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Krona slides further on Baltic economy worries

TT/The Local · 28 May 2009, 16:38

Published: 28 May 2009 16:38 GMT+02:00

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In just the last few days, the krona has slipped by 40 öre ($0.05) against the euro and 30 öre against the dollar, and experts are convinced the cause has a simple explanation.

“You can sum it up in one word: Baltics,” said Robert Bergqvist, head economist at the SEB bank, to the TT news agency.

However, the latest wave of concern about the fate of the Baltic countries likely originated back in Sweden.

The Riksbank’s decision on Wednesday to strengthen its foreign currency reserves by borrowing 100 billion kronor is being interpreted by some as a preparation for a devaluation first in Latvia, and then in the other Baltic countries.

Torbjörn Becker, head of the SITE research institute at the Stockholm School of Economics, thinks a currency devaluation in Latvia is likely.

“They’ve invested a lot of political capital to maintain their fixed exchange rate, but in the long term it’s unsustainable,” he said.

Meanwhile, the head economist at Swedbank, Cecilia Hermansson, believes a devaluation in Latvia will depends on an upcoming June decision from the International Monetary Fund about whether or not to grant the country another emergency loan.

Nevertheless, neither the central bank of Latvia or Lithuania have indicated they have any plans to devalue.

Currency devaluations in the Baltic would have negative effects for Swedish banks, especially Swedbank and SEB, which hundreds of millions of kronor in loans in the region.

That may be one explanation as to why the krona continues to weaken on international currency markets.

Story continues below…

Pressure on the krona has also come from faulty information in the international business press which claim that Sweden’s National Debt Office (Riksgälden) plans to sell Swedish kronor.

In actuality, the Debt Office plans to lend 100 billion kronor worth of foreign currency to the Riksbank to strengthen the central bank’s reserves after having made substantial dollar-denominated loans to Swedish banks throughout the financial crisis.

TT/The Local (news@thelocal.se)

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Your comments about this article

20:36 May 28, 2009 by spy
"You can sum it up in one word: Baltics," said Robert Bergqvist, head economist at the SEB bank, to the TT news agency.

I think you'll find at wasn't "Baltics" he said it was something mildly profane.

I can sympathise with the guy - he had obviously had a bad day at after losing a shed load of funny-money for the SEB.

Other than that the article was very clear and accurate.
20:56 May 28, 2009 by mkvgtired
I have a feeling the financial crisis will push the remaining countries not on the Euro (with the exception of the UK) into hurriedly adopting the Euro. If this happens Sweden would lose its autonomy over its currency.
21:18 May 28, 2009 by spy
Either that or they will just start a new game of monopoly and issue it all over again.
23:09 May 28, 2009 by EngGent
It's autonomy has not served it well over the last 25 years, showing a clear lack of staying power vs. the Euro, the Dollar and the Pound. Remember currency fluctuations are all about confidence in the said currency and there just has not been much confidence in Sweden's fiscal prospects for the last 20-25 years.
09:07 May 29, 2009 by ChrisPDX
I have not lost faith in Sweden. This is a wait and see game. Sweden always does what it does best. It stays neutral and under the so called radar.

This Krona-Euro is all hype.

The SEK isn't down that much.....But if it is?.......SO the Swedes stay home this summer and welcome all the tourists to their shores. hehehe

You go Sweden! Rah Rah!
14:59 May 29, 2009 by karex
Alas, were it so simple as a matter of faith in Sweden. It's a matter of faith in the Krona. Ever since countries de-indexed their currencies from gold they all depend on faith alone now, including the Dollar and the Euro... Even if by some miracle 100% of the Swedish population were to have 110% faith in the Krona, it's a small country. Compare for example to faith by several hundreds of millions in the Dollar.

Staying home to wait for tourists unfortunately won't help Swedish industtry and business cover the expensive currency conversion costs of trying to do business with other countries. Costs which are high regardless of an economic downturn or upswing. This is just one example of a multi-faceted situation.
10:24 September 16, 2009 by IrvingD
The Federal Reserve is being hailed as the prime mover in the bank bailout to avoid more bank failures, even though banks are still failing. Some things nobody knows - the Federal Reserve aren't part of the government; it's actually a private group. There is little or no Congressional oversight - and this is who prints our money. Health care reform and the gay marriage debate are great distractions, but the unchecked powers of the Fed are more or less unknown to the people. Perhaps an audit and reigning in of the Federal Reserve would be a good idea, before Wall Street gets another pay day.
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