Greek drama dims euro appeal for Nordics, Britain

STOCKHOLM (Reuters) - With anxiety over the Greek debt crisis plaguing the euro zone, outsiders Britain, Sweden and Denmark have backed further away from adopting the single currency as its main appeal -- stability -- has faded.

The three European Union members which chose not to adopt the euro all looked vulnerable during the financial crisis when their currencies were under pressure, briefly boosting public support in the Nordic “outs” for joining the currency bloc.

But the trend has since reversed, with support for euro adoption dropping back to pre-crisis levels or below as fears of a 1930s-style Great Depression recede.

“It’s not only the Greek crisis, but also Ireland, Spain and Portugal, and a number of problems with the euro and interest rates,” said Soren Holmberg, a professor of political science at the University of Gothenburg.

Removing currency risk and driving integration with the European single market have been the main arguments europhiles have put forward for the three nations to join the euro.

Euroskeptics have countered that the euro zone’s one-size-fits-all interest rate policy is inappropriate for economies that move at very different speeds.

While the crisis may have strengthened the euro entry case for small economies like the Baltic states -- which gain a haven of macroeconomic stability -- it has failed to produce a clear advantage for bigger economies with wider trading ties.

Britain, heavily dependent on the financial industry, has emerged from the crisis in worse shape than most -- despite monetary policy and currency flexibility. But many economists say it would have fared even worse if it had not been able to let the pound sterling slide to boost exports.

Sweden, with the same tools at its disposal, has fared much better. Denmark, which has its currency pegged to the euro, has landed somewhere in the middle.


All three outsiders would have to hold a referendum on any decision to enter the euro zone. Danes rebuffed their government’s recommendation to join in a 2000 vote and Swedes rejected euro membership by a wide margin in 2003.

Greece’s woes have made it harder to convince an already deeply skeptical public that they are better off inside the euro zone than out.

Europhobia is strongest in Britain, where Brussels is widely seen as meddling and anti-free market. Tony Blair, the most Europhile prime minister for decades, supported the euro but never dared put it to a vote while in office from 1997 to 2007.

“There is no chance (of Britain joining), we would say, in the next 10 years,” said Investec UK economist David Page. Conservative opposition front-runner David Cameron has declared that if he wins a general election expected in May, Britain will not join the euro as long as he is prime minister.

Swedes and Danes are more spiritually attuned to the social democratic principles espoused by most of Europe.

Sweden joined the EU in 1995 after a severe banking crisis. But now, with the economy strong and public finances robust, many question what there is to gain from the single currency.

They also fear they will have to kow-tow to Brussels over sensitive issues such as state monopolies on the sale of alcohol and on gambling.

The Greek crisis has also raised the question of whether Scandinavians would have to bail out less fiscally prudent euro zone members.

The Danish government, which had planned a referendum on euro entry before the next election in 2011, is now sounding far more cautious.

“Membership support is down due to the eurozone turmoil, especially with regards to Greece,” said Danske Bank chief economist Steen Bocian, who sees no vote in the next two years.

“Even if the problems regarding Greece are solved, it could give the “Yes” camp problems because it could lead to a deeper integration of Europe -- and that is something the Danes are skeptical toward,” he said.

That would increase the risk of all three being left on the sidelines of a two-speed Europe. Any economic benefits from keeping their own central bank and currency might be more than outweighed by potential obstacles to trade.

European Union partners buy around 55 percent of Britain’s exports and 59 percent of Sweden’s, so even without the euro the three nations are vulnerable to what happens across the region.

Staying outside the euro also reduces the countries’ power to influence events, such as pushing for tighter fiscal rules.

Carl Hamilton, economic spokesman for Sweden’s Liberal party -- one of four governing coalition partners -- believes the benefits of the euro are a long-term increase in trade, investment and productivity. For foreign investors, membership of the currency zone makes costs and revenue predictable.

Finland had higher unemployment and lower gross domestic product per capita than Sweden before Helsinki became a founder member of the euro a decade ago but has caught up.

Swedish Finance Minister Anders Borg advocates entry in the longer term.

“How well it is going in one country decides how well-run the whole is, whether or not one has adopted the euro,” he said.

Additional reporting by Matt Falloon in London, Simon Johnson and Johan Sennero in Stockholm and John Acher and Anna Ringstrom in Copenhagen