Do it the Swedish way
Sweden dealt with a very hard economic reality in the early 90′s. Bad banks were created, hard measures adopted, but out of that mess, was born a very successful economy. What lessons can be taught by the Sweden. By Lars Calmfors via Voxeu.
Several Eurozone countries are currently struggling with acute fiscal crises (eg Corsetti and Müller 2012). At the same time, the new fiscal compact is an attempt to beef up fiscal frameworks for the future. In order to judge both the fiscal consolidation efforts and the reforms, comparisons with economies that have in the past carried through such processes successfully are helpful.
A prominent example is Sweden, which stands out among the EU countries for its strong public finances. At the trough of the recession in 2009, Sweden had a fiscal deficit of only 0.9% of GDP. In 2011, it even showed a small surplus. This is a stark contrast to the fiscal crisis that Sweden experienced in the 1990s. The lessons from Sweden are diverse. They show that a determined policy can indeed turn around the fiscal situation. But they also highlight that fiscal consolidation will be very painful in the Eurozone crisis countries and that the fiscal reforms underway may not be the optimal ones. Full article here.