Sweden has maintained a policy of neutrality throughout the 20th century, avoiding both world wars and remaining nonaligned during the postwar period. Unlike Denmark and Norway, Sweden declined membership in the North Atlantic Treaty Organization (NATO) in 1949, wanting to remain outside of all military alliances. Moreover, Sweden's decision not to join the European economic alliance was based on a concern that membership would undermine its traditional policy of neutrality. Sweden has, however, participated actively in many international organizations, including the United Nations (UN), the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the General Agreement on Tariffs and Trade (GATT). With the end of the Cold War and the necessity to strengthen its economy, Sweden officially joined the European Union (EU) on 1 January 1995.
Persson's new government will depend on parties skeptical of membership in the EU, opposed to Swedish participation in the European Monetary Union (EMU), and opposed to closer ties with NATO. Along with Denmark and Britain, Sweden has chosen to remain outside of the EMU but reserves the right to join later. Sweden is committed to keeping its economy and currency closely tied to the EMU. With the economic improvements of recent years, it is now in substantial compliance with the criteria for EMU participation. Sweden has historically allowed its currency to depreciate significantly in order to maintain international competitiveness. EMU membership would close that option.
Sweden has modified its nonalignment policy to include participation in the NATO-sponsored "Partnership for Peace." As NATO expands into central Europe, Swedes have discussed closer ties to the alliance. While a majority of Swedes support NATO membership, the Left and Green parties, as well as more traditional SAP circles, are opposed. Persson will continue to maintain an activist role in peace-keeping operations, assertive diplomacy, and generous foreign aid programs.
Persson first took a moderate stance on the U.S. Iraq policy, but in March 2003, he called for a demonstration against the war in an attempt to win back the support of his own party's left wing. In 2001–2003, Sweden held the presidency of the Barents Euro-Arctic Council, a cooperation of Nordic and Baltic Sea countries. During that period, the focus on the economic development of the region based on its rich natural resources was emphasized.
After his electoral triumph in September 2002, Persson announced that Sweden would hold a euro referendum in September 2003. His own party continued to be divided and Persson clamped down on anti-euro notables in his cabinet. The public, however, also seemed skeptical and support for the euro hovered at 34% in the late spring of 2003, signaling that the referendum might end in defeat. In general, in European affairs, Sweden has been supportive of enlargement and of the EU convention although its main concern is to create a more transparent and accountable governance system.