Saturday, August 23, 2003

Euro Skeptic Sweden?

With less than one month to go before Sweden's vote on whether on not to enter the euro, the Economist reflects on the state of the game. It is clear that the outcome is far from certain. Poll results seem to suggest a 'no' vote, but polls can be wrong. One thing is clear, early enthusiasm for the euro is running a little weaker now. Widespread reports of the short term inflationary impact is one factor, growth and stability pact arguments are another. Then there is the often commented problem of the one-size-fits-all monetary policy: looking at Germany may cause many Swedes to ponder a little longer. My own feeling is that the Swedes would do well to adopt a wait and see approach, after all the costs of staying out - for at lest the time being - are more or less known, those which may be associated with an (apparently) irrevocable membership are much more difficult to evaluate.

WHEN does it make sense to join a currency union? Robert Mundell, an economist at New York’s Columbia University, argued long ago that small, open economies, tied together by trade and investment, should adopt a single money. Sweden’s great and good were so impressed with Mr Mundell’s theory of “optimum currency areas” they gave him a Nobel prize. Sweden’s voters seem less impressed. On September 14th, the people of this small, open economy, tightly bound to Europe by trade and investment, will vote in a referendum on joining the euro. Few think it optimal. Many don’t care for it at all.

A poll by Sifo, released last Friday, showed that 49% of Swedish voters want to keep the krona (crown) and only 34% are happy to see it disappear. On Monday, Gallup announced similar results. The “no” campaign has been gaining momentum since the end of last year, feeding on fears that the euro will bring price hikes and welfare cuts. On Saturday, Goran Persson, Sweden’s prime minister, moved to allay both concerns. A price and competition commission would be created, he said, to make sure Sweden’s retailers did not take advantage of the new currency to raise prices or round them up. Mr Persson also cut a deal with the LO, Sweden’s main confederation of blue-collar trade unions, agreeing a new fiscal framework that would reconcile Sweden’s generous social contract with the euro area’s restrictive stability pact. Swedes are whole-hearted internationalists but, as Swedish economist Lars Calmfors puts it, they are “half-hearted and unreliable Europeans”.
Source: The Economist

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