EC Douses Swedish Hopes

The Swedish government's plans to hold a referendum on joining the euro suffered a public setback yesterday after the European commission announced that the krona was too volatile to be absorbed into the single currency.

In a report that was being scrutinised by the Treasury, Brussels said that the Swedish economy was not robust or transparent enough to be absorbed into monetary union. "Sweden is not yet in a position to participate fully in economic and monetary union," said Pedro Solbes, the monetary affairs commissioner.

The EC study criticised Sweden's central bank for its lack of independence from the government, and expressed concern about the gyrations of the krona on the foreign exchanges. The findings will increase pressure on the Swedes to join the exchange rate mechanism as a way of ensuring the currency stability deemed necessary by Brussels before a country joins the euro.

British sources said yesterday that the government had "no intention" of joining the exchange rate mechanism, which it left in after concerted speculative attacks on Black Wednesday in 1992.

Sweden's pro-euro social democrat government plans to hold a referendum on the euro next year, with opinion polls showing a small majority in favour of joining.

Yesterday's report is likely to alienate the Swedish public - who tend to be sceptical about the EU - by concluding that Sweden would be unable to join even if its nine million people wanted to. Swedish officials yesterday did their best to play down the rebuke from Brussels arguing that the criticism was nothing new and would not derail a referendum.