No euro helped Sweden's economy
Sweden has historically chosen to stay outside the eurozone. This decision has given the country some financial flexibility and freedom of action in times of crisis. A clear example of this was the financial crisis. The affected world economy in 2008/2009. During this period, Sweden was in a position where we could pursue an expansive monetary policy, unlike the member countries of the euro. We took decisions aimed at mitigating the financial pressures. Compared to countries that were bound to the euro, such as Finland, Sweden had a significantly greater room for manoeuvre. The Riksbank could act more independently. We made decisions that were adapted to the Swedish economy. This enabled an expansionary policy to counteract the economic difficulties that arose as a result of the financial crisis.
Finland and Denmark: Challenges with the euro
Finland chose to join the euro. This decision has had consequences for the country's economy. During the financial crisis of 2008/2009, when Finland did not have its own monetary policy to rely on, they were in a more difficult situation than Sweden. The pro-cyclical policy dictated by Brussels and Frankfurt meant that Finland could not manage the crisis as effectively as Sweden.
Even Denmark, which has a firm connection to the euro, has encountered challenges despite its strong economy. Despite economic success, Denmark has nevertheless fallen behind in comparison with countries that are not tied to the euro. This shows the complex dynamics and challenges that the Eurozone poses.
Economic integration in the Nordics and divergence in the euro area
In the Nordic countries, the countries have chosen to preserve their different currencies. This has not threatened the area's economic cooperation and has allowed countries to have different monetary policy strategies to suit their individual needs.
EMU countries have fallen behind
On the other hand, Eurozone countries, despite economic integration, have experienced a divergence in growth and economic performance. Italy, which previously had a higher GDP per capita than Sweden, has now fallen behind. Italy stagnated for two decades, while Germany increased its economic performance and pulled away. Even industrialized France has fallen behind Germany.
This divergence has created tensions within the EU and has required transfers from the northern countries to the Mediterranean countries which have experienced difficulties. These challenges show the complexity of managing a common currency and the economic inequalities that can arise when countries with different economic structures share a single currency.
Neither Svexit nor the euro is the solution
Now some may think that this means that we should leave the EU. It is probably not that appropriate according to the article”Here, one in five lives in poverty” by Gunnar Wesslén. According to Bloomberg, Brexit costs the UK approximately SEK 1 billion per year. In addition, it has been estimated that inflation in the UK was about a third higher due to leaving the EU. Clearly, Brexit has contributed greatly to poverty in the country, which now affects around 660 million people and is increasing sharply.
Deficits can help Sweden
But the expansive fiscal policy saved Sweden in 2008. If we applied the three percent deficit that the euro allows, this would add around 100 billion to the Swedish state budget every year without raising taxes.
The Swedish state budget for the year 2020 was approximately SEK 1 billion. It was a year with a surplus in the state budget, and the surplus amounted to approximately SEK 231 billion.
If it had instead been a three percent deficit, which the EU recommends instead of a surplus, it would have meant an addition to the state budget of approximately SEK 37 billion. This sum would have been needed to cover the deficit and maintain the balance in the state budget.
Sweden has great freedom outside the euro to have a deficit
According to the EU's Stability and Growth Pact, the member states of the euro area should strive to have an annual budget deficit of no more than 3% of their GDP. For countries that are outside the euro area, such as Sweden, there is no fixed percentage for the annual budget deficit within the EU's regulations. Instead, these countries are assessed based on their own national frameworks and rules for budgetary discipline.
So, Sweden has more flexibility when it comes to setting its annual budget deficit compared to countries in the euro area. However, there are general principles for budget discipline that all EU countries, including Sweden, are asked to follow in order to ensure economic stability and sustainability.
Tax breaks for the rich threaten consumption
High payroll taxes on low-income earners reduce production and consumption, as low-income earners spend most of what they earn. But high earners save their money. Savings are so large today that they could dampen the economy.
Ordinary people's production important
Low-income earners are often engaged in the production of tangible goods and services with a directly measurable value, such as food preparation or vehicle manufacturing. High income earners, for their part, do not always produce objects of immediate practical use in the same way. Despite this, the financial role of high-income earners has an important function, such as to stimulate education and entrepreneurship so we can get new technology and new services.
Too much private saving can dampen the economy
But when taxes are cut for high earners, they tend to save a larger portion of their income. Saving is not necessarily a direct source of new production, as when taxes are invested in production or as when people buy goods and services. In addition, high-income earners' increased interest requirements on their savings may over time inhibit the ability of low-income earners to consume.
The purchasing power of low-income earners is important
Low-income people's consumption is important for productivity. At the same time, increased savings by high-income earners, combined with too small government budget deficits, can potentially create an increased risk of financial crises. This can occur if the less financially well-off do not have the opportunity to take out additional loans or repay their existing debts. Then the amount of money in society decreases.
We can increase investments without Svexit
With reduced taxes for the richest and deficits as high as EMU allows us, and with politicians taking control of the Riksbank, we could create a competitive industrial society and welfare society in Sweden without Sweden.
Government deficits alongside progressive taxes are important for a well-functioning economy.
Source: https://www.dagensarena.se/essa/inga-skal-att-tanka-om-kring-euron/
Source 2: https://www.tidningenrorelsen.se/p/tony-johansson-folkomrostningen-var
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How to leave the EU is probably more important than doing it. The UK left in such a way that the upper class political establishment had total control over how things went, and of course that must produce a miserable result.
I think that Friends of the Earth Sweden's traditional attitude is reasonable: fight the EU's practical policies, and keep it open because it is such a destructive organization that it should be left to die. But fighting the practical politics is the most important thing - now. It can build the capacity to deal with the situation when the EU faces its fall.
Sounds wise.