• Sweden edition
 
SPONSORED ARTICLE
Why Sweden has had a good crisis

Why Sweden has had a good crisis

Published: 02 Mar 2012 11:26 GMT+01:00
Updated: 02 Mar 2012 11:26 GMT+01:00

As the financial crisis continues to hold much of the world in a vice-like grip, Sweden has become one of few pockets of resistance, where the impact of the recession has been felt less than elsewhere, having learnt vital lessons from its own recent past.

However, although government bail-outs, high unemployment and irresponsible consumption have been more rare in Sweden than in many of its European counterparts, it doesn't mean there is room for complacency just yet, analysts warn.

The banking crisis of the early 90s would look familiar to many in Ireland, the UK and Spain. Sweden’s economy, up until then booming, was overstretched and fell into a downward spiral that only ended when the government stepped in to help out the banks, in return for a part share in the institutions themselves. It was an extreme measure, but one that paid off.

Crucially, the politicians acted swiftly and with the broad support of the electorate. This ongoing consensus, regardless of which party is in power has been a contributing factor in the stability of the economy ever since.

"The lesson from the crisis in the 1990s that the fiscal house must be kept in order is certainly one of the reasons why Sweden has been less badly hit this time round, but there are other factors," says Lars Calmfors, professor of economics at Stockholm University.

Referring to the role of the banks, Calmfors suggests that luck has played as a great a role in avoiding a serious financial crisis. Although the country has undergone a housing boom, the banks did not expose themselves to the same extent as, for example, in the US. That doesn’t mean that they have not taken risks though.

"We haven't had a crisis like those in Ireland, Spain or the UK, partly because the banks here acted more cautiously after the early 1990s crash. Swedish banks did lend recklessly in the Baltic economies, but they just managed to avoid a disaster, mainly because of the small size of those economies. Nobody really understood the risks the banks were taking there at the time and in hindsight there could have been much worse consequences for Swedish banks and thus for the Swedish economy," argues Calmfors.

If luck played its part in the banking sector, the way successive governments more recently have dealt with the issue of government debt is much more down to good management.

"The government has avoided a serious fiscal crisis which is very important. We went into the crisis in 2008 in a stable and reasonable shape with quite a large fiscal surplus and that has given room for manoeuvre. There has been no need for fiscal tightening during the crisis as in many of the Eurozone countries with high government debt," says Calmfors.

Sweden’s decision to stay out of the Eurozone and let the krona float freely has also contributed to the so-called soft landing.

In the 1990s crisis, politicians aiming for stability tried to keep the exchange rate steady. The attempt failed and the krona has been allowed to float ever since. During the recession in 2009-09, that came in handy. As demand for Swedish products fell, so did the demand for the Swedish krona. The exchange rate then depreciated heavily, making products cheaper for foreigners. That helped keep net exports, and thus aggregate demand, up.

"This helped to cushion the effect of the large downturn downturn in 2008-09," argues Calmfors.

However, it is not all bright news. Sweden is traditionally highly dependent on exports, leaving the economy at the mercy of the fluctuations in global markets.

"This time though it will be much tougher because the krona has not depreciated. Instead it has appreciated which will hurt the Swedish exports," says Calmfors.

So the warning signs are there and Sweden is nowhere near out of the woods yet as the economy struggles on several fronts.

"The labour market will be a problem looking ahead," says Calmfors.

"We already have an unemployment problem. Long-term unemployment, which is already high, will certainly rise even more now when output growth falls due to the downturn in the European economy.

It is less clear what will happen to long-term growth. Sweden had a long period of high growth since the crisis in the 1990s; between 1995 and 2006 GDP on average grow annually, by about 1% more each year than in the Eurozone.

"But it is very hard to predict whether we can achieve that kind of growth again after the current downturn. There are not, however, any clear signs that long-term growth will go down substantially, but we just don't know yet,” he adds.

There remains a sense of optimism though, largely down to a combination of people from bankers to politicians and the man and woman on the street, all of whom have contributed to Sweden’s current robust economy.

"What we all learnt in the 1990s is a crucial factor. We had a fiscal situation similar to what Spain, Portugal and the UK have now. We realised that in normal times if you can shore up your finances you have room for manoeuvre later during a recession," says Professor Calmfors.

