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

Euro banknotes and coins Id: Article 106 TEC and euro area

The euro currency was launched on 1 January 1999, but seeing is believing, so for most EU citizens the single currency became a concrete reality when the euro banknotes and coins entered into circulation on 1 January 2002 in initially eleven member states, plus Greece.

Since the beginning of 2002 the euro replaced the national currencies in circulation in Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

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Only three members of the then European Union (EU-15) remained outside the eurozone:

Denmark and the United Kingdom kept their national currencies pursuant to their opt-outs.

In the consolidated treaties:

Protocol (No 26) on certain provisions relating to Denmark, which acknowledged the Danish exemption from participation in the third stage of economic and monetary union (one of the four Maastricht opt-outs by Denmark); OJ 29.12.2006 C 321 E/302.

Protocol (No 25) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, where the member states recognised that the United Kingdom shall not be obliged or committed to move to the third stage of economic and monetary union without a separate decision to do so by its government and parliament, and set out the procedures and limitations caused by the UK opt-out; OJ 29.12.2006 C 321 E/299─301.



Sweden was technically disqualified (but in reality outside Euroland following a national referendum arranged as if it was legitimate to decide freely if the country was going to fulfil its treaty obligation to enter the third stage of economic and monetary union, EMU).

Sweden has not even bothered to use the latest accession treaties or the Treaty of Lisbon to negotiate an opt-out, although the government seems to be in no hurry even to start a debate, and Swedish popular opinion remains reticent, but possibly a bit more receptive since the financial turmoil hit Europe.

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In the latest consolidated version of the treaties, you find the convergence criteria in: Protocol (No 21) on the convergence criteria referred to in Article 121 of the Treaty establishing the European Community, with the following criteria defined: price stability(inflation), government budgetary position (deficit and debt), participation in the exchange-rate mechanism (without devaluation) and convergence of interest rates (with reference to best-performing member states); OJ 29.12.2006 C 321 E/295─296.

The convergence criteria (or Maastricht criteria) are used to assess member states applying to enter the third stage of economic and monetary union (EMU).

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Enlargement

The so called big bang enlargement of the European Union took place on 1 May 2004, when ten new members joined the EU; the accession agreement concerning the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (OJ 23.9.2003 L 236).

The new member states are under an obligation to introduce the euro currency, when they fulfil the criteria, but initially the single currency (for the EU) became more of a fiction, relatively speaking, since only a minority twelve out of 25 member states had adopted the euro. (In economic terms, it is a different story.)

The two latest entrants are Bulgaria and Romania, from 1 January 2007. See the Treaty concerning the accession of the Republic of Bulgaria and Romania to the European Union, OJ 21.6.2005 L 157.

On the other hand, on 11 July 2006, the Council of the European Union approved Slovenia’s application to join the euro area in 2007, making Slovenia the first of the ten countries that joined the European Union on 1 May 2004 to adopt the euro:

http://www.ecb.int/bc/euro/changeover/slovenia/html/index.en.html

Plus one, but minus two: The euro banknotes were legal tender in 13 of 27 member states from 1 January 2007, still a minority position.

A slight majority was reached from the beginning of 2008, 15 of 27 member states. On 10 July 2007, the Council of the European Union approved the applications of Malta and Cyprus to join the eurozone from 1 January 2008:

http://www.ecb.int/bc/euro/changeover/malta/html/index.en.html

http://www.ecb.int/bc/euro/changeover/cyprus/html/index.en.html

In a little more than two months, the euro area is going to expand to 16 member states. On 8 July 2008 the Council of the European Union approved Slovakia’s application to join the euro area on 1 January 2009:

http://www.ecb.int/bc/euro/changeover/slovakia/html/index.en.html

From the beginning of next year, the euro will be the currency shared by about 325 million EU citizens.


Ralf Grahn