Will Sweden Lose the Krona and Adopt the Euro?
Historical Context and the 2003 Referendum
On January 1st, 1995, Sweden, Finland, and Austria joined the EU (European Union) as part of the fourth enlargement, which expanded its membership to 15. In 1999, the single currency was launched, and although Sweden is legally committed to joining the currency (once certain economic criteria are met), it chose not to, citing concerns about sovereignty, as well as economic and political reasons. In 2003, the government of Goran Persson held a non-binding referendum on Euro adoption, but circa 56% of voters rejected the adoption and ever since, successive governments have respected the result.
Monetary Policy and the ERM II Opt-Out
For economic reasons, Sweden has gone down the path of retaining control over their monetary policy and is one of six member countries of the EU that still prefer to use their own currency, and Stockholm still maintains a floating exchange rate. Furthermore, Sweden has opted out of the Union’s ERM II*, which is a mechanism whereby the Euro’s exchange rate with other eurozone countries’ currencies is managed. It should be pointed out that if an EU member country wishes to adopt the Euro, membership of ERM II is mandatory.
*ERM II – The Exchange Rate Mechanism II (ERM II) was set up on 1st January 1999 as a successor to ERM for those EU member countries outside the Euro area who have their own currencies. This was to ensure that exchange rate fluctuations between the Euro and other EU currencies do not disrupt economic stability within the single market, and to help non-Euro area countries prepare themselves for participation in the Euro area.
Shifting Geopolitical and Economic Landscapes
However, in recent years, analysts suggest that support from the public has grown in favour of adopting the Euro, although experts within this arena say that it would probably take several years to bring adoption to fruition. Officials within the Swedish government have suggested there has been a significant shift in both the geo-economic and geopolitical landscapes since the 2003 non-binding referendum, which has boosted the case for closer ties with the EU.
Global Rivalries and the Case for Integration
Ministers have cited the Russian invasion of Ukraine, which, after many years of non-alignment militarily, prompted Sweden to join NATO and the increasing global influence of China as valid reasons for closer integration with the EU. Furthermore, President Trump’s ‘America First’ policies, marked by disruptive tariffs and threats to annex Greenland, underscore how modern great-power rivalries leave smaller economies increasingly exposed.
Commercial Advantages of the Common Currency
Analysts suggest that on the plus side for adopting the Euro, data released show that over 60% of Sweden’s goods trade is transacted with the EU and only circa 6.4% is with the United States. Therefore, some commentators are suggesting that with 60% of trade being transacted with the eurozone, joining the common currency would eliminate exchange rate fluctuations (which with the Krona can be volatile at times), also eliminating any uncertainty for both importers and exporters. Several senior voices across the economic strata of Sweden are advocating joining the Euro for these very reasons, plus they say that there will be greater commercial benefits across the board rather than clinging to the diminishing advantages of retaining independent monetary policies.
Arguments for Retaining Monetary Independence
However, some experts still oppose adopting the Euro, suggesting that giving up the independence of monetary policy would harm the Swedish economy as interest rates can be set in alignment with domestic conditions, rather than following decisions made by the ECB (European Central Bank). Experts have also voiced concerns that, according to data released, the debt within the euro area is currently 80% of GDP, whereas Sweden’s debt-to-GDP sits at circa 33%. One expert suggests that, given the borrowing trends within the euro area, a common currency collapse is not out of the question.
The Path Forward: Referendums and Elections
However, there will have to be another Euro adoption referendum in order to give any potential switch legitimacy, and whilst the public is warming to an adoption of the Euro, polls suggest that there are more voters against than for the adoption. This coming September, there is a general election and political commentators suggest that any significant movement on this issue will be shelved until a new or the same government is elected.