"It looks like there will be a European downturn, which will inevitably affect Sweden, with unemployment set to go up and GDP will barely grow this year, so we are in recession, but hopefully it will not be that deep," he argues.

The economic crisis in Sweden in the early 1990s is looked back on by many as the cloud with a silver lining, acting, in the opinion of many analysts as a necessary wake-up call. It helped forge a broad political consensus on the need for fiscal discipline that has served Sweden well and which continues to draw admiring glances from abroad. 

Article sponsored by Stockholm University

Related links:

The Local (news@thelocal.se)

Don't miss...X
Left Right

Your comments about this article

18:18 March 2, 2012 by oldonpalouse
Great commentary in excellent english. Thank you.

One point: The article predicts a 'second downturn' or 'double dip' recession. A reputable U.S. economic entity that has been correct in the past at predicting downturns recently come up with the same message (CNN,FOX). It will be masked over here by the current presidential race but business and the media seem aware of it.

Hope the politicians notice!
13:08 March 14, 2012 by dannywh
I don't agree! I think it is a myopic viewpoint from a product of the protectionist society that Sweden is. How can you, for instance, compare the housing markets of Sweden and the UK in comparible terms. They are vastly different in size but, more importantly, 90% (I believe that is the figure) of Swedes rent from "government owned" housing. In the UK, the vast majority "own" their own homes through "higher purchase"via the banks, and those that do rent, rent from "owners" who have loaned from banks. Simples! Isn't it always better to compare (smug) apples with apples???????
12:52 March 22, 2012 by brash
"Good" crisis? The headline should read "mild" crisis.

Cheers!
15:06 March 28, 2012 by minzi
It is always good to keep positive to move forward, but the problems have to be solved. In my view, what if Sweden leaves EU, will it save a lot of cost to run being a memeber of EU?
Today's headlines
Zlatan scores hat trick in PSG thrashing
Photo: AP

Zlatan scores hat trick in PSG thrashing

Champions Paris Saint-Germain thumped Saint-Etienne 5-0 as Bordeaux saw their 100 percent record at the start of the Ligue 1 season ended on Sunday with a 1-1 draw against Bastia. READ  

Sweden reports suspected case of Ebola
Photo: Fredrik Sandberg/TT

Sweden reports suspected case of Ebola

Officials at a Stockholm hospital reported that they had found a suspected case of the Ebola virus on Sunday night. READ  

Flash floods cause chaos in southern Sweden
A car in Malmö on Sunday. Photo: Stig-Åke Jönsson/TT

Flash floods cause chaos in southern Sweden

The Skåne region of southern Sweden was hit suddenly by extreme rains on Sunday morning, with houses flooded, buses evacuated, and people having to swim to safety from their cars. READ  

Fit-again Ibrahimovic set for PSG return
Photo: TT

Fit-again Ibrahimovic set for PSG return

Zlatan Ibrahimovic is set to make his comeback for Paris Saint-Germain against Saint-Etienne in Ligue 1 on Sunday after two weeks on the sidelines with an abdominal muscle injury. READ  

Military raises readiness level over Ukraine
Swedish soldiers in Afghanistan. File photo: Magnus Lindstedt/Armed Forces

Military raises readiness level over Ukraine

The Swedish military said Saturday it had increased intelligence gathering and called in extra staff to its headquarters over the crisis in Ukraine, as the prime minister compared Russia's current behaviour with the Cold War. READ  

Police injured in anti-Nazi protest in Stockholm
Police and demonstrators on Saturday. Photo: Fredrik Persson/TT

Police injured in anti-Nazi protest in Stockholm

Swedish police said three officers were injured Saturday as they faced a crowd of thousands protesting against a neo-Nazi rally in central Stockholm. READ  

Boy receives cancer vaccine by mistake
Photo: Hasse Holmberg/TT

Boy receives cancer vaccine by mistake

A boy scheduled to be vaccinated against mumps, measles, and rubella instead received a vaccine against cervical cancer. His family has now reported the blunder for inspection. READ  

