labour supply but also on the demand for services. the 2005 pension reform in finland was designed to ease ageing pressures on the sustainability of the pension system and labour markets. the increasing old - age population together with the increasing demand for welfare and health services set also a pressure on the public economy. the nordic social model is based on the idea that people are in different phases of their life cycle net beneficiaries and net contributors of the social system. when the number of net contributors decreases in relation to the number of net beneficiaries this causes a serious financing problem. at same time the room for higher taxation is limited because of an already heavy tax burden, increasing tax competition and declining trend of gdp growth. it would be also politically unsustainable if the contributing population felt that the welfare society means for them only costs but not benefits. public services need to provide a good match with the preferences of a median voter. without such a match, the funding base of the public sector ( taxes ) will inevitably start to erode. this could lead to a vicious circle that would be difficult to reverse. this underlines the need to keep the welfare services universal ( open to all ) and high quality. a good example of this is the school system. when the labour contribution to growth will be small or even negative, the role of productivity will grow in weight. even though it is difficult to measure productivity in the public sector, in aggregate terms it appears to be lower than in the rest of the economy and in particular in the open sector ( baumol effect ), and grows more slowly if at all. still i am convinced that there are ways to increase productivity in the public services, too. the use of information technology and parallel re - engineering of work processes and organisations, as well as incentive based wage systems and benchmarking with best practices can bring improvements also in the productivity in the public sector. one way is to expose part of the public services to private competition, when provision of public services does not require that they are all produced by public sector. however, the main question is, whether the economic growth will be strong enough to bear the heavy cost burden that the ageing causes. the smaller number of working age population must be able to bake a cake big enough to feed the increasing share of population that is outside the labour force. 4. meeting the challenges – the nordic model and finnish experiences the nordic model includes a large government sector, high tax rates, generous

s roles and that they will work together to overcome deflation and achieve sustainable economic growth. d. making use of accommodative financial conditions : providing a boost through the loan support program given the bank ’ s aggressive monetary easing i described earlier, financial conditions in japan are extremely accommodative both in historical and international comparison. to be specific, in terms of firms ’ funding costs, both short - and long - term average interest rates on new loan contracts have hit 1 percent – an unprecedented level. in terms of households ’ borrowing costs, variable mortgage rates are below 1 percent and even 35 - year fixed mortgage rates are around 2 percent. moreover, financial institutions ’ lending attitude remains accommodative, issuing conditions for cp and corporate bonds remain favorable on bis central bankers ’ speeches the whole, and an environment has been maintained in which households and firms can feel secure that they can gain access to funds. meanwhile, even at a time when there were strong headwinds generated by the great east japan earthquake and the european debt problem, extremely accommodative financial conditions have been firmly maintained. in order for japan ’ s economy to achieve sustainable growth with price stability, it is important that firms and households actually make use of the accommodative financial conditions for funding and increase investment and spending, which in turn will lead to an improvement in the aggregate supply and demand balance. as for recent developments in credit demand, although firms have shown signs of increasing their demand mainly for working capital and funds related to mergers and acquisitions, business fixed investment has been financed from cash flows, indicating that accommodative financial conditions have not been used to the fullest possible extent. to promote full use of the accommodative financial conditions, the bank has established the loan support program, consisting of the fund - provisioning measure to support strengthening the foundations for economic growth ( hereafter the growth - supporting funding facility ) and the fund - provisioning measure to stimulate bank lending ( hereafter the stimulating bank lending facility ). these facilities are offered for your use. 1. the growth - supporting funding facility the growth - supporting funding facility was introduced with the aim of supporting the flow of funds to areas with growth potential. with this facility, the bank provides long - term funds at a low interest rate to financial institutions for their lending and investment to areas that are expected to contribute to strengthening japan ’ s growth potential, such as medical and nursing care ; environment