Abstract
Swedish decision-makers opted out of the European banking union (EBU) despite the large cross-border presence of Swedish banks in Estonia, Latvia, and Lithuania. The three Baltic states, on the other hand, have already joined the eurozone and are part of the EBU. This article identifies three important domestic considerations that have shaped Sweden’s position. Firstly, Swedish decision-makers were concerned that member states outside the eurozone would not fully participate in EBU decision-making. Secondly, they were reluctant to pay for the recapitalisation or resolution of distressed non-Swedish banks in other EU countries. Thirdly, Sweden preferred to retain regulatory autonomy in crisis management. The article relates Sweden’s position to the overall cautious approach of other non-eurozone members such as the UK and Denmark. Nevertheless, it highlights the enhanced role of the European Central Bank (ECB) in banking supervision not only for eurozone insiders such as Estonia, Latvia, and Lithuania but also for member states outside the Eurozone such as Sweden.
Highlights
Countries in Europe’s Nordic‒Baltic region such as Sweden, Estonia, Latvia, and Lithuania have developed closely integrated banking systems and extensive supervisory cooperation
We investigate the tension caused by the different paths taken by Sweden and the Baltic states regarding membership in the eurozone and European banking union (EBU)
We show that the enhanced role of the European Central Bank (ECB) in banking supervision applies to Swedish cross-border banks despite the opt-out
Summary
Countries in Europe’s Nordic‒Baltic region such as Sweden, Estonia, Latvia, and Lithuania have developed closely integrated banking systems and extensive supervisory cooperation. By contrast, has remained outside the EBU It has expressed concerns about being outvoted in the Single Supervisory Mechanism (SSM) decision-making framework, while being liable for bank recapitalisations in other European Union member states. We seek to explain Sweden’s decision not to join the EBU, while the three Baltic states did so, and the consequences of that decision for the Nordic‒Baltic regional banking system. We highlight the enhanced role of the European Central Bank (ECB) in banking supervision for eurozone insiders such as Estonia, Latvia, and Lithuania and for member states outside the eurozone such as Sweden. We draw on primary and secondary sources such as central bank and supervisory agencies’ policy briefs, research notes by the Swedish and Baltic authorities, central bankers’ speeches, relevant press coverage, and semi-structured interviews with decision-makers
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