Sweden not ready for euro, EC says

Goeran Persson had hoped to lead country in vote to join euro next year

BRUSSELS, Belgium -- Sweden is not ready to joint the euro, the European Commission said on Wednesday, even though the country plans to hold a referendum next year on membership.

"While the Swedish economy has shown a good performance over the last few years and three of the (euro entry) convergence criteria are fulfilled, I regret that Sweden is not yet in a position to participate fully," European Monetary Affairs Commissioner Pedro Solbes said in a statement.

The commission, the executive arm of the European Union, said Sweden's currency is too volatile and its central bank is not free from political interference. It went on to say Sweden's central bank legislation was not inline with requirements of the Maastrichat Treaty, which lays out the rules for membership.

The Swedish central bank was recently forced to transfer 20 billion Swedish crowns ($2 billion/2.2 billion euros) to the state, despite objections from the bank.

On Tuesday, Sweden's central bank governor Urban Backstrom said he would quit at the end of 2002, two years before his term expires, to give his successor time to prepare for his country's possible adoption of the euro.

Goeran Persson, the Swedish prime minister, was hoping to hold a referendum in the spring of 2003, leading to membership in January 2005. This will be a blow to his ambitions to push the country into the euro, observers have said.

An opinion poll on Tuesday suggested Sweden was moving towards voting "yes" to the euro by 52 percent compared to 44 percent against.

However, Solbes said he expected Sweden to join ERM2, the successor to the European Exchange Rate Mechanism, and bring its central bank legislation into line with the Maastrichat Treaty.

The commission said Sweden's currency fluctuated "quite markedly" against the euro because it was outside the ERM. Countries must be in the ERM for two years as a precursor to membership.

But those rules have been bent in the past. Finland was allowed after 17 months and Italy after just 16 months. Britain, which is not a member of the euro, and Sweden do expect greater flexibility if they persuade voters to adopt the euro.