Göran Persson, former prime minister of Sweden, has said that he fears the country could become the new ‘Switzerland’ with a currency that appreciates too far, ultimately forcing the country to adopt the euro.
The view was expressed in an interview with daily newspaper Svenska Dagbladet, in which Persson also raised concerns over levels of household debt, and the heavy reliance on exports to keep the local economy going.
He said the proportion of GDP accounted for by exports continues to grow, and as such currency becomes an increasing risk. This is a danger for all smaller countries that are heavily dependent on exports, he said.
“The latest example is Switzerland. If I had said at the start of 2011 that Switzerland would peg itself to the euro then people would have treated me as if I were an idiot. But they did it. Not because the franc became too weak, but because it became too strong. It showed that the backbone of their economy was not the banking sector, but chocolate, cheese, pocket knives and watches.”
Sweden is on the path to becoming the next ‘Switzerland’ in this sense, Persson added.
“When I listen to parts of the export sector it is definitely the case. Listen to the forestry industry, the saw mills, the paper mills, that is exactly their picture. If we get an appreciation of the krona by, say, 10%, then this will be top of the agenda.”
Svenska Dagbladet notes that Persson was a supporter of the ‘Yes’ vote in the referrendum in 2003, when Sweden decided to say outside the eurozone. He still believes that the country will end up in the zone, whether through locking in the currency to the euro or by another method. And he said that despite the issue being politically ‘dead’ in Sweden currently, this is only because politicians are not talking about it. The reality is that the country is exposed, he said.
Across the Oresund Strait meanwhile,the Association of Danish Mortgage Banks has sharply criticised last week’s political agreement at the EU level, which looks set to result in banking union.
Realkreditrådet is reported by business news provider Børsen as saying the cost to the sector will be far higher than previously stated by the country’s prime minister Helle Thorning-Schmidt and her government.
The additional costs stem from the fact the sector is far more exposed than expected to the new regulations , according to analysis of the deal signed last week by heads of eurozone member states.
Realkreditrådet’s criticism carries weight in Denmark because of the role its members play in the country’s fixed income and residential housing markets. It represents the banks that package up mortgage loans, which are funded through the issue of covered bonds. These are popular with both retail and institutional investors in the country, and marks out Denmark as different to other Nordic markets. Danish covered bonds also proved themselves to be among the most liquid assets in the world in the days following the Lehman Brothers collapse in 2008, and any dent in the covered bond market caused by banking union rules could cause concern among investors such as insurance companies, which rely on the instruments to maintain liquidity in their own portfolios.
Increasing costs for the mortgage banks would be also be sensitive given the broader struggle facing the non-mortgage banking sector in Denmark, where a number of smaller and mid-sized credit institutions have had to be taken over by the government in the wake of the financial crisis.