been made to the united states and the question has been asked as to why europe us unable to effect as strong expansionary measures. many reasons exist that make comparisons with the united states infeasible. firstly, the expansion of the us public deficit is largely due to an increase in military expenses, which can hardly be regarded as counter - cyclical expansionary economic policy. furthermore, there was, and still is, substantially more genuine room for manoeuvre in the us economy in this respect. contrary to the euro area, us public finances were clearly in surplus when the country entered into recession. for demographic reasons alone the outlook for us public finances clearly outweighs that for the euro area. furthermore, the tax rate is markedly lower in the us in comparison to the euro area, which also gives the united states substantially latitude in taxation. finnish economy if the expected recovery of the world economy begins, the finnish economy will, without doubt, follow suit. however, forecasts suggest that the growth rate would only return to a 2 – 3 % level. one trend in which finland has taken the lead in international comparisons is population ageing. the problem of ageing is not exclusive to finland, but it has started to manifest itself here exceptionally early. in effect, the increase in labour growth in finland has virtually come to a halt and is expected to make a downwards turn in the near future. this will inevitably be reflected in all sectors of the finnish economic policy decision - making. in the next few decades, population ageing will pressure finland into increasing spending on its public sector, amounting altogether to some 6 % of the gdp. the funds accumulated in the pension scheme cover only one third of these upward pressures. can the remainder be met with increases in taxation? i doubt it. in fact, there is increased pressure to reduce taxes further in the future. another easily distinguishable future trend is tightening competition over the location of companies. finnish companies are increasingly a part of a global business world with operations in finland. in such a world the relocation of operations to places where costs can be kept to a minimum becomes the norm. a small, expensive, rapidly ageing and remote country is hardly in the best possible position when an international company is contemplating where to locate operations. labour mobility is gradually changing from a theoretical possibility into a reality that shapes economic policy. what kind of prospects does finland have for succeeding in international competition? political stability and security, a reliable legal system, a still solid infrastructure

seppo honkapohja : financial liberalization in china opening remarks by mr seppo honkapohja, member of the board of the bank of finland, at the conference on financial liberalization in china, helsinki, 18 september 2014. * * * continuation of china ’ s economic growth and integration with the rest of global economy has increased its importance for other economies. increased trade ties and their effects on china and the rest of the world are certainly one major area for economic research. we economists often feel that increased trade in real goods and services is relatively straight - forward topic to understand. however, this trade is only part of increasing economic integration. very recently, china ’ s increasing financial integration has become a new and important challenge for both policy makers and research. given the size of the chinese economy, the consequences of its financial integration with the rest of the world are potentially very large. financial liberalization is a much more encompassing development than just technical lifting of controls. market - based financial systems contain new risks and uncertainties when compared to tightly controlled systems. the behavior of financial institutions in a liberalization process involves major challenges as the market participants learn to understand their new operational environment. a competitive financial system affects the effectiveness of banks and other institutions and they must be ready to carry out efficiency - enhancing reforms in order to cope with the new business environment. strengthening of the capital base and reforms of supervisory systems are important ingredients to the process of financial liberalization. let me mention one specific topic that is fundamental in the process of financial liberalization. freeing of cross - border capital flows poses a specific challenge to macroeconomic policy making. as is well known, it is not possible to control simultaneously amount of domestic finance, interest rates and the exchange rate of a country ’ s currency. the so - called impossible trinity must be respected when capital flows are free and finance is market - based. more generally, financial liberalization poses are a large number of other questions for research and policy making. i am happy to see that so many top researchers in the field have traveled to our conference to discuss the various topics. obviously the whole phenomenon of financial liberalization is very multi - faceted, ranging from integration of offshore and onshore currency markets to development of china ’ s own capital markets and to issues of international finance. all of these areas are important, and they are also potential sources of financial instability, if things do not go as well as is now planned. i am sure conference presentations and