Since 1 January 1999, the Frankfurt-based European Central Bank (ECB) has been in charge of Finnish monetary policy . The Bank of Finland still has some responsibilities, such as holding and managing Finland's official foreign-reserve assets and contributing to supervisory credit institutions. The ECB's main macroeconomic goal is to keep inflation in the euro zone below 2 percent.
In the 1980s, Finland's economy grew faster than the European average, with stable prices and relatively low unemployment. The Finnish financial market underwent rapid change. The state's role in the money market declined, and the economy became increasingly market-oriented. Foreign banks were first allowed to operate in Finland in the early 1980s and were permitted to open branch offices there in 1991.
However, the collapse of the USSR and its loss as Finland's chief trading partner was a severe blow to the Finnish economy. Following the banking and speculation crisis, the country fell into a severe recession. In the banking industry, nearly one-third of the employees were laid off.
|Exchange rates: Finland|
|euros per US$1|
|Note: Amounts prior to 1999 are in markkaas (FMk) per US$1.|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
Since its devastating recession in the first 3 years of the 1990s, Finland's economy has been steadily recovering and by early 1997, GDP had returned to pre-1990 levels. Recovery was led by Finland's export sector, which was greatly aided by the Finnish currency's de-valuation in 1991 and subsequently changing the markka to a floating exchange rate . Both actions effectively lowered the price of Finnish exports in foreign markets, which led to increased demand for them.
In 1991-92 the markka was pegged (set by the Bank of Finland in a fixed relationship) to the euro, but these limits were abandoned 2 years later, allowing the markka to float. Finland then joined the Exchange Rate Mechanism (ERM) of the EMU in October 1996 at the central rate of 1 euro=FMk5.8066. As of 1 January 1999, the 11 EU member countries, including Finland, joined the EMU, locking together the exchange rates of the 11 currencies involved. The markka was pegged to the euro at 1 euro=FMk5.9457. In 2002 Finland will adopt the euro as its paper currency.
At the beginning of the 21st century, the economy was growing, especially in the high-technology industries. Although still saddled with debt, Finland has been attempting to reduce its deficit. However, membership in the EMU has removed the Bank of Finland's ability to set an independent currency policy, which is a major tool in debt reduction. The current government is attempting to curb public spending, but with some difficulty, partly because the left-wing parties in government resist this move and have significant popular support. High unemployment (around 10 percent in 2000) is also a major problem, which many blame on a taxes-and-benefits system that makes low-wage work less attractive than collecting unemployment benefits. Inflation has been high and increasing in recent years, especially because of rising world prices of crude oil, the depreciation of the euro in relation to the dollar, high interest rates, and housing price increases.
The Helsinki Stock Exchange (HSE) is small and remote, but EMU membership is changing this situation since the HSE is the only real euro-based stock exchange in the Nordic region. Since Sweden and Denmark do not participate in the EMU, the financial focus of the area could shift towards Helsinki. Trading almost doubled from 1997 to 1998, and the value of Finland's total stock market is 3 times the GDP, the highest ratio of stock market value to the GDP in the world.