Swedes Look to EC to Boost Sagging Economy

SWEDEN'S speedy integration into European trade, finance, and labor markets reflects Europe's quickly changing economic and political landscape.On Tuesday, along with its six other Northern European partners in the European Free Trade Association (EFTA), Sweden signed a historic agreement with the 12-nation European Community. The new Swedish prime minister, Carl Bildt, hailed the accord as "an important building block in the new construction of Europe." He also added that Sweden is "now heading full speed to the EC." The EC-EFTA agreement is the world's widest-ranging economic accord. It will create free movement of goods, services, and capital for some 380 million people spanning 19 countries, roughly 40 percent of total world trade. And the future holds an even greater market as East European nations and former Soviet republics become part of the expanding European bloc. EFTA members - Austria, Iceland, Liechtenstein, Norway, Finland, Sweden, and Switzerland - are buoyed by Tuesday's results of nearly two years of laborious negotiations with their EC counterparts. But the mood here is particularly expectant as Swedes look forward to an elevated status in the elite European Community. EC Commission President Jacques Delors says the Community may include 18 new states in the future. Sweden expects to be one of the first additions. Sweden presented its application for EC membership on July 1. An EC delegation in Stockholm over the next several months will assess Sweden's readiness to join the economic and political union before membership negotiations take place. The original EC strategy was to offer EFTA a separate economic agreement and discourage individual EFTA members from applying for individual memberships. That hasn't worked. Increasingly, so-called neutral countries such as Sweden see the value of achieving political and economic rights in the EC. Stockholm's top motivation for joining, however, is to reverse the outflow of investment from Sweden and to attract EC capital that will spur economic growth. As in other EFTA countries, Swedish companies reap more revenues outside the country than at home. With an eye toward the single European market, more than half of investments in EFTA countries in recent years have gone to the EC. "Our outgoing investment rate is higher than all of the EC members," laments Jan Palmstierna, deputy assistant undersecretary at the West European Integration office of the Swedish Foreign Ministry. "Sweden is in a very severe recession," says Anders Aslund, a leading Swedish economist and director of the Stockholm Institute of Soviet and East European Economics. Swedish industry, whose overall production level has fallen by 6 percent this year, looks forward to the large pool of investors and markets in the EC. Mr. Palmstierna is careful to point out that Stockholm's interest in joining the EC does not undermine Swedish neutrality, because the cold war is over and East and West are now fused in Europe. "We're not choosing sides," he says. But Sweden faces tough choices ahead. As the EC evolves politically, members must confront divisive defense and foreign policy issues. Iraq's invasion of Kuwait, the collapse of communism, the Yugoslav crisis, and the prospect of chaos in the Soviet Union have consumed European leaders during the past year. The EC's failure to form a consensus on a host of complex issues, such as a common European defense, has benefited countries like Sweden, Austria, and Switzerland. In the past, disqualified from full EC membership because of its neutrality, Sweden now aspires to be part of the policymaking process on important issues, rather than to accept a fait accompli when they become members. Sweden and other applicants would also like to influence EC immigration policy. "We are very tolerant," says Palmstierna of his government. "We know the immigration policy in the European Community context might lead to a less tolerant view in the future." Indeed, Europeans worry that an open-door immigration policy would bring an influx of immigrants from North Africa, Eastern and Central Europe, and the Soviet Union. "We are worried that a more restrictive EC policy might have a reflection on us," says Palmstierna. Conversely, the Swiss government's recent declaration that it wants to join the EC is troubling for many Swiss who strongly oppose free migration. But as free trade reaches across the European Continent, populations may become more prosperous and less likely to migrate. Recognizing that free trade spurs economic growth, the struggling East European democracies are striking as many deals as they can. New bilateral agreements between EFTA and Poland, Czechoslovakia, Hungary, and Yugoslavia, will be ratified in 1992. "More trade, not aid," is a constant refrain coming out of Budapest, Prague, and Warsaw. Leaders there have pressed hard for preferential trade agreements with the EC. The EFTA has taken the lead in recasting relations with former Soviet republics. The current EFTA chairman, Finnish Trade Minister Pertti Salolainen, has initiated free-trade agreements with the Baltics. Strong EFTA-Baltic ties will put all participants in a more competitive position with the European Community, says Dag Hartelius, Baltic and Soviet affairs specialist at the Swedish Foreign Ministry. Regional cooperation also crosses lines drawn by established blocs. Northern Germany and Denmark (both EC members), southern Sweden, and the Baltics are developing an informal zone. Mr. Hartelius says it will take time for the low-level Baltics to reach West European economic standards. "Still," he says, "it's an important start."