The factors that could trigger such a sequence of events include, for instance, US share prices continuing to fall or a decline in house prices. On the other hand, developments in the USA could be stronger and the positive spread effects to the surrounding world greater than we have estimated. A large part of Sweden’s exports is to the euro area and economic activity in these countries is therefore particularly important to us. The improved growth prospects in the USA will contribute to the recovery in Europe. However, a continued weak development on the European labour market and an unexpectedly high inflation rate will probably subdue the recovery somewhat. Germany, which is an important market for Swedish products, is still showing a very weak development. According to some leading indicators, European companies have become more optimistic recently. However, profit margins have been pushed down by the fact that productivity has fallen and when productivity falls, labour unit costs rise, which in turn reduces the scope for investment. This could be an explanation for the recent high inflation rate in the euro area. When the level of economic activity rises and productivity increases, the inflation rate is expected to subside. In addition, the high inflation rate can be partly explained by “secondary” effects from earlier price increases on food and energy, and possibly by rounding-off effects on the introduction of euro banknotes. (Diagram 3 - inflation in the euro area) Growth prospects are good for several important Swedish export markets in the rest of Europe.
The criticism of a Swedish membership of the Eurosystem has often concerned the possibility of being able to conduct an independent stabilisation policy under these circumstances. This is based on a supposition that the Swedish economy could for some reason become out of synch with the economic developments in the euro are, what is termed an asymmetric shock. An independent monetary policy and currency, in addition to fiscal policy, gives us the opportunity to stabilise our economy ourselves a form of shock-absorber that will be lost if we have a joint monetary policy steered by inflation and economic prospects throughout the entire euro area. This was the primary reason why the Calmfors Commission, which examined the consequences for Sweden of participation in the third stage of EMU, concluded that Sweden should wait before joining the Eurosystem until the Swedish labour market and wage formation showed sufficient flexibility to be 1 able to manage a serious shock. It is often forgotten that one of the points of the EU is that the union shall function as an insurance; that the countries are strong standing together than they are standing alone. In practice, it is also the case that when the Swedish economy has come out of synch with the euro area, this has not been due to shocks over which we had no control, but to mistakes made in our own economic policy.