Ny världsordning får Sverige att blåsa liv i eurodebatten

Geopolitical concerns have bolstered interest in dropping the krona for Europe’s common currency.

After Russia’s invasion of Ukraine triggered an about-face on NATO membership, Sweden is starting to consider another historic shift: adopting the euro.

While the debate is in its early stages, a subtle but notable shift is taking place as conditions change. In 2003, when voters rejected Europe’s common currency in a referendum, the focus was on the krona’s ability to act as a buffer for the largest Nordic economy, but now geopolitical concerns have added a new dimension.

On top of threats from Russia and China, Donald Trump’s America First foreign policy — including threats to acquire Greenland from neighboring Denmark — underscore how smaller economies are exposed in an era of great-power rivalries.

“Sweden is now a full member of NATO and we are reinforcing our defenses alongside our EU partners,” Cecilia Rönn, a Swedish lawmaker from the Liberal party, said in an interview at the parliament in Stockholm. “But we are still standing with one foot outside, in that we are not part of the currency cooperation.”

The argument in favor of the euro is that a shared currency would tighten political ties and give Swedes a seat at the table when it comes to pan-European monetary matters. That adds to traditional commercial arguments such as expanding trade and facilitating direct investment.

If a shift does firm up, it would bolster the euro’s credibility at a time when dollar dominance in world trade and as a reserve currency is being questioned.

The first tentative steps were taken by the Swedish establishment late last month. At a parliamentary session called by Rönn, Finance Minister Elisabeth Svantesson announced her backing for an inquiry into the pros and cons of euro adoption. While that opens the debate ahead of elections in September, the evaluation would only start after the vote.

“The world is changing, and the EU is changing,” Svantesson, a member of the Moderate Party, said during the debate. “We must therefore also dare to evaluate, investigate and analyze, in the best interests of Sweden, Swedish households and Swedish businesses.”

Underpinning the shift is a new report by Lars Calmfors. The Swedish economist is seen as influential on currency issues because he led the government commission that examined the case for adopting the euro ahead of the 2003 referendum. At the time, he was cautious about the benefits and the commission’s report recommended deferring. 

Now, Calmfors is more positive. Geopolitical considerations are “very different today than earlier” and that dynamic increases the value of becoming part of the EU’s “core,” he said in an interview.

“It would be a contribution to more cooperation in Europe, which we seem to be in need of,” he said. “It’s Russia, it’s China, and of course it’s the US, which is much more unreliable.”

Calmfors also highlights the economic arguments, saying the positive effects on trade and foreign investment for euro-area states have been greater than he anticipated when he examined the question more than two decades ago.

He also noted that the Swedish business cycle had become more synchronized with the euro area, making the need for independent monetary policy less critical. Also, lower debt levels in Sweden mean the government can use fiscal stimulus more forcefully to respond to economic weakness, if needed.

Business leaders are already on board. Many complain that the Swedish currency’s volatility amplifies market turmoil. Financier Christer Gardell, whose Stockholm-based Cevian Capital has bought and sold stakes in big Swedish companies like truckmaker Volvo AB, has in the past called the krona a “crappy little currency” and remains in favor of a switch.

“The small, illiquid and volatile krona is a disadvantage for Swedish industry,” Gardell said in a written response to Bloomberg questions. “That would be eliminated if we joined the euro.”

Neighboring Finland is also encouraging Sweden —as well as Denmark — to make the switch. “Let’s face it, alone we are small players, but together we would punch above our weight in the euro system and in the wider EU,” Finland’s central bank chief Olli Rehn said in an October speech.

For one of the original members of the currency zone, security was always part of Finland’s calculation. With a 1,300-kilometer (800-mile) border with Russia, the thinking was that the euro strengthened ties with countries like France and Germany and was worth the.economic risks.

For Sweden’s economy, the EU is critical. More than 60% of the Nordic country’s goods trade is with the bloc, compared to just 6.4% with the US, according to data from Statistics Sweden.

While few big exporters have taken a clear stance, state-backed Business Sweden, which promotes trade and investment, sees both the pros and cons, according to chief economist Lena Sellgren.

“From an economic perspective, having its own currency and an independent central bank has served Sweden and the Swedish export sector very well for a long time,” she said. “However, the rules-based global order that we used to know is under pressure, so in a longer-term perspective, we must consider our best options.”

Still, hurdles to a currency shift remain significant. Nearly a majority of Swedes remain against joining the euro, compared with just about a third in favor. While the gap between skeptics and proponents has widened slightly in recent polling, it is significantly narrower than a decade ago, when three in four Swedes opposed the euro.

Public support is critical. Since the Swedes set a precedent with a referendum — following Denmark’s lead, which held a similar vote in 2000 — politicians would be hard-pressed to justify a different approach this time.

In the parliamentary debate, Finance Minister Svantesson nodded in that direction, saying no decisions would be made “over the heads of the Swedish people.”

A second obstacle is broader political backing. Only Rönn’s Liberals, which have support from just about 2% of voters, are firmly in favor of the euro. Svantesson’s Moderates and the smaller Center and Christian Democrat parties have only gone as far as backing the inquiry, leaving their ultimate positions open.

The poll-leading Social Democrats, which aren’t part of the governing coalition, haven’t yet taken a firm position in the debate, while the Greens and the Left are against the euro. The far-right Sweden Democrats — currently in second place with around 20% support — were the most strongly opposed during January’s debate.

“Our currency is intimately tied to our independence, and you have to ask how independent you really are as a country if you lack your own currency,” Oscar Sjöstedt, the nationalist party’s economic spokesman, said during the debate. “The Sweden Democrats will not take part in moving toward abolishing our own currency, and that is an election pledge.”

If these hurdles can be overcome, giving up the krona would take at least four years — including the two years needed to demonstrate a stable exchange rate against the euro — according to an estimate from Calmfors, the Swedish academic.

But Rönn from the Liberals sees the potential for the debate to accelerate. Drawing a parallel to Sweden’s NATO accession in 2022, she said giving up neutrality had appeared a non-starter until Russia’s invasion of Ukraine triggered a change faster than anyone thought possible. Joining the military alliance was also an issue that Sweden’s Liberals had championed, often alone.

“We are used to driving issues long before everyone else,” said Rönn. “For me, the euro isn’t a question of ‘if’, it is a question of ‘when’.”

--With assistance from Kati Pohjanpalo and Ott Ummelas.

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