Monday, 1 December 2008

Eurozone: UK and Sweden

The United Kingdom seems to be moving so far off from qualifiying for euro adoption that I wonder how Commission President José Manuel Barroso even bothered to discuss the matter in public. The convergence criteria (analysed earlier on this blog) spell out decent government deficits and participation in the exchange rate mechanism without devaluation. If the rule of law continues to be upheld, Britain is beyond the pale for many years to come, even if the political leadership had a change of heart. Having promised a referendum, Labour is in no position to join the eurozone for internal reasons either, even if the political class wanted to jettison the Pound Sterling.

Britain has opted out of options.

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Sweden is also outside the euro area, but without an opt-out. The Swedish Government did not bother to use the Lisbon Treaty negotiations to get one, but Sweden’s Government acts as if it had no obligation to adopt the euro currency.

Sweden’s updated convergence programme (Uppdatering av Sveriges konvergensprogram, November 2008) was published today:

http://www.regeringen.se/content/1/c6/11/66/99/b55c41d6.pdf

Despite the slide of the Swedish Crown, the tone of the Government is almost defiant (page 9):

“I september 2003 genomfördes en folkomröstning om Sverige skulle införa euron som valuta. Resultatet av folkomröstningen föranledde inga förändringar i penning- och valutapolitiken. Regeringen har ansvaret för övergripande valutapolitiska frågor och beslutar om växelkurssystemet medan Riksbanken ansvarar för tillämpningen av växelkurssystemet. Den nuvarande penning- och valutapolitiska regimen ligger fast. Sveriges erfarenheter av inflationsmål och rörlig växelkurs är mycket goda. En knytning av kronan till ERM2 är inte aktuell.”

In short, no change is in sight. Sweden does not contemplate joining the exchange rate mechanism (ERM II).

As long as the Commission continues to turn a blind eye, Sweden can flout the common rules.

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There have been some reports that Iceland contemplates adopting the euro, but without EU membership. Iceland would also have to fulfil the Maastricht criteria, in itself a hard task given the present meltdown. But how would Iceland participate in the rudimentary economic governance within the euro group, to say nothing about other policy areas outside the current EEA deal?


Ralf Grahn