The Success of the Euro Tempts the 3 Holdouts (Sweden,Denmark,Britain)
Interest Grows in Sweden, Denmark and Britain
By Tom Buerkle International Herald Tribune
Paris, Friday, January 8, 1999
LONDON - Far sooner than expected, the smooth launch of the euro this
week is encouraging countries on the outside to consider jumping on the bandwagon.
Speculation about Sweden's entry into the euro zone swept the country's financial markets Thursday after Prime Minister Goran Persson said his governing Social Democratic Party should make an early decision on whether to join the single currency.
Mr. Persson's comments in an interview late Wednesday followed a strong pro-euro statement from Prime Minister Poul Nyrup Rasmussen of neighboring Denmark last week. Both provided clear evidence that the currency's strong debut was heightening fears of economic and political marginalization among countries outside the economic and monetary union.
There were also signs of a decisive shift in public opinion in both countries. An opinion poll published Thursday in Denmark showed a majority of respondents supported joining the euro, the first such poll result there.
''There is a certain amount of panic among europhiles in the 'out' countries about getting in,'' said Mark Cliffe, the senior European economist at the ING Barings investment bank in London.
Mr. Persson said the Social Democrats should hold a special congress early next year, more than a year ahead of previous plans, to decide whether to support entry into the euro zone, a decision that could lead to a national referendum that year.
''They are preparing the party, and public opinion, to enter EMU,'' or
economic and monetary union, said Mats Nyman, chief economist at
Svenska Handelsbanken. He estimated the likelihood of Swedish entry by
2002, the year euro notes and coins are to be introduced, to be ''at least 75 percent.''
In Britain, meanwhile, debate about the euro also appeared set to intensify as banks in the City of London warm to the new currency and the government prepares to publish a changeover plan in coming weeks outlining how Britain would introduce the euro if it decided to join. One senior Labour member of Parliament this week publicly urged the government to abandon its wait-and-see stance and give a clear timetable for British entry.
So far, Prime Minister Tony Blair has shown no such inclination. In addition to his usual caution regarding the euro, the government has been shaken by a string of resignations in the past two weeks, including that of Trade Secretary Peter Mandelson, a leading advocate of British entry.
As a result, attention in Britain remained focused on the slowing economy, which prompted the Bank of England on Thursday to cut its key interest rate by a quarter point, to 6 percent. The cut, the fourth reduction in as many months, was broadly welcomed by financial analysts but criticized as insufficient by some business and union leaders.
John Monks, leader of the Trades Union Congress, said concerns that the pound might weaken against the euro could be slowing the pace of rate cuts. Even with the cut, he noted that the British rate remained twice as high as the 3 percent rate in the euro zone.
The rate cut signaled that Britain was ''still on track for continued easing, and hence to continue with the convergence process toward Europe,'' said Giles Keating, a senior economist at Credit Suisse First Boston. Mr. Cliffe said rates could fall to 4.5 percent by the end of the year because of the sluggish economy and the absence of inflation pressures.
The Danish central bank also eased monetary policy Thursday, lowering its repurchase rate to 3.75 percent from 3.95 percent, because of the recent stability of the krone.
In Sweden, speculation about an early entry to the euro lifted the krona by about 1 percent on a trade-weighted basis, and it sparked a rally in Swedish bonds.
The Danish central bank had pushed rates up sharply in September to
defend the krone from turmoil in global markets while euro-zone currencies were unaffected. That illustration of the benefits of the euro, combined with glowing reviews about the currency's launch, have contributed to a sea change in public opinion.
''All of the news about the euro has been positive for the past three
months,'' said Lars Anell, a senior executive at the automaker AB Volvo.
By contrast, corporate Sweden has been shaken by restructuring and
mergers that have heightened a sense of insecurity on Europe's periphery. Volvo itself is the subject of heated takeover speculation, although Mr. Anell declined to comment on reports it had appointed an investment bank to find a partner.
Sweden has recently lost the headquarters of the paper company Stora AB and of Nordbanken because of mergers with partners in Finland, which is part of the euro.
''The companies are moving outside of Sweden because Sweden is outside
of the euro,'' Mr. Nyman said.
''There is a fear of being marginalized.''
Still, governments are wary of committing to a referendum just yet because that will give opponents a chance to focus on issues like sovereignty, said Mr. Anell, a former Swedish ambassador to the European Union who witnessed a similar opinion swing before the country joined the EU in 1995.
Frustrated by a similar wariness in Britain, Giles Radice, chairman of the House of Commons' Treasury Select Committee, urged Mr. Blair on Wednesday to ''get off the fence'' and set a clear timetable for joining the euro. He said the euro's successful launch would transform Europe's economic and political landscape and demanded a response from Mr. Blair's government.
''Some time in the next year they'll have to firm up their position,'' Mr. Radice said. ''Otherwise, they won't get the support of business they need to persuade the public.''
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