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Sweden: Euro fallout feared

Swedish newspaper headline on Monday reports the No vote.
Swedish newspaper headline on Monday reports the No vote.

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STOCKHOLM, Sweden -- Swedes' decisive rejection of the euro single currency could hasten the advent of a two-speed Europe, analysts have warned.

European Union officials remain confident Sweden will eventually ditch the krona for the euro but politicians said the result could stiffen opposition in Britain and Denmark, the two remaining EU countries retaining their currencies.

Voters rejected the euro in Sunday's referendum by a 14-point margin, 56 to 42 percent, with 2 percent of ballots ruled invalid. There are 7 million registered voters in Sweden, and officials had expected voter turnout to exceed 80 percent.

The krona fell sharply at the start of trading on Monday to two-week lows before rebounding and EC President Romano Prodi warned that Sweden was in danger of being frozen out of European decision making.

Sweden's consultative referendum was not binding and the country's parliament could in theory still approve the currency. In a statement the EC remained upbeat: "We're confident the Swedish government will choose a way forward to keep the euro project alive in Sweden."

But Graham Watson, the leader of the Liberal Democrats in the European Parliament said the no vote signaled a loss of prestige for Sweden and offered a warning to Tony Blair, Prime Minister of Britain, which remains outside the eurozone.

"Continued self-exclusion from the euro will bring a crushing loss of investment and political influence and increased vulnerability to money market turmoil," Watson warned.

Analysts said they feared that while several countries -- including the 10 former Soviet bloc countries hoping to join the EU in 2004 -- would push ahead with integration, others such as Denmark would remain outside the eurozone.

"We will now have a semi-permanent group of 'outs,' none of which is likely to join the euro before 2010," Katinka Barysch, chief economist at London's Centre for Economic Reform, told Reuters.

"That will reinforce the drive in the EU towards a two-speed Europe with closer cooperation in the euro zone on economics."

The rejection by Swedes was in marked contrast to an emphatic vote in favor of joining the European Union by Estonia, one of 10 countries hoping to join the bloc in 2004. (Estonians embrace EU)

A wave of sympathy yes votes had been expected in the Nordic country after the country's pro-European Foreign Minister Anna Lindh was stabbed to death last week in a Stockholm department store.

But that support failed to materialize or was not big enough to swing the vote in favor of the euro.

Supporters of Left Party and Green Party react with joy in Stockholm.
Supporters of Left Party and Green Party react with joy in Stockholm.

Lindh was stabbed repeatedly by an unknown assailant as she shopped in a Stockholm department store and died Thursday after hours of surgery. Police on Sunday released pictures of a possible suspect, but have made no arrests.

Police were hunting 10 people with criminal records and previous offenses, and there were at least two of particular interest, spokeswoman Stina Wessling told The Associated Press.

Prime Minister Goran Persson said the country must now "rejoin and come together again" after the vote.

"Remember one thing -- that Sweden is performing better than the rest of Europe," Persson said.

"To convince the people in that situation to change your currency -- say farewell to your own currency and go for the project when you can see that you are performing better, we are performing better -- that's not easy."

The no supporters said joining the euro could damage the country's strong economic performance and generous welfare system, while the yes backers said trade and future growth would be enhanced by becoming a member.

The euro eased half a cent to 1.1257 against the dollar in early trade on Monday. The krona hit two-week lows in early trade but by 1147 GMT had recovered to 9.1333 against the euro, only slightly below Friday's close.

-- CNN Correspondent Robyn Curnow and Producer Kim Norgaard in Stockholm contributed to this report.

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