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NATO

Erdogan links Swedish Nato approval to Turkish EU membership

Turkish President Recep Tayyip Erdogan said Monday he would back Sweden's Nato candidacy if the European Union resumes long-stalled membership talks with Ankara.

Erdogan links Swedish Nato approval to Turkish EU membership
Turkish President Recep Tayyip Erdogan addresses the parliament to mark the opening of the new legislative year, at the Grand National Assembly of Turkey in Ankara, on October 1, 2022. Photo: Adem ALTAN/AFP

“First, open the way to Turkey’s membership of the European Union, and then we will open it for Sweden, just as we had opened it for Finland,” Erdogan told a televised media appearance, before departing for the NATO summit in Lithuania.

Erdogan said “this is what I told” US President Joe Biden when the two leaders spoke by phone on Sunday.

Turkey first applied to be a member of the European Economic Community — a predecessor to the EU — in 1987. It became an EU candidate country in 1999 and formally launched membership negotiations with the bloc in 2005.

The talks stalled in 2016 over European concerns about Turkish human rights violations.

“I would like to underline one reality. Turkey has been waiting at the EU’s front door for 50 years,” Erdogan said. “Almost all the NATO members are EU members. I now am addressing these countries, which are making Turkey wait for more than 50 years, and I will address them again in Vilnius.”

Sweden’s prime minister, Ulf Kristersson, is due to meet Erdogan at 5pm on Monday in a last ditch attempt to win approval for the country’s Nato bid ahead of Nato’s summit in Vilnius on July 11th and 12th. 

Turkey has previously explained its refusal to back Swedish membership as motivated by the country’s harbouring of people connected to the PKK, a Kurdish terrorist group, and the Gülen movement, who Erdogan blames for an attempted coup in 2016. 

More recently, he has criticised Sweden’s willingness to allow pro-Kurdish groups to protest in Swedish cities and allow anti-Islamic protesters to burn copies of the Quran, the holy book of Islam.

In a sign of the likely reaction of counties which are members both of Nato and the EU, German Chancellor Olaf Scholz said that the two issues should not be connected. 

“Sweden meets all the requirements for Nato membership,” Scholz told reporters in Berlin. “The other question is one that is not connected with it and that is why I do not think it should be seen as a connected issue.”

Malena Britz, Associate Professor in Political Science at the Swedish Defence University, told public broadcaster SVT that Erdogan’s new gambit will have caught Sweden’s negotiators, the EU, and even Nato Secretary-General Jens Stoltenberg off guard. 

“I think both the member states and Stoltenberg had expected this to be about Nato and not about what the EU is getting up to,” she said. “That’s not something Nato even has any control over. If Erdogan sticks to the idea that Turkey isn’t going to let Sweden into Nato until Turkey’s EU membership talks start again, then Sweden and Nato will need to think about another solution.” 

Aras Lindh, a Turkey expert at the Swedish Institute of Foreign Affairs, agreed that the move had taken Nato by surprise. 

“This came suddenly. I find it hard to believe that anything like this will become reality, although there could possibly be some sort of joint statement from the EU countries. I don’t think that any of the EU countries which are also Nato members were prepared for this issue.”

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MONEY

Why the Swedish krona is expected to strengthen in the year ahead

In the last decade, the Swedish krona has generally been weak against major currencies like the US dollar and the euro. However, some analysts believe it may strengthen in the coming year.

Why the Swedish krona is expected to strengthen in the year ahead

In recent months, the Swedish krona has faced significant fluctuations against major currencies.

On June 28th, the krona lost ground following a softer-than-expected interest rate policy statement from Sweden’s central bank, Sveriges Riksbank.

After a rate cut in May (the first one since 2016), the Riksbank recently also indicated that interest rates could be reduced three more times by the end of 2024.

This announcement led to immediate reactions in the currency market.

The euro-krona exchange rate increased to 11.33 from 11.29 (meaning that you now need 11.33 kronor to buy one euro), while the pound-to-krona exchange rate rose to 13.40 from 13.34.

Despite this, some analysts believe the Swedish krona is poised for a rebound in the year ahead.

The krona’s long downward trend

In a recent report, Rory Fennessy, a senior economist at the advisory firm Oxford Economics, pointed out that the Swedish krona appeared undervalued.

Despite its underlying strengths, such as consistent trade surpluses (where Sweden’s exports exceed its imports), high productivity, solid public finances, and a credible central bank, the krona has been on a long downward trend.

Identifying a single reason for this persistent weakness over the past decade is a challenging affair.

Negative interest rates, which the Riksbank implemented in the late 2010s to achieve its inflation target, are often mentioned as an important factor.

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However, this explanation mainly accounts for the weakness against the US dollar. Around the same time, the European Central Bank (ECB) also had negative rates, yet, as Fennessy pointed out, the krona still weakened against the euro.

More recently, the Riksbank’s response to the inflation surge since 2021 has further weakened the krona.

“We think the Riksbank was slow to respond to the recent inflation shock. As late as February 2022, the Riksbank signaled in its official forecast that the policy rate would stay at zero until 2025. But by this point, broad price pressures were gaining momentum in the economy,” Fennessy said.

“At the next policy meeting in April 2022, the Riksbank started the hiking cycle, contrary to its earlier guidance, and has been playing catch up since.”

The currency roller coaster and interest rate cuts

This year, the Swedish krona has experienced significant ups and downs against major currencies.

According to Oxford Economics, this volatility has been caused by a mix of global factors and domestic events in Sweden.

Without these factors, the krona would likely have been more stable. 

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While inflation in Sweden is near the Riksbank’s target, the high real interest rates are hurting economic activity.

Therefore, experts expect the Riksbank to continue cautiously lowering interest rates, using this as the main tool to manage the exchange rate.

A year of gains for the Swedish krona?

After a period of significant volatility, the Swedish krona is expected to gain support from decreasing domestic risks and positive external developments, according to Oxford Economics.

“The Nordic currencies have been highly volatile this year. The Swedish krona and Norwegian krone both depreciated sharply until May but have since regained much of their losses,” said Fennessy.

“We believe both the Swedish krona and Norwegian krone will appreciate gradually this year and over the medium term, but there may be bumps along the way due to external factors and unexpected data.”

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Earlier this year, the Swedish krona weakened due to stronger-than-expected US economic activity and inflation. This led to changes in interest rate expectations and negatively affected Nordic currencies.

However, recent US economic data has been weaker, and Nordic central banks have adopted stricter policies to protect their exchange rates.

According to Oxford Economics, coordinated interest rate easing across these regions should help reduce external pressures.

The road ahead

Since early May, the Swedish krona has strengthened by 4.5 percent against the euro, even though the Riksbank cut interest rates before the European Central Bank did.

At the same time, lower-than-expected US inflation and weaker economic activity have reduced expectations for interest rate hikes in the US.

These changes in global economic data and risk sentiment have been among the main drivers of the krona’s recent ups and downs.

According to the Oxford Economics report, the Riksbank has regained its credibility now that inflation is near its target, and the next challenge is for the bank to ease its monetary policy at a pace that supports the economy without causing too much volatility in the currency.

This balance is crucial for maintaining economic stability, Fennessy noted.

Looking ahead, the economic advisory firm expects that the krona will hold onto its recent gains and could appreciate by another 2 percent against the euro in 2025 – as long as there are no unexpected economic shocks.

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