Theme: The Swedish referendum on the euro is set for September 14, 2003. This analysis scrutinizes the Swedish debate to date, and make a critical assessment of the tendency to exaggerate the economic implications of the election and thereby downplaying the significance of the euro for the common economic project of which Sweden already is a full member.
Summary: Making the decision to join the currency union dependent on the popular vote might be politically correct, but it is hardly unproblematic. The Swedish debate, for or against introducing the euro, tend to exaggerate the short-term economic gains or losses of a change in currency. This analysis argues that there is hardly any evidence that could support either of these views. The economic effects of a Swedish yes or no to the euro are considered very small, if any. The tendency, to try to convince the Swedish people of the dubious economic advantages or disadvantages of introducing the euro, downplays the real significance of the common currency. A consequence of this is that the referendum risk becoming about Sweden’s role and participation in the EU rather than the significance of the currency union for Sweden. Instead of making the euro referendum an excuse for questioning Sweden’s current economic cooperation, Sweden would be better off recognizing its current role in the EU, and subsequently ask the people whether the euro might make this role easier or not.
Analysis: There are reasons to believe that the twelve countries in the euro zone are indifferent to the economic effects of the Swedish popular vote for or against substituting the Swedish krona for the euro. This view is supported by an almost complete absence of international assessment of how the currency union and the Swedish economy might become affected in European media. Danish and British media are interested in the Swedish debate, but for other reasons – for them, Sweden’s euro election is an illustrated example for how to structure their own debates on the euro, and how subsequent referendums in these two countries might look like.
The reason for this lack in interest is that the outcome of the Swedish election has very limited financial implications and importance for the euro countries economies and the Swedish economy. The euro is already a reality in the twelve countries in the euro zone and Sweden is full member of EU’s common economic project including the common market. A Swedish no do not alter neither the existing economic cooperation nor the conditions for the currency union. A yes extends the group using the new currency to 13, and thereby the new currency’s geographical diffusion and usefulness. In this regard, a yes is positive for the euro project, but hardly decisive for its economical survival. Based on past own experiences, no euro country would argue that adopting the euro would affect the Swedish economy in any significant way. Thus, from a European outlook, the Swedish election is not entirely different from Sweden’s referendum about shifting from left to right hand traffic in the fifties. Left or right, krona or euro? It does not matter which currency Sweden chooses as long as the Swedes are in agreement about which to use.
If Sweden’s European neighbours have a relaxed opinion about the economic effects of the Swedish referendum, the Swedish domestic debate is characterized by the opposite. Both sides – Yes and No – argues that adopting the euro have far-reaching effects on both Europe’s and Sweden’s economy. With this in mind, it is worth asking if not both camps in Sweden exaggerates the economic effects of a change in currency, and thereby the significance of the currency union.
The myth about raising inflation following the adoption of the euro, frequently used as an argument against adoption in Sweden, is evidence of such exaggerations. Of the 15 EU countries, eight countries including Sweden, had lower inflation 2002 after the euros physical introduction, compared with 2001. Seven countries had higher inflation, among them Denmark and the UK. If we compare the inflation development between 1996 and 1998, the years before the exchange rate was fixed, with the development after 1998, we find that six euro countries had a better and six a worse inflation development than Sweden (source Eurostat).
An analysis of the new currency’s effects on Eurostats other structural indicators, including unemployment, reinforces the impression that the Swedish election campaign exaggerates both economic advantages and disadvantages of a currency shift. There are simply no indications that introducing the euro lead to better or worse economic development in the euro countries compared to Sweden, Denmark and the UK.
Evaluating the economic implications of Sweden’s earlier currency unions give no clues about how participation in a new currency union might affect the country economically. The Statistical Office of Sweden (SCB) publishes historical data on changes in the Swedish inflation rate, industrial production, and GDP. There are no statistical evidence that these indicators developed differently when Sweden participated in currency unions such as the Breton Woods, the Scandinavian currency union, or the ERM, than during periods with floating exchange rates (if we control for temporary effects).
