• 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)

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
National
Teens in intensive care after school 'initiation'
Photo: Peder Skrivares school

Teens in intensive care after school 'initiation'

School inspectors are investigating after an initiation ceremony at a high school in Varberg in south west Sweden left four girls in hospital. READ  

National
Pirate Bay Swede 'mistreated' in jail
Peter Sunde. Photo: TT

Pirate Bay Swede 'mistreated' in jail

The brother of Pirate Bay co-founder Peter Sunde has questioned the conditions of his brother's Swedish jail, slamming both the institution and the guards. READ  

Elections 2014
Fresh election fears in divided Sweden
Sweden Democrat leader Jimmie Åkesson may not support a Social Democrat budget. Photo: TT

Fresh election fears in divided Sweden

UPDATED: The leaders of Sweden's main political parties have been called to parliament as speculation grows that the Sweden Democrats could hold the key to new elections. READ  

Presented by Stockholm Business Region
Introducing... the Stockholm collection
Photo: Imagebank Sweden

Introducing... the Stockholm collection

Moving to Stockholm, or just dreaming about it? Either way, this is your ultimate guide: for housing, finances, insurance, business, and so much more. READ  

In Pictures: The Local's Property of the Week
Photo: Fastighetsbyrån

In Pictures: The Local's Property of the Week

Time for some luxury this week - we're heading to a sprawling Eskilstuna property with a location and view to die for. READ  

National
Row over viral 'Nazi receipt' in Swedish shop
A cashier in a Coop supermarket: Photo: TT

Row over viral 'Nazi receipt' in Swedish shop

A photo of a till receipt with the Nazi slogan "Sieg Heil" printed on it has gone viral in Sweden, with supermarket chain Coop launching an internal investigation. READ  

Society
Sweden tops 'financial well-being' rankings
Sweden's family-friendly policies contribute to well-being. Photo: TT

Sweden tops 'financial well-being' rankings

Swedes have fewer money concerns than people from any other European country, according to the latest major report on global well-being. READ  

National
King Carl XVI Gustaf 'unhurt' after crash
The King of Sweden. Photo: TT

King Carl XVI Gustaf 'unhurt' after crash

UPDATED: Sweden's King Carl XVI Gustaf has been involved in a car accident but is unhurt, the Royal family's press office has confirmed to The Local. READ  

Elections 2014
Migration minister calls Feminists 'a dark force'

Migration minister calls Feminists 'a dark force'

Sweden's Migration Minister has said in a Facebook post that both the Sweden Democrats and the Feminist Initiative parties were "dark, gloomy, and destructive forces". READ  

The Local List
Ten Swedish designs that made life better
Playsam

Ten Swedish designs that made life better

Sweden has produced an indecent number of design classics. We take a look at some of the best - from toys to furniture, fabric designs to telephones, packaging to super-safe headwear. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
Gallery
Property of the week - Eskilstuna
Sponsored Article
How to start a business in Stockholm
Society
How I became a surf blogger when I moved to Sweden
Gallery
People-watching: September 13th
Society
Why is Stockholm's Södermalm so cool?
Blog updates

17 September

Deep election analysis (Blogweiser) »

"You think you’re bad? Well I’m American. http://www.youtube.com/watch?v=NFbomLID0vU Deep deep analysis on Swedish election results. Vlog post: https://t.co/tjQgfa5Yie #svpol #val2014 #politics pic.twitter.com/oEK5ADFT8L — Joel Sherwood (@joeldsherwood) September 17, 2014 " READ »

 

15 September

Liten, litet, små & lilla (The Swedish Teacher) »

"Hej igen! Have you ever been confused about when to use “liten”, “litet”, “små” and “lilla”? Today I’m going to sort out how use the adjective “liten” (small) and the different forms of it. Liten or litet? “Liten” is the form we will use when referring to a noun with the gender “en”. For example: Min pappa har en..." READ »

 
 
 
Gallery
People-watching: September 11th
Gallery
People-watching: September 13th
Politics
Five possible election outcomes
Politics
Sweden elections: How do they work?
Politics
Sweden elections: Who's who?
Lifestyle
What's on in Sweden
Gallery
Property of the week - Hornstull, Stockholm
Analysis
Five differences between the UK and Sweden
Welshman Jonny Luck is now a chef in Sweden
Society
How I opened my own restaurant in Sweden's Malmö
Sponsored Article
Stockholm tech fest: relive the magic
Gallery
People-watching September 8th
Photo: TT
Politics
Feminists fight for first seats
Politics
Immigration cut push from Sweden Democrats
Sheryl Sandberg says women have "low expectations"
Tech
Facebook exec talks women's limits in Swedish business
Politics
Left Party calls for justice and equality
Politics
Green Party wants 'better world' for kids
Lifestyle
The five best Swedish songs of the month
Sponsored Article
Introducing… Insurance in Stockholm
National
Huge clear up underway after Skåne floods
Politics
Sweden's Alliance reveals full manifesto
Tech
Sweden's highest peak to lose title next year
Sponsored Article
Graduates: Insure your income in Sweden with AEA
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

856
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
If you want to drink, that’s your business.
If you want to stop, we can help.

Learn more about English-language Alcoholics Anonymous in Sweden. No dues. No fees. Confidentiality assured.
AA-EUROPE.ORG/SWEDEN