Sweden EMU

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Country Analysis


The probability of Sweden joining EMU by the start date remains very low due to primarily to public opposition. Sweden’s huge budget deficit last year was widely viewed as the stumbling-block to any hope of early membership in the single currency. Recently, Sweden has been more successful in its fiscal consolidation program, which may allow the nation to meet the critical deficit criteria in 1997. Still, it remains to be seen if Sweden is even capable of maintaining this economic trend. The Swedish population as a whole is not politically inclined to jump into EMU with both feet. While the government has setup a commission to examine the advantages/disadvantages EMU relative to Sweden, the parliament will not make a final decision on this issue until late 1997.The Social Democratic government is clearly disposed in favor of the single currency. Nevertheless, the government will not seek to impose its own will over and above that of its party members. Instead, a party congress is widely expected to be held prior ro any parliamentary debate on this issue. While Sweden is not currently within the ERM is maintains the position that overall exchange rate stability is the predominant factor in the final criteria. Consequently, Sweden is unlikely to make the first cut in 1999 unless there are broader criteria for the membership as a whole in where at least 10 country members are included.

1995 1996e 1997f
ERM Member N N N
Inflation 2.9 1.1 0.6
Budget Deficit / GDP 8.1 3.9 2.9
Debt / GDP 78.7 78.1 76.8
10Y Bond Yields 10.3 8.0 6.8
f=forecast e=estimate

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