Bulletin PISM No 80 (533), 29 July 2013 (2)

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No. 80 (533), 29 July 2013 © PISM Editors: Marcin Zaborowski (Editor-in-Chief) Katarzyna Staniewska (Managing Editor) Jarosław Ćwiek-Karpowicz Artur Gradziuk Piotr Kościński Roderick Parkes Marcin Terlikowski Beata Wojna . . . .. 10 Years after Swedish Euro “Nej”: Lessons for Poland Paweł Tokarski, Elin Wiklund Almost 10 years after Sweden’s referendum on euro adoption, there are calls in Poland for a similar vote. Since Sweden is the only “older” Member State without an opt-out that has yet
    1No. 80 (533), 29 July 2013 © PISM Editors: Marcin Zaborowski (Editor-in-Chief) . Katarzyna Staniewska (Managing Editor) Jarosław Ćwiek-Karpowicz . Artur Gradziuk  . Piotr KościńskiRoderick Parkes . Marcin Terlikowski . Beata Wojna 10 Years after Swedish Euro “Nej”:Lessons for Poland Paweł Tokarski, Elin Wiklund  Almost 10 years after Sweden’s referendum on euro adoption, there are calls in Poland for a similar vote. Since Sweden is the only “older” Member State without an opt-out that has yet to adopt theeuro, its experience presents a comparison with the dilemma facing Poles. The Swedish euro debateand referendum were based on recommendations contained in a detailed report on the costs and benefits of the common currency, prepared by a special body. Elaboration of a similar study of comparable political weight in Poland could considerably contribute to improving the quality of public debate on Poland’s euro dilemma. There are fundamental differences of economic policy between Poland and Sweden, making it hard for each to drawlessons from the other. Sweden’s GDP per capita is twice as high as Poland’s. Its export-oriented economy is morecompetitive than the Polish one, which is still in the process of economic transformation. Both countries have been onopposite sides of many negotiations in Brussels, such as on the EU Multiannual Financial Framework 2014–2020 orenergy and climate policy. Yet, on the issue of their membership in the third stage of the Economic and MonetaryUnion (EMU), there are significant parallels. Both countries are legally obliged to adopt the euro, but there is nodeadline as to when. In both countries, the main political parties are deeply divided on the issue, but they also fearbeing left out of decision-making regarding the future of the EMU and potentially some sectors of the internal market. The Swedish Euro Vote Question. The Swedish referendum came at the end of a long and heated public debateinvolving domestic and foreign economists. Issues included classical questions such as whether the euro constituted anoptimum currency area, the effects of the EU’s monetary and fiscal policies, the extent of the independence of theEuropean Central Bank, and the effectiveness of the Stability and Growth Pact rules. A 28-volume special reportcommissioned by the government in 1995 and published the following year provided the basis for discussion. Theindependent commission, led by economic professor Lars Calmfors, advised against joining the third stage of the EMUin 1999, but cautiously spoke in favour of adopting the common currency at a later stage. It concluded that there isa strong political rationale for it as Sweden would improve its position within the EU decision-making process. Therewas much more reluctance from the economic vantage point. One of the main arguments against joining the eurozonewas the desire to maintain monetary policy as a tool for securing domestic macroeconomic stabilisation. The reportfurther concluded that in order to minimise Sweden’s vulnerability to asymmetric shocks and decrease the risksassociated with joining the euro, economic adjustments were necessary. The two main adjustments were to decreasethe level of unemployment and consolidate the budget. The Social Democratic government based its official positionon this report, although there were divisions within the party.In September 2003, the Swedish political elite asked voters if they wanted to join the eurozone. Of the 82.6% of registered voters who participated in the Swedish referendum, nearly 56% cast their ballot for the “no” side. Theresults showed a strong geographical divide, with the counties of Stockholm and Skåne the only two where the “yes”side won more votes than the “no” side. Although the referendum in Sweden was not binding, the governmentdecided to respect the results and delay the adoption of the common currency to an unspecified time.Today, 10 years after the “no” vote, popular support for the euro is at an all-time low in Sweden, with more than 80%of those polled opposing the adoption of the common currency. However, the benefits of staying out of the eurozone  2 may actually be smaller than the Calmfors report suggested 17 years ago. Recent studies indicate that Sweden has verylittle autonomy in terms of monetary policy, with the Central Bank of Sweden already following ECB monetary policy.The lack of a Swedish voice in Frankfurt is thus a real deficit. Where Sweden has managed to protect its vital interests,this was at least partially thanks to a convergence of interests in Stockholm and London concerning financial issues.Taking into account that the country is quite deeply integrated into the EU, it seems that for Sweden eurozonemembership would today entail more benefits than costs. However, with such strong opposition to joining, it