Collective agreements signed this year awarded a 3.1 per cent pay rise to more than 90 per cent of Finland's 2.2 million wage and salary earners. A few industrial unions have also been able to squeeze slightly higher increases through strikes and strike threats and by accepting two and three year agreements instead of the one year agreements signed by others.

Finland's Labour Research Institute estimates that the increases based on the new collective agreements and sliding scales mean an average four per cent rise in wages and salaries. While this is above the EU average, it poses no threat to the competitiveness of Finnish industry which is exceptionally strong at the moment. The downward slide of the euro against the US dollar, the pound sterling and the Swedish crown is one of the factors underlying this strength.

In 1998-1999 Finnish wages and salaries increased at a rate which was clearly lower than the European Union average.

This year's round of collective agreements brought few changes other than pay rises. However these limited exceptions may play an important role in the next round of collective bargaining, as the powerful unions of the paper, chemical, electricity and transport industries could solve some of their sectoral problems.

This improves the prospects for negotiating a comprehensive incomes policy agreement.

Several influential trade union leaders have already spoken in favour of such an agreement going beyond the March 2003 Parliamentary election. Some of the unions - including the Transport Workers Union that rejected proposals for a comprehensive incomes policy agreement in September 1999 - have also now concluded long-term agreements.

The State budget surplus is one more factor smoothing the path for a comprehensive incomes policy agreement. The surplus enables the government to tempt the unions to accept a modest long-term agreement by promising tax cuts going beyond those already planned in a rate of taxation regarded as very high by international standards.

The exact size of these tax cuts and the manner of allocating them has recently been a topic of lively debate. Certain contributors to this debate, such as Erkki Tuomioja, the Social Democratic Minister for Foreign Affairs, have warned that more extensive tax cuts will have an adverse impact on welfare state financing.

One obstacle which has to be removed before any serious negotiations can take place on a comprehensive incomes policy agreement concerns the generally binding character of collective agreements. This question was the hardest nut to crack on the table of the Employment Contracts Act reform committee which completed its work in the Spring.

In the multi-party government of Prime Minister Paavo Lipponen the conservative National Coalition Party opposed the formula agreed following the protracted and complex negotiations of the Employment Contracts Act reform committee. This led to consultation between the governing political parties and to a new formula which the unions then rejected outright. This in turn made the government postpone its bill to Parliament until next Autumn.

It is currently an open question how far the governing parties are ready to ignore the unions position. It is highly improbable that the government's Social Democratic and Leftist Alliance ministers will be at all willing to depart from the unions line. Like the unions, the main employer organisation back the compromise reached on the reform committee.

Even before the era of Economic and Monetary Union the major political parties and labour market partners had a fairly clear common understanding of the need to resolve differences of opinion by constructively seeking compromises. Now this approach is even more important in a country of only five million people which is heavily dependent on foreign trade. One fundamental requirement is to prevent labour costs from rising more quickly than those of the principal competitor countries. This is important both to the export industry and to enterprises competing with imported goods on the domestic market.

It is possible that in the dispute on the generally binding character of collective agreements the views of the major employer organisations will carry greater weight than those of the conservative National Coalition Party. Both of these ultimately have a strong interest in ensuring that the unions accept a modest long-term comprehensive incomes policy agreement.