Lessons from Sweden, the silent European Tiger

Maybe Sweden has something to teach other nations when it comes to Economics? Beside the exotic midnight sun, it’s extremely organized and somewhat dull society, Sweden has during the last years proven to be the European Tiger ruled by the only Finance Minister with a ponytail. As our site is registered in Sweden, we are proud to bring you the recipe of a prosperous Economy. Washington Post reports on the Swedish wonder, although they forgot about the future, ie the Swedish deteriorating education.

This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe. And compared with the United States, unemployment peaked lower (around 9 percent, compared with 10 percent) and has come down faster (it now stands near 7 percent, compared with 9 percent in the U.S.).

Some of the reasons for the Swedish success are as unique to the nation as its citizens’ predilection for Abba, pickled herring and minimalist furniture. But there are plenty of lessons for other countries as they struggle to find a pathway toward prosperity.

The overarching lesson the Swedes offer is this: When you have a financial crisis, and Sweden had a nasty one in the early 1990s, learn from it. Don’t simply muddle through and hope that growth will eventually return. Rather, address the underlying causes of the crisis to create an economic and financial system that will be more resilient when bad times return.

Here is what that means in practice. Call them Sweden’s five lessons for a crisis-stricken nation.

1. Keep your fiscal house in order when times are good, so you will have more room to maneuver when things are bad.

In 2007, before the recession, the U.S. government had a budget deficit equivalent to 3 percent of its economy, as did Britain. Sweden, meanwhile, had a 3.6 percent surplus.

So when the recession hit, that surplus gave its government a cushion in the downturn and it didn’t run up the huge debts that in other advanced nations have now created the risk of a future crisis. Sweden’s gross debt is set to reach 45 percent of the size of its economy this year, as the United States closes in on 100 percent.

This was a lesson Sweden learned from its early 1990s crisis, in which a collapse in commercial real estate and the banking sector was exacerbated when the budget deficit rose to such high levels that the country had trouble borrowing money and the value of its currency collapsed.

The nation set a goal of averaging a 1 percent budget surplus over time and held to it — which left the government with lots of flexibility to engage in deficit spending when the economy went south.

“If you don’t have a fiscal problem, you have more degree of freedom,” said Stefan Ingves, governor of Sweden’s central bank, the Riksbank, in an interview. “This time around, the issue was not ever even close to being about solvency.”