Tags: Sweden | Shun | Euro | woes

Sweden to Shun Euro for Long Time Amid ‘Severe’ Woes, Borg Says

Wednesday, 07 Dec 2011 12:44 PM

 

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Sweden is unlikely to seek euro accession for a long time as voters recoil from the currency bloc’s deepening crisis, Finance Minister Anders Borg said.

Swedish backing for euro adoption fell to a record low in November, with less than 10 percent of voters supporting a currency switch, according to a Skop poll released this week.

“We can be very clear that it will be a long time before Sweden is a part of the currency unit,” Borg said in an interview in Copenhagen yesterday. “It has not worked as we expected. The problems have been much more severe.”

Sweden, which has reduced its government debt burden since the financial crisis started in 2007, pays less to borrow for 10 and 30 years than Germany, the largest euro-area economy. The benefits of being outside the euro were underlined this week after Standard & Poor’s put the credit grades of AAA rated Germany and France, as well as 13 other euro nations, under review for downgrades, citing political disagreements that are exacerbating the risks facing the bloc.

Borg, who says he’s not a euro skeptic and wants Sweden to join the currency bloc in the long term, urged strict adherence to austerity programs for the bloc’s most indebted nations to create a better backdrop for the European Central Bank and the International Monetary Fund to step up their support.

“The key for the politicians should be to do the fiscal stuff correctly and if there would be an opportunity for the IMF or the ECB to step in, that, I think, could calm down the situation more substantially,” he said.

Euro Survival

Europe’s leaders have failed to solve the common currency’s turmoil 19 months after Greece became the first nation in the bloc to seek external aid to stay afloat. As a result, the hierarchy in the debt markets is shifting as even Germany displays symptoms of becoming ensnared in the turmoil and investors start to question the survival of the euro.

In Sweden, government debt will narrow to 36.3 percent of gross domestic product this year from 40.2 percent in 2007, according to the European Commission’s latest estimates published Nov. 10. Sweden will post a budget surplus for a second year in 2011, and remain in the black throughout the commission’s forecast horizon through 2013.

Germany’s government, by contrast, will post debt equivalent to 81.7 percent of GDP this year, compared with the euro area’s targeted limit of 60 percent, a level Germany has breached each year since at least 2005. The euro area will have an average debt burden equivalent to 88 percent of GDP this year, and a deficit of 4.1 percent, the commission estimates.

Self Discipline

“We have been able to show self discipline, to do structural reforms,” Borg said in the interview. “But I think the demands on discipline are higher if you’re outside and that is probably an advantage at least in these kinds of difficult times. Obviously, we believe in European integration.”

Swedish 10-year bonds yield about 40 basis points less than similar-maturity German bunds, while it costs the largest Nordic country 48 basis points less than Germany to borrow for 30 years. Swedish bonds with maturities 10 years or longer have returned 27 percent this year, including reinvested interest, making them the world’s best-performing government debt class, according to Bloomberg data.

Swedish central bank First Deputy Governor Svante Oeberg said yesterday the euro region's crisis shouldn't alter Sweden's long-term goal of joining the currency bloc.

`Increased Stability'

``The arguments for joining haven't been strengthened by this crisis but I still believe that it's good to be part'' of the euro, Oeberg said in response to Bloomberg questions. ``I think it will bring increased stability.''

Being outside the euro isn’t necessarily a ticket to better fiscal health, Borg said separately, in a response to questions from the audience at a speech yesterday at the Copenhagen Business School.

“We have in the long term gained competitiveness that has very little to do with the currency,” he said. “The krona is a factor. It is still probably beneficial for us.”

The krona is little changed against the euro this year, having slipped less than 1 percent since the end of December. It lost 0.6 percent versus the dollar in the period.

“A floating exchange rate can be an asset but for most of the years that I’ve worked with the Swedish economy, it has been a factor that is also quite complicated to deal with when it comes to a downturn in the world economy,” Borg told the audience at CBS. “This time, it worked and in general I think it’s actually been an asset. To my mind, it would be an advantage for Sweden eventually to join the euro system.”

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