Sweden will not be a founding member of EMU. In spite of this situation, solutions are being found to permit the use of the euro along side the Swedish krona to minimise the disadvantage for Swedish firms. Per Jedefors, Head of Group Staff EMU at Skandinaviska Enskilda Banken, and an advisor in Sweden of the Association for the Monetary Union of Europe, AMUE, outlines below what steps are being taken to enable the financial and corporate sectors to use the euro as from the date of its introduction in 1999.
Swedish EMU preparations accelerating
On all scores, it appears highly likely that already from January 1999 euro will be used in the financial system, for commercial transactions and by Swedes for long-term investments - despite the recently manifested political hesitancy about joining EMU.
In the opinion of the Swedish Government, the conditions for joining EMU are fulfilled. On December 4, the Swedish Parliament adopted, however, as its opinion, that Sweden should not join the Economic and Monetary Union from the start. The decision was taken despite the fact that Sweden has no opt-out protocol to refer to as is the case for Denmark and the UK.
Lack of public support
The lack of public support is cited as the main reason for the decision in Parliament. Despite the political hesitancy in bringing Sweden into EMU, significant progress is being made towards an early adoption of the euro both in the financial and corporate sectors.
Euro payments possible
Very ambitious programmes are being pursued by Skandinaviska Enskilda Banken and other major financial institutions to facilitate the usage of euro in the interim period, when Sweden remains outside EMU. The domestic interbank clearing and settlement systems are being adapted to meet the requirements for real time gross settlement of large value payments in euro, alongside the Swedish krona. Thus, the Swedish financial system will be able to handle domestic euro payment - provided that intra-day liquidity is made available by the Swedish Central Bank to the extent required. The conditions for using the most sophisticated system for cross-border payments in euro, TARGET, will be determined by ECB in mid 1998. It appears, however, likely that banks accessing this system through the Swedish Central Bank will be disadvantaged relative to banks in EMU countries. Therefore, other solutions have to be found to fully meet the needs of the companies; e g Skandinaviska Enskilda Banken has announced that euro payments in TARGET will be made by its subsidiary in Frankfurt.
The entire inter bank system will immediately change to euro on January 4, 1999 in all EMU countries. This will have far reaching consequences also for non-EMU banks due to the integration of the financial markets within Europe. Also major corporations with well developed finance functions will be heavily impacted by the changeover to euro.
Preparations for the introduction of euro in commercial transactions are also intensified. A large number of Swedish companies have important business in countries belonging to the first group of EMU members. These companies will undoubtedly need to adapt to euro with ensuing implications for management of their foreign exchange exposure. Several Swedish as well as other leading European companies have announced their intentions to start using euro already from January 1999 in commercial activities.
Trading of shares in euro
Trading of shares in euro on the Stockholm Stock Exchange is likely to replace trading in Swedish krona already in January 1999 for shares with high turnover. This will be done in an effort to maintain Stockholm as a leading financial market place. The Stockholm Stock Exchange, the Central Security Depository and major banks are co-perating in this effort.
The preparations for adoption of euro is likely to accelerate in Sweden as a combined result of the total changeover in the financial system within EMU, availability of infrastructure for efficient payments, intensified preparations for commercial usage and high value trading on the stock exchange.
Facilitating usage and conversion
Public authorities recognise the need to facilitate usage of the euro in the financial system as well as in commercial transactions. Preparations are under way for changes of the law to allow Swedish companies to use either euro or Swedish krona as the official currency for accounting and for denomination of share capital. To facilitate conversion to euro consideration is also being given to allowing no par value shares thereby eliminating the complications incurred when rounding the nominal value of shares. It is expected that the investigation made in this context will show an overwhelming interest in using euro. A proposal to the Swedish Parliament is foreseen during 1998 in time to allow the law to become effective from January 1999.
Attractive for the citizens
Euro will not be widely used for paying employees in Sweden until euro bank notes and coins are circulated within EMU and it is obvious that Sweden will join EMU within a short period. However, since it is likely that Sweden will join EMU, Swedes should bear in mind the long-term consequences of eventually paying their costs of living and receiving income in euro. Therefore, allocation of savings for pension and other long-term investments needs to be reconsidered, and euro is likely to attract the interest of foresighted private individuals already from the creation of the EMU.