Sweden and the Euro: A Decision That Still Stands the Test of Time
20 Jul, 2025 at 11:46 | Posted in Economics | Leave a comment
Twenty-two years ago, Swedish citizens were asked whether they wanted to join the eurozone. Of the 83% of registered voters who participated in the referendum, nearly 57% voted ‘no.’ The result came as a complete shock to the Swedish establishment. All major political parties and business organisations had backed the euro. Despite the ‘yes’ side outspending the ‘no’ side ten to one, the ‘no’ campaign prevailed. Yours truly—unlike the usual suspects among establishment economists—participated actively in the fight against the euro, something I remain immensely proud of.
The 2003 referendum was essentially about whether Sweden should enter the European Monetary Union (EMU) and replace its sovereign currency, the krona, with the euro. While ideological concerns, objections to the Stability and Growth Pact, attempts by the Prime Minister to silence internal party dissent, and fears of a future United States of Europe influenced voting, the fundamental issue was economic. When Swedes went to the polls, they focused primarily on how eurozone membership would affect their personal finances and the nation’s economy. Despite the financial dominance of the ‘yes’ campaign, a rational and well-informed public concluded that membership would be economically detrimental.
The referendum followed extensive public debate, much of it centered on whether the euro constituted an optimal currency area and how joining would affect Sweden’s ability to conduct effective macroeconomic stabilisation through independent monetary and fiscal policy. A special report commissioned by the Swedish government in the mid-1990s had cautiously evaluated the costs and benefits of joining and concluded that there were no compelling economic reasons to recommend EMU membership. One major concern was Sweden’s limited ability to shield itself from asymmetric shocks without incurring severe and costly adjustments.
In hindsight, the Swedish people were right, and the political and economic establishment was wrong. Since its launch two decades ago, the euro has failed to deliver significant productivity gains. Economic challenges have mounted and at times nearly escalated into national catastrophes. The EMU has proven to be far from an optimal currency area. History shows that countries like Germany, Greece, Italy, Portugal, and Spain do not move in economic unison.
While there may be some evidence of convergence in long-term interest rates within the eurozone, macroeconomic indicators such as growth, employment, inflation, and public debt show little convergence. One of the primary arguments of the ‘yes’ side during the referendum was that the euro would foster economic convergence. Fifteen years later, the persistent disparities between eurozone members underscore how shaky the euro’s foundations truly are. The anticipated convergence simply never materialised.
The euro’s flaws should not have come as a surprise. Giving up a sovereign currency also means forfeiting the ability to conduct independent monetary policy. Public sector borrowing must then occur on competitive markets, which can be prohibitively expensive or even impossible. Eurozone membership limits a country’s ability to respond flexibly to asymmetric shocks and to use fiscal policy to maintain low unemployment and high welfare levels.
The repeated economic crises in the eurozone over the past decades have made it abundantly clear that the euro is not merely an economic project—it is also deeply political. What the neoliberal revolution of the 1980s and 1990s failed to achieve by democratic means, the euro has imposed through structural constraints.
But do the people of Europe truly wish to relinquish economic autonomy, suppress wages, and cut social welfare at the first sign of economic strain? Rising income inequality and the vision of a centralised European superstate do not reflect the aspirations of most citizens. Economists often become so enamoured with their models that they forget the human cost behind abstract data. Real people pay the price for flawed theories. The euro has stripped national governments of the tools to manage their economies, forcing austerity onto their populations.
The core problem is that the euro has led to greater divergence in production structures, employment, and trade balances. The austerity policies it mandates have suppressed aggregate demand and deepened long-term economic divides among member states. Instead of promoting full employment, these policies have undermined it.
The eurozone’s one-size-fits-all approach has failed. Its performance has been poor, and its legitimacy low. The project has lacked democratic foundations from the start. When the Swedish people were asked, we said no. We understood that a single currency, governed by a central bank focused narrowly on inflation, would likely lead to higher unemployment. The euro is rooted in an economic model that promotes inequality and disadvantages working people.
No compelling economic benefits have ever been clearly demonstrated for Sweden to join the euro. On nearly every major performance indicator, Sweden has outperformed the eurozone. Retaining our currency has allowed us to pursue more effective stabilisation policies. Arguments that the euro would improve competitiveness and business efficiency overlook the fact that better instruments exist for achieving those goals. Imposing uniform interest rates and monetary policies on structurally diverse economies does more harm than good.
At its core, this is also a question of national autonomy. Countries should have the right to chart their own course and tailor policies to their specific needs and challenges. Sweden has a long tradition of prioritising full employment over price stability. Joining the eurozone would require abandoning that principle. It would mean accepting austerity, rising unemployment, labour migration, lower wages, and widening inequality. Interest rates would no longer be set by the Riksbank, but by an opaque and unaccountable European Central Bank focused on the needs of the eurozone as a whole. Sweden would be forced to abandon what remains of its social model and egalitarian values.
Public support for the euro remains low in Sweden. Nothing that has occurred since 2003 suggests that the Swedish people were wrong. Sweden would have gained little and lost much.
Economic modelling is one thing. Reality is another. Again and again, the eurozone experience has demonstrated how difficult and painful it is to restore growth and employment without the tools of independent monetary and fiscal policy. The human and social costs are visible for all to see. It seems never-ending. Austerity is repeatedly imposed, threatening not just economic health but democracy itself.
How much whipping can economy and democracy take? How many have to be hurt and ruined before we end the euro madness? Instead of just go on mending the project it would be better to just admit that we have reached the end of the road and that it is time to take another road. A road forward. A road without the euro.
