Sweden chose to stay outside the monetary union at its launch in 1999, following the recommendation of the government’s EMU Inquiry (1997). In a 2003 referendum, a majority rejected euro adoption. After that, the issue largely receded from the political agenda. Recently, however, the discussion has resurfaced.

The pros and cons of Swedish euro membership are reassessed in new work (Calmfors 2026). The volume contains independent contributions by economists and political scientists, complemented by my own evaluation drawing on these chapters. This column summarises the report and my conclusions.

I distinguish between consequences for: (i) economic efficiency, (ii) business cycle stabilisation, (iii) other economic aspects, (iv) Sweden’s political influence, and (v) European political integration.

Economic efficiency

The effects on economic efficiency are analysed by Rikard Forslid. The most obvious benefit of euro membership is the elimination of exchange costs, but the gains are modest: 0.1–0.2% of GDP. The larger gains instead stem from increased trade and foreign direct investment (FDI), as exchange rate uncertainty vis-à-vis the euro area disappears.

Drawing on a large empirical literature, Forslid judges that euro adoption has raised trade among member countries by 10–15% relative to a counterfactual without the common currency. Trade with third countries appears to have increased by roughly half as much. Since Sweden has already benefited from this third-country effect vis-à-vis the euro area, joining would likely raise trade with it by a further 5–7.5%. In addition, a similar third-country effect could arise in relation to the rest of the world.

The impact on FDI is likely even stronger. According to Forslid, the euro has increased FDI between euro area countries by around 20%.

Business cycle stabilisation

The main argument against participation in the monetary union is the stabilisation policy costs in the event of country-specific shocks: adopting the euro entails giving up both an independent monetary policy and a national exchange rate. This concern underpinned the EMU Inquiry’s (1997) recommendation that Sweden wait before joining the euro, as the economy was still recovering from a deep crisis and burdened by high public debt, which constrained the scope for fiscal stabilisation.

Jesper Hansson  shows that Sweden’s business cycle has become increasingly synchronised with that of the euro area over time (Figure 1). A plausible explanation is that deeper trade and financial integration have strengthened the cross-country transmission of shocks. This should have decreased the need for an independent monetary policy.

Figure 1 GDP gap in Sweden and in the euro area, 1970–2024 (per cent of potential GDP)

Note: EA10 is Austria, Belgium, Finland, France, Germany, Ireland, the Netherlands, Italy, Portugal, and Spain.
Source: Hansson (2026).

A complication, however, is that monetary policy may affect Sweden differently from the euro area. As argued by Karl Walentin, the Swedish economy is more interest-sensitive, reflecting higher household debt and shorter interest fixation periods. Therefore, changes in the ECB’s policy rate could be too large for Sweden when shocks are common.

Martin Flodén shows that the krona has depreciated in downturns and appreciated in booms, helping to stabilise output. However, the sharp depreciation during the global supply shocks of 2022–23 added to inflationary pressures and thus complicated policy. In a more geopolitically turbulent world, such disturbances may become more frequent, increasing the risk that the exchange rate moves in the ‘wrong’ direction.

Although Sweden’s business cycle has become more aligned with that of the euro area, country-specific shocks will still arise. At the same time, Sweden’s low public debt – 35% of GDP (Figure 2) – reduces the risk that fiscal expansion in a Sweden-specific downturn would trigger adverse market reactions. EU deficit rules are also unlikely to bind, as the national escape clause could be invoked. Given Sweden’s track record of countercyclical fiscal policy, this would likely continue under euro membership.

Figure 2 Maastricht debt, 2000 and 2025 (per cent of GDP)

Note: Maastricht debt is the consolidated gross debt of the public sector, i.e. the debt after internal claims and liabilities have been offset against each other. The bars refer to forecasts for 2025, the circles to 2000.
Sources: Eurostat and European Commission (2025).

Overall, the stabilisation policy costs of Swedish euro adoption appear to have declined.

