Life is sweet for Sweden without the euro

Life is good without the euro. So much so that Sweden should not be in any hurry to get into the eurozone, Sweden’s Finance Minister Anders Borg said recently.

The finance minister’s snub raised more than one eyebrow. He used to be a staunch euro supporter. Now he was dismissing the European Union’s single currency as being of marginal importance for economic prosperity. After all, did not the new centre-right Swedish government come to power last September promising a more pro-EU stance after years of lukewarm enthusiasm from the Social Democrats?

At the informal meeting of EU finance ministers in Berlin on 20 April, Borg said: "I don’t think Sweden should be in a hurry to join the euro. There is no crucial disadvantage to stay outside as long as we are prepared to keep good order in public finances and conduct a good economic policy that attracts investments."

The 39-year-old former bank economist, sporting his trademark earring and pony-tail, admitted that he himself had overestimated the negative effects on the economy of keeping the krona when he advocated a ‘Yes’ to the euro in Sweden’s 2003 referendum. The popular vote resoundingly rejected the common currency, with 56% against and 42% in favour.

Now, basking in sunny growth figures, Sweden does not see much need to join the euro. In 2006, the Swedish economy grew by 4.4% of gross domestic product (GDP), up from 2.9% in 2005, according to figures from the International Monetary Fund. The eurozone on the other hand was overjoyed that the long-awaited recovery finally pushed GDP growth to 2.6% last year, up from 1.4% in 2005.

Years of flat-lining growth and out-of-control budget deficits in the three main eurozone economies Germany, Italy and France have undermined the euro’s attractiveness in the eyes of the Swedish population.

"It seems to be more of a case where a number of countries that have been good at reforming their economies have high growth. For Finland, Sweden and the United Kingdom, the euro hasn’t been decisive for their good economic performance," Borg said. In reality, euro-member Finland recorded a healthy growth of 5.5% in 2006 while the UK managed 2.7% outside the common currency.

More important factors, according to the finance minister, are reforms of product and labour markets, a good business climate, education and the capacity of the workforce to absorb new technologies. Borg added that the monetary union had not produced any great jump in productivity or in trade for the euro members since it was launched in 1999.

While previous Swedish Social Democrat finance ministers were frustrated by the eurozone finance ministers, the Eurogroup, pre-cooking many important decisions which would then have to be accepted by the whole of the European Union, Borg said that ‘outs’ did not lose political influence on key EU issues.

The European Commission avoided commenting on Borg’s analysis.

But Swedish business disagrees with the country’s finance minister.

Stefan Fölster, chief economist of the Confederation of Swedish Enterprise said: "Investments and employment have developed relatively poorly up until now, even compared to the euro countries. Both Swedish and foreign companies say that being outside the euro affects investments decisions negatively."

The Swedish Board of Trade has calculated that euro membership would have increased Swedish foreign trade by 13% annually, or about €13 billion each for exports and imports.

The centre-right government has declared it will not raise the issue of euro membership during its four-year mandate out of respect for the 2003 referendum. But Bord admitted that the economic and political price of remaining outside the eurozone is likely to go up as more EU countries adopt the single currency. Prime Minister Fredrik Reinfeldt shares this view.

However, a large increase in eurozone membership does not seem probable anytime soon. Sweden’s Baltic neighbours Estonia, Latvia, Lithuania and Poland are not expected to join before 2012.

For Sweden, the essential condition for adopting the euro is that public opinion swings in favour of ditching the krona.

Supporters of the euro can at last become more optimistic -?the EU has reached new, albeit moderate, heights of popularity in Sweden. Opinion polls show that the Swedes appreciate the EU’s role in bringing down food prices and protecting the environment, in particular for tackling global warming.

• Bengt Ljung is a financial journalist based in Brussels.

Life is good without the euro. So much so that Sweden should not be in any hurry to get into the eurozone, Sweden’s Finance Minister Anders Borg said recently.