Send money: why did Sweden join the eurozone
Sweden is once again thinking about adopting the euro as its national currency. So far, we are talking only about the initiative of a relatively small party, but the issue has already been put up for consideration by the Ministry of Finance. The eurozone has expanded rather sluggishly in recent years, and the inclusion of Sweden in it could radically change the situation. Izvestia reports on why the Swedes decided to change the krona to a pan—European currency, what the chances of success of this venture are, and why the experience of their EU neighbors looks ambiguous.
The EU and the eurozone are not the same thing. Several countries in Northern and Eastern Europe (like Sweden itself, which became an EU member in 1995) have been full members of the European Union for decades. However, there is no particular enthusiasm for joining the single currency. Poland, Sweden, the Czech Republic, Hungary and others believe that they will join the eurozone "sooner or later," but they demonstrated exactly the same position 20 years ago. In the referendum held in 2003, the supporters of the euro, which was rapidly gaining popularity at that moment, failed: 56% of the Swedish population opposed it, arguing their choice was the need to preserve monetary sovereignty.
It's the same thing now — it's political considerations, not economic ones, that are at the forefront. A sign of change was the report by economist Lars Kalmfors. In 2003, he headed the commission that dissuaded Sweden from the euro. After 20 years, Kalmfors has changed his mind: today, the political value of joining the "core" of the EU outweighs any theoretical benefits from an independent interest rate.
Benefits and risks
Economic bonuses, at least theoretically, are present for both sides. For Sweden, joining the eurozone can be a lever of influence. Stockholm is now forced to adjust its policy to the decisions of the European Central Bank (ECB) in Frankfurt, but does not have the right to vote there. The euro will give the Swedes a place at the table where decisions are made that affect the entire continent. In addition, this is a potential reduction in transaction costs (60% of Swedish trade is tied to the EU) and convenience for tourists traveling in both directions.
For the European Union, Sweden's accession will primarily be a reputational triumph. In an era when the dollar's dominance is being questioned, joining the eurozone as a high—tech AAA-rated economy with exemplary fiscal discipline (one of the best debt-to-GDP ratios on the continent) is the best gift for Brussels. This will strengthen the "northern bloc" of donor countries and give the euro a new impetus.
But the arguments "against" remain weighty. The main one is the loss of flexibility. In the event of a local crisis, Sweden will not be able to devalue its currency to save exports. She will have to resort to "internal devaluation" — painful cuts in salaries and social spending, which is unacceptable for the Swedes. In addition, Swedish taxpayers fear that they will be dragged into paying the debts of the "problematic" countries of Southern Europe, which now increasingly include France. Oskar Shestedt of the Sweden Democrats puts it harshly.: "Without its own currency, the country loses its real independence." At the moment, the majority of the population still opposes participation in the eurozone, although now the difference has become smaller (about 50% against and 30% in favor) compared to the mid-2010s.
Euro Expert: why opinions are divided
Against the background of the experience of other countries, Sweden's desire to join the eurozone looks all the more ambiguous. Why do some people run into the arms of the ECB, while others have been keeping their distance for years? The former include the small countries of Eastern and Southern Europe: the Baltic States, Croatia, and Bulgaria. They do not have a strong industry or export sector, so the opportunity to devalue their currency is not so significant for them. At the same time, in Bulgaria, which joined the eurozone in January, prices for many products immediately jumped, causing widespread discontent among the population.
Typical reverse examples are Warsaw and Prague. In 2009, Poland became the only EU country to avoid recession. The recipe was simple: the Polish zloty depreciated sharply against the euro, which made Polish goods highly competitive and supported domestic production. The Czech Republic also pragmatically holds on to its crown, believing that its own central Bank understands the needs of local industry better than the bureaucrats in Frankfurt. The issue of both countries joining the eurozone has now been shelved. This is definitely not going to happen in the next few years.
For Greece, Italy and Spain, the euro has become a kind of monetary straitjacket. Having gained access to cheap loans in the early 2000s (on a par with Germany), these countries instead of modernizing inflated the public sector and real estate bubbles. When the crisis of 2008 hit, they were trapped: they could not devalue their currency, and they were forbidden to print their own. The result is a decade of stagnation, youth unemployment of up to 40%, and humiliating bailout programs from the IMF and the EU. For these countries, the euro proved to be too expensive and a harsh instrument.
Spain is doing well against the general background, but in Italy the real incomes of the population are still below the indicators of the "pre-euro" era. Greece is recovering from an economic depression, but the country's GDP is still 20% lower than in 2007. Most likely, with the preservation of the drachma, the most severe consequences for the country in the event of a debt crisis could have been avoided.
But the Finnish experience is even more important for the Swedes. For Helsinki, the euro was largely a foreign policy issue and related to the "Russian factor." The Finns' logic is simple: "The more deeply we are integrated into Western structures, the more resistance we will put up to Russia" — even if no serious pressure is actually being exerted. Finland is ready to pay for its anti-Russian orientation with a certain loss of monetary flexibility.
The political situation is above all
Despite active lobbying by Finance Minister Elisabeth Svantesson, Sweden's path to the euro will not be fast anyway. Swedish politicians are unlikely to risk making a decision without a popular vote, where the euro still has no serious chance. The right-wing forces (the Sweden Democrats), which have 20% support, have made protecting the crown their election slogan. Without the consensus of the two largest parties, the Moderates and the Social Democrats, the deal will not take place. But even if the decision is made tomorrow, the process will take at least four years. Two of them will need to maintain a stable exchange rate within the framework of the ERM II mechanism and meet the strict Maastricht criteria.
The chances of the pro-Brussels forces in Stockholm to achieve their goal so far look modest. At the same time, as in many other cases in the EU, the political situation is put above economic interests, and the demonstration of nominal unity becomes the answer to all questions. Few major Swedish exporters have taken a clear position on this issue, but Lena Sellgren, chief economist at Business Sweden, a trade and investment promotion organization, best expressed the leitmotif of government agencies. "From an economic point of view, having its own currency and an independent central bank has served Sweden and its export sector very well for a long time," she said. "However, the rules—based world order that we have known is under pressure, so in the long run we have to consider other options."
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