WHEN does it make sense to join a currency union?

Robert Mundell, an economist at New York’s Columbia University, argued long ago that small, open economies, tied together by trade and investment, should adopt a single money.

Sweden’s great and good were so impressed with Mr Mundell’s theory of “optimum currency areas” they gave him a Nobel prize. Sweden’s voters seem less impressed. On September 14th, the people of this small, open economy, tightly bound to Europe by trade and investment, will vote in a referendum on joining the euro. Few think it optimal. Many don’t care for it at all.

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A poll by Sifo, released last Friday, showed that 49% of Swedish voters want to keep the krona (crown) and only 34% are happy to see it disappear. On Monday, Gallup announced similar results. The “no” campaign has been gaining momentum since the end of last year, feeding on fears that the euro will bring price hikes and welfare cuts. On Saturday, Goran Persson, Sweden’s prime minister, moved to allay both concerns. A price and competition commission would be created, he said, to make sure Sweden’s retailers did not take advantage of the new currency to raise prices or round them up. Mr Persson also cut a deal with the LO, Sweden’s main confederation of blue-collar trade unions, agreeing a new fiscal framework that would reconcile Sweden’s generous social contract with the euro area’s restrictive stability pact.

Britain, Sweden

Sweden's Riksbank publishes speeches and press releases. The Treasury sets out the five economic tests for Britain's entry to the euro. See also Britain in Europe, a pro-euro organisation. The Bank of England and the European Central Bank post their often-differing policy decisions. The European Commission provides information on economic and financial affairs, including the stability and growth pact, and publishes euro-area statistics.

Swedes are whole-hearted internationalists but, as Swedish economist Lars Calmfors puts it, they are “half-hearted and unreliable Europeans”. Sweden joined the European Union less than a decade ago and has stayed out of the euro until now—not by negotiating a formal opt-out, as Britain did, but by deliberately missing the Maastricht treaty’s entry criteria year after year. Still, many thought that Sweden would warm to the euro once it was in circulation. Around 40% of Sweden’s trade is with the euro area; 80% of Sweden’s larger corporations already invoice in euros, according to one recent survey, and another found that 80% of small businesses think the euro would be good for them. Once euro notes and coins were changing hands and lining pockets all over the continent, many expected ordinary Swedes to take to the new currency quite naturally. In Denmark, for example, the euro is already widely accepted in shops and restaurants, even though Denmark is not itself a member.

Instead, familiarity has bred contempt. Swedes have listened to reports from Germany, Italy and Greece of surreptitious price hikes inflicted on consumers unfamiliar with the new currency. They have watched the economies of the euro area grow just 2.2% per year since its birth, compared with 3% in Sweden. Germany provides an oft-recounted cautionary tale. It entered the euro at too strong a rate and is now enduring the painful process of growing (or shrinking) into a one-size-fits-all monetary policy. Sweden’s krona, which is currently trading at over 9.2 to the euro, will have to strengthen substantially before it is absorbed into the single currency.

Swedes are also reflecting upon the lessons of their own history. They have had a fixed exchange rate for about 70 of the past 100 years, but not all of those years were happy. Many associate the fixed regimes of the 1970s and 1980s, for example, with stagflation and unsustainable budget deficits. In more recent years the Riksbank, Sweden’s central bank, has arrived at a successful monetary policy based on targeting inflation and floating the currency. The weakening of the krona in 2001, for example, helped to cushion the Swedish economy from the effects of the global downturn. Inflation has remained stable and interest rates on Swedish and German bonds have converged. Indeed, Sweden, like Britain, has largely shrugged off its envy of Germany’s Bundesbank. It now dares to think that its monetary-policy framework is rather better than that of the European Central Bank (ECB). According to Lars Svensson, a Swedish economist at Princeton University, “When it comes to monetary policy, the monetary union needs Sweden and the UK, not the other way around.”

Mr Persson’s own minister for trade and industry, Leif Pagrotsky, thinks the euro might disturb Sweden’s compact against inflation. Over the past ten years, the Riksbank has won its battle with Sweden’s unions, convincing them that excessive wage claims would only invite higher interest rates. As a result, unions trim their claims to fit the Riksbank’s 2% inflation target. Would they do the same for the ECB? Sweden would account for just 3% of the euro-area economy, Mr Pagrotsky points out. The ECB would pay little heed to wage pressures emanating from such a distant corner of its domain, so why should Swedish workers pay any heed to the ECB? Sweden might go the way of Ireland, not Germany: euro-area interest rates might be too low for it, not too high, and inflation might return.

Euro-sceptics in Sweden, like those in Britain, are even more afraid of a common fiscal policy than they are of a single monetary policy

If it is true that Swedish workers would get away with more under the ECB than under the Riksbank, no one seems to have told the unions. The LO refuses to campaign in favour of the euro and many of its constituent unions are actively against.

In truth, euro-sceptics in Sweden, like those in Britain, are even more afraid of a common fiscal policy than they are of a single monetary policy. In Sweden, unlike Britain, however, they fear that taxes and spending will be harmonised downwards, rather than upwards. This is the issue that has split the ruling Social Democrats and roused the misgivings of the unions. The furore seems a little premature. The stability pact, the euro area’s fiscal “straitjacket”, is already coming apart at the seams. Besides, the pact is supposed to rule out big deficits, not big government: member states are free to spend a lot provided they also tax a lot. Mr Persson is still hoping to make this clear. The fiscal framework he unveiled at the weekend would aim for large enough surpluses in economic upswings to leave room, within the stability pact’s 3% deficit limit, for generous welfare benefits and active labour-market policies in downturns.

Some euro watchers say that if Britain joined the euro, Sweden would follow. The converse is probably not true. But if Sweden rejected the single currency, it might have a substantial impact across the North Sea. A “no” vote would show that the euro has lost rather than won converts in its first 18 months as a physical currency. More significantly perhaps, Sweden’s referendum campaign would demonstrate to Britons that it is not only right-wing xenophobes who oppose the single currency. Far from it. In Sweden, the most implacable euro-sceptics are the former communists and the greens. Soren Wibe, the de facto leader of the “no” campaign, is a Social Democrat.

The English have already recruited a Swede to restore pride to one cherished national institution—the English football team. Might the Swedes now help in the ongoing campaign to save another—the pound?

of His coming" (2 Thessalonians 2:8).