Linking an economy more closely to the European Community can be an expensive proposition. That's what Finland, Norway, and Sweden are finding out. They are staggering under crippling double-digit interest rates and tough budget cuts as their governments try to lower inflation rates to make the ec tie-up easier. At the same time, their weak currencies are being sideswiped by European financial markets skittish about the upcoming French vote on the Maastricht Treaty.
The first currency to crack was the Finnish markka, which was devalued by 13% on Sept. 8, setting off shock waves. In two moves, Sweden's central bank pushed its overnight lending rate to commercial banks to 75%, driving up short-term interest rates to 20%. Similar rates in Norway hit 22%.
The next few months will test the resolve of Norwegian and Swedish politicians to stick to their guns amid widening economic fallout. Unemployment is soaring, while in Sweden, plans are on track to cut social-welfare spending. Meanwhile, no one expects a payback any time soon from the ec linkup.