STOCKHOLM Dec 19 Sweden's decision to stay out
of an EU banking union has raised concerns that one of Europe's
most dynamic economies will be pushed further to the side as
euro zone countries forge closer ties.
Situated at Europe's northern edge and having rejected the
euro in a 2003 referendum, Sweden is already a marginal player
whose currency is seen as a safe haven from troubles elsewhere
in the region.
But it is also appreciated as the EU's seventh largest
economy, known for innovation, fiscal prudence and free trade.
It has an important financial centre and a respected finance
minister who influences Europe's policy debates.
Sweden is now redefining its relationship with Europe,
seeking to keep this influence but also take on board domestic
euro scepticism that is growing in the face of fast-moving EU
integration such as banking union.
"Its political commitment to the EU is being tested," said
one senior EU diplomat. "Sweden needs to rethink its relations
with the EU, otherwise it risks being more side lined."
Sweden joined the EU in 1995 and has had a comfortable
position at Europe's edge. Growth in trade over the last decade
has been similar to euro zone insider and neighbour Finland and
Finance Minister Anders Borg is a respected shrewd negotiator.
But Sweden has started to find itself increasingly at odds
with core euro zone members.
It opted out of the banking union because it feared it would
lose control of top banks and its taxpayers would foot the bill
of bank rescues elsewhere. It has also criticised the EU budget
and plans for a financial transaction tax.
"The euro zone is starting to expand in sectors like banking
and financial regulation," said Fredrik Erixon, director of
European Centre for International Political Economy in Brussels.
"Sweden is caught between a rock and a hard place," he said.
As the euro zone moves to greater integration, the
consequences for countries like Sweden whose ties are loosening
could be its marginalisation from having a say in new
regulations, from banking issues to debt and fiscal policies.
"On the one hand, it is not prepared to join the euro, but
on the other hand the consequences of not joining are being felt
as they have not been felt before," Erixon added.
NOT THE UK
Sweden and Britain are increasingly lumped together in
headlines as euro sceptics within the EU, helped by the
political closeness between Prime Ministers David Cameron and
Sweden was a vocal hawk along with Britain on EU long term
budget negotiations and the two countries are seen pushing
Europe on free trade policies rather than regulation.
But the comparison frustrates Swedish government officials,
and European integration ideals still run deep in Sweden.
"There's big differences between Sweden and Britain.
Reinfeldt wants a deeper relation with the EU countries," said
Knut Hallberg, an analyst at Swedbank.
Indeed, the government likes to point to its achievements in
pro-European policies over issues like the environment, foreign
policy and free trade. It also, unlike Britain, signed up to the
fiscal compact adopted by 25 EU countries earlier this year.
Some analysts have noted signs of scepticism about Europe
within Sweden. It may be low compared with British levels, but
enough to make the EU an increasing focus of political debate.
In July, Borg told Reuters "Europe is becoming less
important for us, and we must consciously redirect ourselves."
And he suggested Greece should leave the eurozone, leading
to criticism he was playing up to Swedish voters and also poured
scorn over Portugal for failing to seek prompt aid.
"Maybe he wanted to make himself popular in domestic
politics," s aid Magdalena Andersson, economic policy
spokesperson for the opposition Social Democrats and tipped as
finance minister if the centre-left wins elections in 2014.
"But getting respect within Sweden may risk losing respect
within the EU," Andersson added. "It is not all that obvious
what the Swedish vision on EU cooperation is."
Participation in the euro and in the banking union are
likely to return as major questions for Sweden.
Swedish government officials are adamant that they are keen
to play a constructive role in Europe but just could not yet
stomach a banking union.
The government was worried about jurisdiction over the
country's banks - Nordea, Handelsbanken,
Swedbank and SEB - some of which have large
operations in euro zone countries.
"With the banking union we believe a wait-and-see attitude
makes sense," said one senior government official, who asked to
"Sweden is concerned that integration may be moving too
Some observers believe Sweden will one day revisit euro
membership despite a November poll showing 82 percent of Swedes
would vote no to adopting the euro - an historic low. The poll
also showed a decline in support for EU membership to 45
percent, the lowest level since 2006.
"In the grand scheme of things, it is not feasible to stay
with one foot in and one foot out," said the EU diplomat. "It
does not mean that they have to adopt the euro immediately, but
on the Swedish side they need to show a more constructive role."
"The situation of the eurozone is too unstable for them to
think of joining. But once stability returns, the debate in
Sweden about joining the euro will return."