Monday, 7 June 2010

EU: Convergence programme Sweden

Brownie points for those who read and think about these EU documents, despite the Swedish hoop-la surrounding the upcoming (19 June) wedding of the Crown Princess, the future Queen Victoria, and the global commotion caused by the FIFA World Cup in South Africa.

Importance is a word with several meanings.

Competitive and social and with healthy public finances, Sweden has been able to weather the financial and economic crisis better than most countries, despite its unilateralist approach to treaty compliance.

The basic division of stability programmes for eurozone countries and convergence programmes for member states still without the euro means that Sweden is assessed together with the EU economies with more catch-up to do.

The blog post EU: Useful stability and convergence programmes? (3 June 2010) presents some reasons for reading and thinking about these country by country examinations.

You can then move on to the EU Council opinion on the convergence programme of Sweden, a country outside the eurozone despite a treaty obligation to join. The opinion was published in the Official Journal of the European Union (OJEU):

COUNCIL OPINION on the updated convergence programme of Sweden, 2009-2012; OJEU 4.6.2010 C 146/7

Economic background

On 26 April 2010 the Council of the European Union examined the updated convergence programme of Sweden, which covers the period 2009 to 2012. The EU Council started its assessment with a brief introduction to the economic situation in Sweden:

After being severely hit by the recession at the end of 2008, the Swedish economy has stabilised, but with GDP growth being negative throughout 2009. Somewhat uncharacteristically at this stage of the cycle, the Swedish economy has been mainly driven by consumer demand while industrial production, investment activity and exports have merely bottomed out after previous deep falls. Household spending has been helped by supportive fiscal and monetary policies and a stabilisation of the situation in the financial markets. An improving labour market outlook, rising stock market indices and a resumption of the previous upward trend in house prices have also contributed to strengthening consumer confidence. As the economy slipped into recession, the Swedish currency weakened by almost 30 % on a trade- weighted basis in less than a year, but has since recovered about three quarters of its lost value. Its recent appreciation should contribute to dampen inflationary pressures, already subdued by significant slack in the economy. The recession and the fiscal policy response it triggered have swung the public sector balance from a surplus of 2.5 % of GDP in 2008 to a deficit of 0.8 % of GDP in 2009. In order to ensure a sustainable development of public finances, a key challenge will be to avoid that a potentially rather job- anaemic recovery leads to lasting negative effects on long-term unemployment and a permanent loss of labour supply. Ensuring that active labour market policies remain of high quality even as they expand in scope will be important in this regard. Another challenge for policy makers will be to carefully calibrate the withdrawal of the various stimulus measures so as to neither nip the recovery in the bud nor contribute to the build-up of potentially destabilising household-sector imbalances.

Council recommendation

After a detailed discussion, and given the need to ensure sustainable convergence, while recognising the exemplary performance of Swedish fiscal policy in line with the Stability and Growth Pact in recent years, the Council of the European Union invited Sweden to:

(i) implement the 2010 fiscal policy as planned in line with the EERP [European Economic Recovery Plan], while aiming to avoid breaching of the 3 %-of-GDP reference value;

(ii) ensure that the nominal budgetary adjustment projected in the programme is achieved, if necessary by timely adoption of consolidation measures to ensure that lower-than- expected growth does not derail the envisaged consolidation of government finances in the outer years of the programme, as well as to ensure progress towards the MTO [medium-term objective],

Sweden is also invited to improve compliance with the data requirements of the code of conduct.

Convergence reports 2010

For a wider view and comparison between nine EU member states still outside the euro area, you can study the convergence reports published by the European Central Bank and the European Commission:

European Central Bank: Convergence Report May 2010 (273 pages)

European Commission: Convergence Report 2010 (Prepared in accordance with Article 140(1) of the Treaty); Brussels, 12.5.2010 COM(2010) 238 final (30 pages)

Commission staff working document accompanying the Convergence Report 2010; Brussels, 12.5.2010 SEC(2010) 598 final (197 pages)

Ralf Grahn