Economic Impacts of European Union Membership on Finland Price Levels and Foreign Trade

Topics: European Union, International trade, Finland Pages: 9 (2640 words) Published: October 19, 2010


European Union membership has an affect on countries both political and economical aspects. For countries who become an EU member, substential changes in economic indicators can be observed as change in economic structure, change in monetary policies, new interaction with different counrtries, new trade agreements. In this essay, I will evaluate the economical impacts of EU membership on Finland in terms of price level and foreign trade. Finland joined the European Union in the beginning of 1995. In the 90‟s before being a member of EU, Finland experienced a recession. GDP declined more than 11 per cent, unemployment rate increased from 3.4 to 18.4 between 1990 and 1993.

Finnish economic indicators before joining the Eu


GDP, change in volume

Change in CPI

Unemployment % of labor force

1990 1991 1992 1993 1994 1995

-7.1 -3.6 -1.2 4.5 5.1 3.3

4.3 3.0 2.1 1.1 1.0 0.5

7.6 13.1 17.9 18.4 17.2 16.3

Source: Statistics Finland

EU Membership on Price Levels The Average price level in one country and the comparison between countries can be used to compute price competitiveness of the country in the world market. Price levels have been always an important indicator to determine a country‟s economic condition. Consumer price in Finland is higher than any OECD (Organization for Economic Cooperation and Development) countries before joining the EU. Food prices especially were really high and expected to decline when Finland becomes a member of the European Union. Finland had only low price level in 1993. The price level declined below EU level, because of the deviation in the beginning of 90‟s and floating of the markka (Finland‟s former currency).

It was believed that Finland needs to use its competitive abilities to recover this situation and since 1993 Finnish prices are always higher than EU average. It‟s recorded that 13 per cent above in 1995 and 7 per cent above in 1997, two years after the membership. This decline in price level is a first hint about the impacts of UE membership of Finland. Before being involved in EU, CPI (consumer price index) was very high in Finland. Food prices in particularly higher than other EU countries because of the agricultural policy that been held over the years. The difference between prices of Finland and the European Union was the main discussion subject before accession. Prices in different countries can vary due to consumer habits, inadequate competitiveness, taxes, customs duties, protectionist trade barriers. Transportation costs can make a difference in pricing in different countries. Looking at the data, it‟s seen that food and alcoholic drink prices are higher relative to EU, because of protectionism laws in these products. In 1990, consumption expenditure of Finland was more expensive than EU average. The biggest price difference is seen in areas such as books, tobacco and alcoholic beverages. In the article of Finland as a member of European UnionFirst experiences written by Reine Hjerppe, Pekka Makela, Likko B.Voipo,1999, it‟s stated that “Price level of household consumption expenditures was 47 per cent above than EU average in 1990”. Price of soft drinks and tobacco are 119 per cent higher and books are 155 per cent higher than EU average, as it‟s shown in the table below:

Absolute and relative price of Finnish household consuption expenditure relative to EU average in 1990, EU=100


Absloute Prices EU=100

Relative Prices EU=100 Household Consumption Expenditure=100

Books Soft drinks and tobacco Meat Grain Hotels

255 229 194 191 155

174 156 132 130 105

Cars and petrol Public transport Milk Fruit Garments Household furnishings Recreational equipment Recreational use Housing Telecommunications Household Consumption

152 147 141 139 132 129 123 122 118 102 147

103 100 96 95 90 88 84 83 81 70 100...
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