The lack of relationship between economic indicators and the introduction of the euro reduces many of the Swedish economic arguments about joining or not joining the currency union to speculation, and there are good reasons for being sceptical about the validity of these arguments. The lack of relationship is also a strong indication that it is the underlying common economic policy, together with national economic policy, rather than the common currency, that influence the economic development in the EU countries. One thing that many of Eurostats economic indicators show is that the differences between EU countries, Sweden, Denmark and the UK included, decreases for each year.
By concentrating a large part of the election debate on the doubtful economic effects of adopting the euro, the meaning of the upcoming referendum tend to become centred on questions that has more to do with Sweden’s current role in the EU’s common economic project and the common market, rather than the pros and cons of a common currency for Sweden. Regardless if this strategy is chosen for election strategic purposes or not; it contributes to distort the meaning of the Swedish referendum. The risk attached to this is that many Swedes may turn up at the urns in order to manifest their, for the referendum entirely irrelevant, opinion about Sweden’s membership in the EU and Sweden’s current EU policy.
If the purpose with the September referendum is to determine Sweden’s current EU policy and its membership, it is clear that the question asked to the people of Sweden on September 14 is wrongly formulated. Sweden’s membership in the EU and its participation in the common economic project is already a reality, and can only be drawn back through a referendum whereby the Swedish people is asked to take a position on continued membership in the EU, or continued economic collaboration within the treaties that the country has ratified. However, since the Swedes are fairly satisfied with the country’s EU membership, there is no reason to question Sweden’s membership or current EU policy (SCB polls show that a majority of Sweden’s population is for EU membership).
Seen out of this perspective, the conditions for a debate for or against introducing the euro are more clearly defined. What does it mean to change the currency to euro given that Sweden already is a member of the EU and full partner in the union’s economic cooperation?
From a European perspective, the intentions with creating and introducing a common currency are relatively unproblematic. The origin to the euro project is that a common currency would lead to a more friction-less economic cooperation and more effective implementation of the common economic policy. If the EU countries use a common currency, the final goal of the economic project – the creation of EU’s internal free market – is thought to be reached faster. The idea is that a free internal market contributes, long term, to the political goal of economic cooperation within the EU. This goal includes among other things higher productivity, increased competition, stable economic growth and lower unemployment and inflation.
The euro is in other words nothing more than a tool, brought about to simplify the European economic cooperation and the implementation of the common economic policy. This tool is designed foremost to increase competition and free trade between EU countries. By setting prices in euro instead of D-mark, Franc, Pesetas etc. it would become easier for consumers and enterprises to compare prices, and to transfer capital without charge between EU countries. By getting rid of currency exchanges, the insecurity concerning exchange rates also disappears. A long-term effect is that competition advantages can no longer be achieved through national devaluations of the currencies. The euro is also psychologically important. By using the same currency in all countries, a feeling of a common market is likely to emerge.
If we can accept that Sweden already is partner in the common economic project and the free internal market, and that the country intends to continue this collaboration also after the September election, the Swedish referendum is about what the Swedes think that a common currency might imply for this collaboration. Do they think that Sweden’s economic collaboration with the rest of the EU countries, and the creation of an internal free market, is made easier by introducing a common currency or not? Those who think that this is the case should vote yes to the introduction of the euro, and those who think otherwise no. Like in all projects where the real gains lie in the future, there is no clear answer to the economic implications of this choice. But, if we consider that 12 out of 15 EU countries already introduced the euro, and that these countries make up for 2/3 of Swedish import and half of the country’s export, it can not be excluded that introducing the euro actually could facilitate Sweden’s economic cooperation with the euro countries in the future. Seen from the euro countries perspective, while it is exotic to drive your car on the left hand side of the road, it is hardly practical when all others drive on the right hand side.
Conclusion: There comes a time when we have to recognize who we are. Maybe the time has come for the Swedes to accept that Sweden’s membership in the EU is not temporary. That is, instead of focusing the debate on the introduction of the euro on economic consequences which are impossible to either prove or forecast, and question the country’s current role in the European union, Sweden would be better off if it appreciated its ongoing economic cooperation with the other member states, and the advantages a common currency could bring to this cooperation in the future.
Rickard Sandell
Senior analyst
Demography, population, and international migration