Sweden in the European economy

Deputy Governor of the Riksbank Lars Nyberg today spoke at Commerzbank Securities' capital market conference about Sweden's role in the European economy and the Riksbank's role in the EMU process. Mr Nyberg emphasised the importance of having a robust framework for fiscal policy ahead of a potential adoption of the euro. Mr Nyberg also said that 1 January 2006 would be the best date to join the euro and stressed the need for greater coordination and harmonisation of rules and regulations and the authorities' supervision of the financial markets in the EU.

"Should Sweden adopt the euro the European Central Bank will bear the main responsibility for fighting inflation. At the same time fiscal policy will shoulder greater responsibility for stabilisation in situations where the Swedish economy deviates from the average trend, particularly in light of the fact that the ECB makes its monetary policy decisions on the basis of developments in the euro area as a whole and should not take individual countries into account.In order to be able to carry this greater responsibility, I believe it is crucial that fiscal policy be given a framework that creates a distinct, transparent and predictable structure for conducting stabilisation policy, as the Riksbank expounded in its statement on the report 'Stabilisation policy in the monetary union'. The current framework encompassing a surplus target and budget ceilings has played a decisive role in creating confidence in the Swedish economy. If we continue on this path we will be in a good position to manage fluctuations in the economy even if we join the euro.The much-debated Stability and Growth Pact which sets a limit for deficits in public finances should not therefore constitute a problem for Sweden.It sometimes appears in the public debate that the problem with the Stability Pact is the limit established for public sector deficits.In actual fact, the imbalances in central government finances that are presently resulting in excessive deficits have been created by an overly generous fiscal policy during previous years of good growth. A framework laying the foundation for a long-term, sustainable policy even during economic booms would have been welcome in those countries that are currently contending with excessive deficits.This is where attention should be focused in the debate, and not on attempting to change rules and regulations during a recession when the largest countries are experiencing difficulties."

"In the debate ahead of the referendum on the euro, one sometimes gets the impression that Sweden would be weighed down by having to share a currency with countries that have had weak growth over recent years, such as Germany.But it is not through joining the euro that Germany becomes important for Sweden.The euro area influences the Swedish economy by virtue of the fact that Germany and other euro countries are among our most important trading partners.This influence exists regardless of whether Sweden joins the euro or not.Irrespective of the outcome of the referendum on the euro, the various proposals for reforms of the labour market and tax regime that have been discussed in the three largest euro countries - Germany, France and Italy - are of tremendous significance for Sweden's economic future," said Mr Nyberg.

"When comparing Europe with the US, it is interesting to note the considerable differences in the proportion of people in work.While productivity growth has been stronger in the US than in Europe since the second half of the 1990s, the major difference between the US and the euro area is the number of hours worked and the number of people in employment as a percentage of the population, which is where the European countries have had considerably weaker development.The advantage held by the US over Europe consists, among other things, of greater mobility in the workforce, better utilisation of labour and increased immigration. In the longer term Europe is at a disadvantage due to having a population structure with a considerably higher proportion of elderly," said Mr Nyberg.

Mr Nyberg also touched upon the preparations for the euro in the Swedish financial sector.

"The Riksbank has been following the financial sector's preparations for a potential currency changeover for a long time now.In Sweden, all the largest financial operators are closely integrated with the payment system, which is why a changeover to the euro requires many different preparations at the same time.From this point of view it is important that time be allowed for testing and checks in order to minimise the risk of errors in the financial system.The Riksbank supports the view that a changeover could take place on 1 January 2006 and that the replacement of banknotes and coins should be initiated at the same time as the krona's rate is fixed to the euro."

"The Riksbank's tasks with regard to financial stability will essentially be retained if Sweden joins the euro. Financial stability issues will also become increasingly important in the EU as financial integration becomes more advanced.It is crucial that supervisory activities develop in line with changes in financial risks and the integration of the financial markets.Rules, regulations and supervision must be harmonised in order to serve their purposes without becoming an obstacle to greater efficiency. Different traditions for supervision and different ways of organising the issues surrounding financial stability and crisis management results in this work sometimes proceeding at an alarmingly slow rate," concluded Mr Nyberg.