Considering your experience in both the public and private sectors as the youngest prime minister of Finland and executive board member of Nokia, as well as your research expertise as a senior fellow at the Harvard Kennedy School, what do you envision as the ideal role of the government in resolving the current economic situation in Europe?

The most important role the government is able to play in the midst of the economic crisis is creating a strategy to promote new growth. Austerity is needed. I disagree with those who say austerity is bad. Austerity is necessary not just to balance the economy but also to get resources that a growth strategy needs. Austerity is a method of moving resources from old to new and that is the critical role of a government during a crisis. This is often forgotten. Governments during a crisis focus too much on looking back and protecting existing structure.

Are you optimistic about the way European governments have been handling the situation and promoting growth?

I think European governments have not been able to do the right kind of things during a crisis partly due to weaknesses on the European level such as weakness in the European market, especially the lack of a digital single market. This is one reason why Europe has recovered rather slowly and faces difficulty to promote growth. This weakness is present in both the European and the national level. But I have to say that those countries that have been, in certain ways, most radical in their efforts, such as Estonia, Iceland, or Baltic countries generally have been the most successful in returning growth. It has been a painful road, but since they are the earliest to start the growth efforts, they are also able to escape the crisis quickly.

What are the biggest changes European governments will have to face in the coming years in terms of how the government plays its role in relation to businesses?

Itís very important to understand what is the most critical change going on in the business environment. In my opinion, digitalization is that factor. Integration of digital and physical channels is now going on in both the public and private sectors. Governments can play a big role in creating the right kind of system for digitalization. Unfortunately, governments in many parts of the world have been rather weak and unable to create the right kind of strategy to do that. But I think this is a great opportunity especially in Europe because Europe has many assets to be the leading region in the world in digitalization.

Some people have argued that digitalization should be more driven from the private or corporate sectors where monetary incentives can drive efficiency. What are your thoughts on that? What do you think should be the role of the government versus the private sectors in promoting digitalization and what are some interactions between the two groups?

Ecosystem requirement is different in different types of services or businesses when digitalized. If you look at the entertainment sector, which has been a forerunner in digitalization, in that sector, the ecosystem is quite limited. You have to create connections between content provider and consumer and typically businesses are able to do that without government assistance. In that area, governments are not needed. Perhaps this is why digitalization in the entertainment industry has been moving on pretty fast. Gaming, music, social media Ė all these sectors have been very fast in digitalizing. But when you are moving to more complicated sectors, especially financial services, healthcare, or education, the ecosystem is much more complicated. Iím quite confident that without good governments, it is very difficult to create the right kind of ecosystem. This explains why in certain areas, we need governments. Business needs government to digitalize.

What influence do you think Finlandís political system has on how the European economic crisis has affected Finland?

Finland has a system based on egalitarian thinking. Itís based on the idea that the role of society and government is to create equal opportunities for all. Also, itís based on the idea that governments are guaranteeing that in the midst of different types of crises; there is some security for individuals and local communities. This design of worker-state has worked quite well. In fact, it has made it possible for individuals to take higher risks because they had this kind of insurance provided by the government. However, now in the economic crisis, the system is less efficient than how it was. In certain respects, welfare state structures have become obstacles to create competitiveness in the global economy. Thatís why reforms are urgently needed. Partly, they are dependent on technological changes. And partly, they are dependent on demographics. For example, if you look at pension system. Itís difficult to keep pension system as it is when people are living longer and unfortunately, many of these welfare states have been rather weak or slow in making the necessary reforms to adjust to new circumstances.

Can you give an example of a specific change the Finnish government has undergone recently?

Our main weakness is that we have been too slow to move resources from old structures to new ones. Some of these old systems work nicely in previous circumstances but not anymore as our environments have changed and our population and labor force are aging. The second reason why Iím worried about the future of Finland is that despite the fact that we have abundant assets, well educated population, technological advances, and a small competitive society, unfortunately, countries like Finland have not been able to create the right kind of infrastructure and ecosystem for digital services to be used in many sectors. The best example is healthcare. Despite the fact that healthcare costs are getting higher and we have unsustainable financial burden, we have developed lots of new healthcare technologies. However, we have not been able to create the right kind of environment to use these new technologies. Just the opposite, the government has put main emphasis on administrative structures and those are completely secondary to the processes and capacity to use new technology.

Compared to the US where the economy has been recovering and Asia where emerging economies are growing quickly, Europe appears to be struggling in its growth. What do you see as a good recovery path for Europe in the next five years in order for the region to promote global competitiveness?

Europe has started to recover but this path to normal is going to be very painful due to high level of unemployment and lots of problems in public sector funding. An even bigger problem is Europe has not been able to put enough emphasis on a growth strategy, especially in creating a digital market. Secondly, Europe has not been able to provide enough resources for research and development. Europe has been lagging behind despite having targets for increasing R&D. We have invested too little for the future and long-term improvements. Finally, another weakness is having too low risk-taking capacity. Itís not just about financial risk-taking capacity but also attitudes. Europe is relying too much on traditional way of doing things. Europe needs to make changes in three key areas:

1. Rapid improvement in digital single market.

2. More investment in future technology, research, and development both in public and private sectors.

3. More risk-taking.

These are the three key weaknesses that need to be addressed. But the signs of recovery are encouraging European governments to move on and emphasize growth strategy. Austerity requirements are lower now and I hope that Europe will use this opportunity to put more emphasis on growth.

Do you have any last thoughts to share with us?

Itís important to understand that there are major differences between the American model, European model, and Asian model. Europe cannot be like Asia or United States. Europe has to rely on its own strengths to promote growth. Europe has a well-educated population, stable societies, and strong commitment for business supporting governance model. Many European countries can use their small size as an asset to do things in a more efficient way. This can make a difference and make Europe survive between Asia and the US.