Other economic aspects

Fredrik Andersson and Lars Jonung argue that euro membership may expose Sweden to risks from high euro area public debt. They see new sovereign debt crises as likely, driven by populist pressures, ageing populations, rising spending for defence and green transition, and weak growth. Costs could arise if European Stability Mechanism (ESM) rescue loans are not repaid or if the Eurosystem incurs losses on bond purchases.

Euro adoption requires participation in the banking union. As discussed by Peter Englund and Pehr Wissén, this could entail costs for Sweden if the Single Resolution Fund is used to manage banking crises elsewhere. On the other hand, Sweden could gain access to the fund in the event of a domestic crisis. While this risk seems limited today – given strong bank capitalisation and low non-performing loans – banking crises are inherently hard to foresee.

The US has long acted as an ‘international insurer’, providing safe dollar assets and a security umbrella. The current administration, however, appears to demand a higher price for this – and even for refraining from harming allies (Posen 2025). It cannot be excluded that exchange rate and government debt policies may form part of this approach in the future. For example, Miran (2024) proposed an international currency agreement to permanently weaken the dollar, combined with pressure on foreign central banks and public institutions to convert US bond holdings into low-yield long-term instruments or even perpetuities. This raises the question of whether Sweden might, under certain circumstances, be better positioned to negotiate with the US as part of the euro area rather than independently.

Sweden’s political influence within the EU

The EMU Inquiry (1997) raised concerns that remaining outside the monetary union could weaken Sweden’s influence within the EU. Reviewing the relevant political science literature, Magnus Lundgren finds no evidence of diminished influence in areas such as foreign and security policy, the single market, energy policy, or trade policy. However, such losses might arise in the future if the euro area expands and cooperation within it deepens.

Lundgren concludes, however, that non-participation in the monetary union has reduced Sweden’s influence over EU economic governance. Euro area countries have exercised agenda-setting power in areas such as the European semester, surveillance of macroeconomic imbalances, reforms of the stability pact, requirements for independent fiscal institutions, rules for bank resolution, and pandemic support. A similar dynamic may emerge in efforts to develop an integrated capital market.

European political integration

A central motive behind the single currency was to strengthen European political integration.
At the same time, critics have long warned that monetary unification could instead generate tensions over monetary policy and the adjustment of national fiscal policies to the common fiscal rules.

Erik Jones concludes that cohesion and identification among euro area countries have increased over time. Magnus Lundgren and Jonas Tallberg argue that monetary unification has driven institutional deepening, not only within the euro area, but also in the EU as a whole, through a process of ‘failing forward’, whereby incomplete compromises have given rise to crises that, in turn, have necessitated further reforms.
But they also emphasise that support for the EU declined during the euro crisis in both crisis and non-crisis countries, although it has since rebounded to above pre-crisis levels (Figure 3).

Figure 3 Percentage of the population in euro area countries expressing support for the EU according to Eurobarometer data, 1975–2024

Note: Crisis countries are Greece, Ireland, Italy, Portugal, and Spain. Other euro area countries are Austria, Belgium, Finland, France, Germany, Luxembourg, and the Netherlands. Unweighted country averages per year.
Source: Lundgren and Tallberg (2026).

Swedish euro membership could be viewed as a contribution to deeper political integration, by increasing participation in joint decision-making and strengthening the salience of European issues in domestic political debate. It would signal a stronger commitment to EU cooperation and bind Sweden more firmly to EU membership, as exit would entail the additional cost of reintroducing a national currency.

Conclusions

The effects on economic efficiency, political influence, and European integration argue for Swedish euro membership, whereas the effects on business cycle stabilisation and other economic considerations point against. There is no straightforward way to weigh these consequences, as they have different dimensions: efficiency gains are continuous, while major stabilisation policy costs arise only occasionally, and political consequences cannot be quantified like economic ones.

In my assessment, the arguments for political integration have gained much more importance in a more geopolitically unstable world, where Europe needs more cooperation to assert its interests. At the same time, the differences in economic efficiency, cyclical stabilisation, and other economic effects between participation and non-participation in the monetary union appear limited. I therefore believe that Sweden should adopt the euro. Doing so could enable Sweden to move beyond its traditional role as a cautious bystander – often seeking to slow integration initiatives – and instead assume a more proactive stance.

References

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