Swedes balk at social cost of joining EU EU calls for a cut too far from Sweden Swedes balk at biting the EU bullet

"WITHOUT immediate economic support measures, the municipality will be threatened by something akin to economic meltdown. The effects of such a development for the region and the country can only be imagined."

It sounded like an appeal from Liverpool or Lille or some other traditionally hard-pressed area, but this message was sent to the Swedish government last week from Malmo, Sweden's third biggest city. The leaders of Malmo's municipal council, Ilmar Reepalu and Percy Liedholm, said its 1994 budget deficit was 1.3bn kronor (£110m) and, though falling, would still be 800m kronor this year.

Sited on the Sound opposite Copenhagen, Malmo has 235,000 inhabitants, a much-admired 14th-century church, and a football team that regularly qualifies for Europe. Yet it has slipped into financial crisis since recession struck Sweden in 1990, and its problems reflect the deeper malaise gripping the nation as it adjusts to membership of the European Union.

Two choices face Sweden in the next five years. Either it will become a member of a European "inner core", led by Germany and France, that proceeds to monetary and political union, or the Swedes will decide that the price for joining that lite is too high in terms of the surgery that would have to be performed on their world-famous welfare state.

Relatively low economic growth and productivity, lavish welfare payments and a bloated and expensive public sector have burdened Sweden with budget deficits and public debts so large that the country seems unlikely to be able to join the inner core countries when they move to a single currency, probably after 1999. Unless, that is, Sweden attacks the root of the problem: a system in which two out of every three Swedes, whether state employees, pensioners, students, parents, children or the unemployed, depend on the state for a large part of their income.

In last September's elections, a coalition of voters with a stake in the status quo kicked out the conservative Moderate Party, which had begun to restructure the welfare state, and returned the Social Democrats to power. To ask the party that created the welfare state to turn against its strongest supporters is, as the Swedes might say, like asking a crayfish to vote for August -which is when the crustaceans are traditionally eaten in Sweden.

The importance that Swedes attach to consensus politics and social harmony is also so high that many people wonder if the economic sacrifices needed for currency union would not prove too divisive. Even now, unemployment is running at 8 per cent, or 13 per cent if people on various government- supported working and training schemes are included.

Big business has long argued for scaling down the welfare state and integrating Sweden more closely into Europe. Even before last November's referendum on EU membership, Volvo, Electrolux and other Swedish multinationals had shifted most of their production and employment abroad.

Swedes have not yet begun to debate the merits of a single currency at anything like the level that Britain is experiencing. But many Swedes are suspicious of closer integration - as was shown during the run-up to the referendum, when the fear that Brussels might forbid Swedish men to indulge in their centuries-old habit of taking moist oral snuff was exploited to great effect by the No campaign.

Then there is the neutrality issue. Sweden will have observer status in the Western European Union, the EU's embryonic defence arm, but a poll last week showed 70 per cent of Swedes opposed to abandoning the 180-year tradition of neutrality.

Some of the EU's most ardent integrationists are already worried that Sweden may emulate Britain and Denmark and try to stay on the sidelines with special arrangements for itself. In remarks that raised eyebrows in government circles in Stockholm, the European Commissioner for competition policy, Karel van Miert, warned this month that Sweden and the two other new members, Austria and Finland, must not go down the British and Danish road. "You should not be standing in the Community with one foot in and one foot out," he said.