The Swedish Referendum “NO”: A setback and warning

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

The article reflects on the legal implications of the euro referendum in Sweden and its effect on the UK and Denmark, the countries still to stage a referendum on joining the common European currency.

The “no” majority victory in the Swedish referendum on joining the euro is decisive. The result will not be challenged by the pro-single currency Swedish political parties. Moreover it is unlikely to be followed by another referendum for at least five years and possibly longer. Because the referendum was purely “advisory”, in theory the next elected Swedish Parliament could reopen the question after the next election. But in reality only a radical change of economic and political circumstances would justify such a move.

Sweden did not receive a legal “opt out” from the EU Maastricht Treaty requirement to join EMU (unlike Denmark and the United Kingdom). But in the light of this referendum the government in Stockholm will have to negotiate some resolution of the legal anachronism with the Commission and the rest of the Union.

The economic consequences for Sweden of rejecting the euro may only become evident over time. But there is bound to be concern that the outcome could affect long term foreign investment in the country and thus its international competitiveness. Moreover Sweden will not be able to exercise the same influence on the growing debate about the future course and development of the EU economy, and more broadly what kind of economic and social model should be built in Europe, outside rather than inside the core euroland decision-making bodies.

The impact on Denmark

The Swedish result could have a negative political impact on the expected euro referendum in Denmark in either 2004 or 2005. However the Danish situation is different. The Danish Krone – unlike the Swedish – is locked into the EU Exchange Rate Mechanism (ERM). Paradoxically a fresh poll from Denmark showed a very large support for entering into the Euro as soon as possible, and event though the Swedish result may have a short term effect in Denmark, a new Euro referendum in Denmark early in 2004 with a resounding ‘yes’ result is likely.

The advantages of the Euro have become increasingly clear for the Danes, but they are also in closer contact with neighbouring countries that have introduced the Euro already than the Swedes. In addition Denmark has chosen to shadow the Euro very closely, while Sweden has opted for a free-floating currency, which has had its ups and downs over the last couple of years.

The further important issue is possible other referenda on European issues. Provided the IGC finishes its work as planned, referenda in Sweden and Denmark on the new constitution might very well take place next year. The situation in the two countries is, however, very different in this respect as well. The Swedes do not have any outstanding issues with Europe, and can vote on the constitution directly. The Danes, on the other hand are still debating 1992-issues, relating to the exceptions from the Maastricht Treaty. Besides the issue of the Euro this implies mending the relations with EU on defence and home and justice affairs.

This could lead to an early referendum in Denmark on all of the Maastricht exemptions, including the Euro, and a later vote on the constitution, if that is deemed necessary or politically desirable. A ‘yes’ vote in both countries on the constitution is going to be hard to achieve. The no side in general has got a new confidence in Sweden, and a new ‘no’ is very likely indeed. The same is probably true for the Danes, who are normally very skeptical about new political constructions in Europe and often need a time lag to cope. If the Swedes were to have a vote on the constitution before the Danes, and if it gives a clear ‘no’ result, ratification of the constitution could become very difficult in Denmark as well. So it is quite possible that the Danish government will go for an early referendum on the Euro and throw in the other outstanding issues, hoping to get these issues in the bag before the next battle – the referendum on the new EU constitution.

The impact on the UK and accession states

The Swedish result makes an early decision by the British government to call a Euro referendum in the United Kingdom even less likely. In any event Tony Blair’s domestic political authority has been severely damaged by his support for the US invasion of Iraq. It is quite likely now that a UK referendum may have to be held over into the next British general election. However this calculation could become even more complicated if Mr. Blair decides to resign as leader of the governing Labour Party either before or just after the next election which could be as early as 2005.

The Swedish result is unlikely to affect the determination of at least some of the economically better placed of the new EU states. Hungary, the Czech republic, Slovenia, Estonia and Cyprus have all indicated at different times that it is the intention of their governments to join the euro as soon as they qualify. However the European Commission and the European Central Bank have warned that it will take more time and even greater effort to qualify for joining the euro than for joining the Union itself.

Given that these countries will formally join the EU next May and that a former, probationary and transitional period of three years is required before they could accede to the single currency this is unlikely to take place for even the most favoured of the accession states before about 2008.

A warning for Euroland

It is clear that the recession in the EU economies and the serious budget difficulties of the French and German governments have reduced the attractions of the euro in the public view. This will increase the pressure on the euroland governments to find ways of accelerating structural reform and other measures to boost growth without undermining the Stability and Growth Pact (SGP). But this touches on the split within the euroland group over exactly how the Pact and its rules governing excessive budget deficits should be interpreted in a period of possibly protracted low growth.

The informal meeting of EU finance ministers in Stresa, Italy on the weekend did not resolve the divisions over the French government’s refusal to bring its budget deficit down below 3 per cent of GDP before 2005. This should, however, be achieved next year to be sure to avoid the possible imposition of sanctions being imposed by the other euro countries. Meanwhile the German and Italian governments also face increasing domestic problems in ensuring that they too do not fall foul of the excessive deficit provisions of the SGP. During the Stresa meeting the President of the European Central Bank, Wim Duisenberg, warned that it might take two years for the euroland economy growth rate to get back to its potential trend rate.

Popular rejection of the EU elite?

One of the worrying features of the Swedish referendum result was the rejection of the strong pro-Euro arguments put forth by the great majority of politicians, businesses, most trade union leaders and by large sections of the media by a large part of the Swedish public. One can assume that a similar trend might exist in other EU countries. As long as this is the case, it is bound to cast a shadow over the democratic legitimacy not only of the single currency but – more widely – over the development of the European Union as a whole.

The immediate danger now is that this backlash against what is perceived as an “pro-EU elite” could translate into popular rejection of the proposed new European Union Constitutional Treaty, which is to be put to referendum in a number of Member States. Indeed there may be a growing demand for referenda even in countries where no such provision has been mad e for ratification of the treaty.

Two conclusions should be drawn when the Intergovernmental Conference to approve the draft treaty produced by the Convention on the Future of Europe begins work in Rome next month. The first is that Member State governments should not add to the confusion and sense of distrust between electorates and decision makers by seeking to reopen the draft treaty on the whole. Certainly the important – but sadly limited – steps taken to strengthen the democratic legitimacy of the EU should be endorsed and in no way weakened.

Secondly, EU political leaders must now accept that they have a fight on their hands to explain and inspire voters about the importance of the further integration of the Union to all of our lives, particularly in a world as uncertain and potentially dangerous as the one we live in. The days when the political establishment could issue edicts from on high and expect passive acquiescence on the part of the public are over. The educated and in many ways sophisticated Swedish electorate has set new benchmarks for the European democratic process. Our leaders must rise to the challenge.

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