How Sweden Steered Clear of the Greece Fiasco

The case for national sovereignty: By staying out of the euro, the Swedes have steered clear of Greece's mess. Brussels, take note

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By Brendan Greeley

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They are taking to the streets in Stockholm, but not with demands. Swedes, this month, ask for no more than a spare patch of grass or dockside granite to bask in the midsummer. The country has never really gone in for protest anyway, and right now there's nothing to protest about. The economy grew at an annual rate of 6.4 percent in the first quarter, after 5.7 percent last year, which was the strongest recovery in the European Union. And Sweden still has its krona.

Though it joined the union in 1995, Sweden never adopted the euro. It still enjoys the advantages of a tariff-free common market. It sends ministers, commissioners, and members of parliament to Brussels and Strasbourg. And right now, Swedes are looking south with relief. While Sweden enjoys monetary independence, Germany—another strong exporter with high-end manufacturing and solid growth—shoulders responsibility for saving Greece and preventing a wider financial collapse among the 16 other countries that use the euro. On June 13, Standard & Poor's gave Greece the world's lowest credit rating, while Greece's debt load reached 143% of gross domestic product, the highest in Europe. Sweden's krona has joined the Swiss franc as a favored currency for traders looking to profit from Germany's expansion while avoiding the European debt crisis. "If you are buying the Swedish krona," says Nick Parsons, head of markets strategy in London at National Australia Bank, "you are getting European growth without Greek politics."

Sweden's doing fine. The EU should find this only slightly less distressing than the chaos in Athens. The European project has always fed off of the momentum of ever more integration. Now Sweden's success offers a counterargument: Less integration works, too. It turns out that sovereignty matters, not just to the euroskeptical fringe but to the Swedes, the people who gave the world ABBA, Ikea, and benign socialism.

Sweden cherishes its modern tradition of neutrality, and the Baltic Sea serves the same function as the English Channel: Sweden keeps a cold, English distance from Europe and has a comfortable sense of its place in the world. Swedes lean on an untranslatable word, Lagom, to describe the fairness, comity, and reserve they practice in public life. They believe their system works, and suspect that continental Europe's doesn't.

Sweden has stayed out of the euro through an elegant legal dance. Denmark and the U.K. negotiated in the early 1990s to opt out of a monetary union, if they chose to. (They did.) When Sweden joined the EU in 1995, it theoretically agreed to the union's goal of a single currency. But the country's economy was still recovering from a domestic banking crisis earlier that decade, and public opinion in Sweden turned against the EU after accession. When the euro launched in 1999, Sweden deliberately failed to fulfill all of the common currency's membership criteria, and held on to its krona.

In 2003, Sweden scheduled a referendum on joining the euro. Swedish industrial organizations and large companies supported monetary union; it would reduce transaction costs and currency risk, and increase the competitiveness of Swedish companies on the Continent. Trade unions opposed the euro, worrying about its effects on wages and, more generally, Sweden's unique social contract. Figures in the country's major political parties were divided on the euro, but Sweden's voters were clear. 56 percent voted against the common currency, with a turnout of 83 percent, higher than the previous year's parliamentary elections. Brussels reacted with paternalism. The European Commission released a statement showing confidence that "the Swedish Government will choose the way forward to keep the euro project alive in Sweden." Romano Prodi, then head of the commission, told the Italian newspaper la Repubblica that Sweden's influence in the union would fade, and that "Sweden was afraid."

If so, there was wisdom in fear. From 2004 to 2007, Sweden averaged annual growth of 3.7 percent, compared with about 2.4 percent for the euro-zone countries. Prime Minister Fredrik Reinfeldt's government, which won a second four-year term last September, has cut income taxes four times since 2006 and has said it may do so again next year.