If Sweden chooses to remain outside, it will ultimately be difficult to get the participating countries to understand our actions. The fact that the monetary union is a major component of a larger process of integration means that we cannot expect to get simple answers to our questions by adopting an attitude of wait-and-see. Assessing the project over a complete business cycle certainly has its advantages but the prevailing uncertainty is costly. Investments are postponed or shelved. Twin systems have to be maintained. I am convinced, moreover, that new questions will arise all the time. We shall never be able to tell just how EMU will develop. This is something that those who participate decide as they go along. In the event of turbulence in the world around us, participants in the euro area have extra protection. This was evident last autumn, when the financial market turbulence hit the Swedish krona more heavily than the Finnish markka. On the other hand, as euro participants we would be in the same boat as at least eleven other countries. That naturally implies greater dependence – we would be clearly involved in problems that arise in the euro area. The only way to counter that would be by actively influencing developments in the euro area in the right direction. An insurance argument can be put for remaining outside the euro area. If we continue to manage the economy properly, there should be freedom of action in our economic policy. But this is not a simple matter.
The report considered that the arguments in this respect were not clear-cut either way but that the advantages of staying outside for the time being predominated. With a national monetary policy at a time when the economy still had major imbalances and was highly vulnerable to shocks, Sweden would then be in a position to parry any negative repercussions that might hit the economy while leaving the euro area relatively unaffected. 1  BIS Review 92/1999  A radical change in conditions for the forest industries is the standard example of such a shock. But even a more general worsening of conditions for growth in the rest of the world might have particularly adverse effects for a small economy with a high level of foreign trade. Moreover, with an independent monetary policy, interest rates can be increased to counter effects of a specific domestic policy failure, for instance an excessively weak budget policy or inflationary wage settlements. At present some observers might perhaps regard this as the greatest risk. According to the report, the high unemployment that had occurred in Sweden since the early 1990s made constraints on Swedish monetary policy particularly risky. In the situation at that time, a shock could have serious consequences for unemployment, with a further increase from a level that was already high. Experience in other countries, moreover, pointed to a major risk of an increase in unemployment becoming permanent. Swedish monetary policy could then provide support for the necessary labour market reforms that were advocated in the report.