seemsthat after the sovereign debt crisis experience most of the political forces and businesses are, as summarized by TheEconomist , “out and happy.” Poland’s Case. In contrast to the Swedish case, Warsaw is facing a domestic legal problem. Euro accession wouldrequire constitutional changes that would place the European Central Bank, rather than the National Bank of Poland,in charge of monetary policy. With the current political situation, the two-thirds majority in the Sejm required tochange the constitution is unlikely to be achieved without support from the opposition. As a result, Poland may needa referendum to obtain the votes in the Sejm. The opposition welcomes the idea of a referendum, as they argue thatthe conditions of eurozone membership have changed significantly since Poland joined the EU. According to recentpublic opinion polls, 64% of Poles are against adopting the euro. It is therefore likely that the issue will be the subjectof intense political debate as elections to the European Parliament, Sejm, and the office of Polish president are comingup in the next two years.Doubts therefore exist about the political rationale for the referendum. First, it is unlikely that citizens will be fullyaware of the complex rules of the new euro area architecture given that they often present a challenge even forexperienced analysts. There is thus a risk that the debate will be simplified to a question of sovereignty, symbolised bythe national currency. Second, the persistent structural difficulties in the southern eurozone countries have resulted inchronic instability and political crises since 2008, which are widely reported in media. As a result, the negative aspectsof eurozone membership are easier to present and a referendum campaign on the issue would likely lead to theextensive mobilisation of opponents to the common currency. Conclusions. One of the most important aspects of the Swedish referendum that Poland can look to for a model isthe way in which the debate over the euro was conducted. Rather than focusing on economically trivial questions suchas the importance of the krona as a national symbol, both the “yes” and “no” sides drew on reports elaborated byindependent bodies to frame their arguments, which is something lacking in Poland today. Although the question of when to adopt the euro has increasingly become a political matter, it does not mean that the subject cannot beobjectively assessed in economic terms. Poland currently lacks a study with economic and political weight that couldbe compared to the study of the Calmfors committee in Sweden. Therefore, it can be recommended that Polandshould follow the Swedish example and set up an independent scientific committee to prepare an objective report onthe costs and benefits of the euro. The independent group of experts would also assess the readiness of the Polisheconomy to join a highly integrated currency union. The report could also contribute to the quality of the currentdebate, and through a well-crafted campaign, increase the public’s knowledge of the euro.In the current situation, however, it seems that there are more arguments against a Polish referendum on eurozonemembership than there are in favour of it. Poland’s status as an aspiring euro area member has given it good reason totake part in the political decisions over the EMU’s future. A negative outcome in a referendum would in all likelihoodconsiderably weaken this argument and cost Poland bargaining power on EMU matters. Yet, an up-to-date, reliableand objective study on the costs and benefits of joining the euro, setting a long-term economic adjustment strategy atthe same time, seems to be a prerequisite for any decision on eurozone membership.Regardless of the referendum issue, Poland’s economy needs consistent and considerable structural reforms. Beinga member of a highly integrated common currency area requires much more than sheer labour cost competitiveness.For Sweden, the decision to keep the krona has forced economic policymakers to keep sound public finances andincrease the country’s competitiveness in order to stay afloat. The Swedish example thus shows that the transparencyof economic policy decisions and the quality of public discussion on the subject seems to be more important thansetting new hard fiscal rules.Currently, it is highly unlikely that Poland or Sweden will join the third stage of the EMU before 2020 due toeconomic and political constraints. Cautiousness towards the euro is evident not only among the public but also in thepolicies of both states’ central banks. In both countries, large operations to introduce new paper bills are planned forthe coming years. Thus, even the central banks do not anticipate the introduction of the euro in the near future.Still, both Polish and Swedish decision-makers have to bear in mind that the number of non-eurozone members issteadily decreasing. Provided that there will be no exits, by 2015, more than 2/3 rds of the EU28 will be composed of states with the common currency. In addition, the nature of the UK’s EU membership can be subject to modificationbetween 2015 and 2017. As a result, non-eurozone countries’ leverage may decrease on many issues, including furthereurozone financial or fiscal integration. Therefore, sooner or later both Poland and Sweden will have to decide if theywant to be in, or out.
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