Sweden grants additional funds to jobs agency
Photo: Bertil Enevåg Ericson/TT

Sweden grants additional funds to jobs agency

The Swedish government has announced that it will increase funding to the jobs agency (Arbetsförmedlingen) in 2015, primarily to cover personnel costs but also to prevent long-term unemployment. READ  

Police 'powerless' against street racers
Police on E4 highway. Photo: Johan Nilsson/TT

Police 'powerless' against street racers

Stockholm police said they were powerless to react when streetracers took over at "insane speeds" on a large highway on Friday night. READ  

Saab carmaker wins receivership
Photo: Björn Larsson Rosvall/TT

Saab carmaker wins receivership

After initial rejection, a Chinese-owned company set up to take over Saab's assets after the troubled Swedish carmaker's bankruptcy said on Friday it had succeeded in being placed in receivership. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
Tech
Sweden's highest peak to lose title next year
Politics
How immigration became a key election issue
Society
Brit's life in Sweden becomes BBC radio show
Gallery
People-watching August 27
Gallery
Top ten false friends in Swedish
Blog updates

25 August

Hit och dit, här och där (The Swedish Teacher) »

" Hej igen! A common challenge for Swedish language students are the location adverbs hit/här, dit/där, hem/hemma etc. Some of the location adverbs come in two versions. We should use one type of location adverb when we use a verb describes where we are, and we should use the other type of location adverb when we the verb..." READ »

 

25 August

The Dollar Store (Blogweiser) »

"A dollar store in Sweden. Blog post: http://t.co/tNuuvcP1q0 #USD #greenbacks #sweden #sverige pic.twitter.com/RHFAYf7U1k — Joel Sherwood (@joeldsherwood) August 23, 2014 There’s a chain here in Sweden called The DollarStore. This name always stood out to me in a country where they don’t use dollars. I went there for the first time this weekend. They actually accepted greenbacks..." READ »

 
 
 
National
Roma advocate scoops Wallenberg prize
Society
Meet the man who made a Swedish store recall its high heels for kids
Business & Money
'How I came to run my own business in Sweden'
Politics
Expert explains why Sweden's election oozes uncertainty
National
City plays Schindler's List theme at Nazi rally
Society
For Stockholm Fashion Week, here's the A-Z of Swedish fashion
National
'Amnesiac' man avoids deportation for ten years
Gallery
Princess Estelle through the years
Business & Money
Swedish city all set for six-hour workday trial
Business & Money
Five golden rules for the Swedish job hunt
Sponsored Article
Graduates: Insure your income in Sweden with AEA
Gallery
People-watching August 22-24
National
Armed royal guards caught (very) drunk on the job
National
Sweden orders textbook on Roma discrimination
Gallery
Violent anti-Nazi demonstrations in Malmö
Society
A closer look at Sweden's five official minority languages
Gallery
See the destruction from the southern Sweden floods
Politics
'Sweden Democrats hold the key to elections'
Society
Swedes celebrate first day of smelly fish season
Sponsored Article
Find out what gives this Swedish school executive appeal
Sponsored Article
Introducing...Your finances in Stockholm
Sponsored Article
Introducing...Housing in Stockholm
Latest news from The Local in Austria

More news from Austria at thelocal.at

Latest news from The Local in Switzerland

More news from Switzerland at thelocal.ch

Latest news from The Local in Germany

More news from Germany at thelocal.de

Latest news from The Local in Denmark

More news from Denmark at thelocal.dk

Latest news from The Local in Spain

More news from Spain at thelocal.es

Latest news from The Local in France

More news from France at thelocal.fr

Latest news from The Local in Italy

More news from Italy at thelocal.it

Latest news from The Local in Norway

More news from Norway at thelocal.no

732
jobs available
Swedish Down Town Consulting & Productions
Swedish Down Town Consulting & Productions is an innovative business company which provides valuable assistance with the Swedish Authorities, Swedish language practice and general communications. Call 073-100 47 81 or visit:
www.swedishdowntown.com
PSD Media
PSD Media is marketing company that offers innovative solutions for online retailers. We provide modern solutions that help increase traffic and raise conversion. Visit our site at:
http://psdmedia.se