funds would accumulate for use in the next recession, to cover the costs of increased unemployment. The buffer covered annual costs (resulting from unemployment) of 3.6%. The buffer fund reached its maturity in 2002.

The fulfilment of the EMU's Stability and Growth Pact (SGP) (1997) has not resulted in significant problems for the Finnish public economy. At present the ERM95 budget balance is strongly positive and is likely to remain so, and public debt is among the lowest in the (p.171) EU hemisphere and decreasing. However, the Finnish government has sometimes become quite frustrated because some Member States have not met the SGP requirements. While their not doing so has not increased interest rates, excessive deficits and the lack of budgetary disciplines are nevertheless considered a major risk for Finnish and European economies. Consequently, the government welcomed the renewed SGP in 2005, hoping that the new rules of the game would increase the commitment of all Member States to the common EMU objectives, and that these objectives in the long run would improve EU economic performance and thus fortify the sustainability of social policies.


The EU enlargement in 2004 did not arouse strong sentiments in Finland, mainly due to the country's position in the North Eastern corner of the EU. Furthermore, Finland already had bilateral agreements with the new Member State Estonia, so enlargement did not dramatically change the prevailing situation. However, mainly by following the demands of trade unions, Finland introduced transitional regulations similar to those of many other Member States.

Finland applied a transition period of two years in the free movement of labour from the new Member States, excluding Cyprus and Malta (Finnish Government, 2005b). In certain cases the free movement of labour has been disguised as free movement of services resulting in some problems in 2005/06. In spring 2006 all transitory regulations were terminated as unnecessary. However, simultaneously, efforts to control labour movement were made more effective. The government viewed this surveillance as necessary to prevent (further) violations against labour conditions, the negligence of employers' social responsibilities and biased or distorted competition between enterprises and entrepreneurs. As to the possible membership of Romania and Bulgaria, Finland considers no additional regulations necessary.

In the context of social and health services the main question attached to the recent enlargement dealt with residence-based social protection. Immigrants from other Member States got residence-based rights if their stay was regarded as ‘permanent’. The government listed some factors that might increase the demand for social and health services. One such factor was the poorer quality of health and health services in neighbouring countries, possibly increasing the demand for intensive care of certain diseases (for example, HIV, tuberculosis) previously not prevalent in Finland. However, the government decided that limitations (p.172) targeted to immigrants coming from the new Member States were not only unnecessary but also discriminating and unfair.


Finnish responses to the European social dimension have fluctuated. They can be divided into two periods or modes of thinking. In the early 1990s, when Finland was negotiating membership, it took a very defensive stance of safeguarding the institutional structures of national social policy as much as possible. Although its basic approaches and attitudes to EU membership were positive, dubious voices pinpointed possible detrimental social and political consequences of membership and the coordination (regulation) of social policy systems. These attitudes were linked not only to somewhat unrealistic ideas of the excellence of Finnish social policy but also to the limited possibilities of affecting EU decisions. By the turn of the millennium, however, a slight reorientation had taken place. Although the underlying trend was as positive as before, the convention and intergovernmental congresses particularly emphasised social policy issues.

Recently, a clear reorientation has occurred. The main idea or new point of view is that the EU impact on Finnish social policy has been recently mediated through so many channels – such as economic and employment policies, competition law and structural policies, and the four freedoms – that the earlier, mainly defensive approach based on the emphasis on subsidiarity and proportionality, and the reliance on the Community method, is no longer fruitful and may actually be counterproductive in the long run. Consequently, Finland sees a stronger need for an EU-level social policy based on different emergency brakes, transition rules or horizontal principles aimed at balancing the internal markets vis-à-vis policies aimed at modernising social protection systems. In this respect, Finland wants a stronger social Europe to make Member States' social policies possible. The draft Constitution contains some elements of this proactive thinking. This new approach was also included in the strategy of the Ministry of Social Affairs and Health: ‘From Finland's perspective it is important to actively influence political processes and legislation initiatives in the European Union in order to secure preconditions for our social welfare and its development potential’ (Ministry of Social Affairs and Health, 2006b, p 29).

Finland is not willing to define some policy areas or issues as belonging solely to the realm of national decision making or competence, something that would be unsuccessful, anyway, at the (p.173) current stage of integration. But neither is the country prepared to sacrifice central institutional elements of its own social policy model. This dual emphasis is also visible in discussions of the relative roles of economic and social issues. Despite a strong emphasis on opening up internal markets and prioritising economic growth, Finland does not want this to happen at the expense of social security (protection), health, labour protection or the environment. The dual approach, as discordant as it might appear, tries to balance the two major objectives and accurately describes Finnish attitudes and responses to European integration.


(1) In the Finnish 1994 October election on joining the EU 56.1% voted ‘Yes’, and 43.1% ‘No’.