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Borg: EU debt crisis not just a eurozone issue

AFP/The Local · 13 Oct 2011, 10:28

Published: 13 Oct 2011 10:28 GMT+02:00

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"I don't think that we can see the European banking system as just a eurozone banking system," said Borg, whose country is a member of the European Union but not the single currency club.

Sweden, considered to have some of the strongest public finances in Europe, "will not be unaffected by a general European crisis and it is in our interest to be part of a European solution," he told AFP, insisting the Scandinavian country needed a seat at the table where a solution is hammered out to the turmoil.

"We cannot see a recovery in the world economy if we do not see a stabilisation of the European banking system," he insisted.

Borg, who has been hailed as the mastermind behind Sweden's strong economy that in 2009 bounced back from a deep recession, pointed out that the country has "a very strong balance sheet in our public sector" and a central bank with "the muscle and strength to deal with situations that occur".

Although Swedish banks also generally boast strong fundamentals, the country's export-reliant economy means they are very dependent on liquidity from the dollar and euro markets, he explained.

"There is a vulnerability that we have such a high degree of currency financing... (So) if we don't get stability in the European banking system that could also cause big problems in Sweden," Borg said.

Europe's banking system is being hammered in the current crisis as eurozone leaders scramble to boost the European Financial Stability Facility (EFSF) to a $440 billion lending capacity.

Borg meanwhile insisted that to end the turmoil Europe will not only need to dramatically write down Greece's towering debt and significantly strengthen the EFSF, but also create a "pan-European solution for a backstop," for the serious cases where neither the private market nor national governments could help recapitalise floundering banks.

The best option, he suggested, would be to use the European Investment Bank

since "it is actually in existence already and can hit the ground running (and) if you're going to convince European taxpayers (to contribute) there has to be some leverage".

In addition, he advised, "we also need to see a very stringent dealing with the bank restructuring, because if Swedish, German and British tax payers are going to put tax money into other countries' banks, (they) are going to want to safeguard their money."

For an idea on how to handle the turbulence, he said Europe should look to Sweden's handling in the early 1990s of its deepest economic crisis since the

Depression, which followed years of crazed property speculation and deregulation of its credit markets.

The Swedish government took control of its struggling banks in exchange for emergency aid, thus making the taxpayers who were footing the bill owners of the ultimately valuable assets.

Once the crisis was over, the Swedish state sold off nearly all of the nationalised bank investments, getting back most of the money that had been pumped into the sector.

Story continues below…

"One of the core lessons (from the 1990s crisis) is that you should safeguard banks and not bank owners. You need to recapitalise banks while diluting the previous owners," he said, stressing the importance of avoiding situations like the US rescue of AIG, which then proceeded to pay out huge bonuses and dividends.

By following the Swedish recipe and acting "in a cool and conservative manner ... it's very likely you will get your money back," he said, voicing optimism that the current crisis can be solved.

"There are many difficult decisions that need to be taken in the next few weeks (in Europe), but I think we are starting to see the components of a solution," he added.

Sweden, which in recent months has dramatically lowered its growth estimates and seen its previously forecast budget surplus evaporate, still has a good chance of weathering the storm, according to Borg.

If a solution is found to the European turmoil, he said, "I think Sweden has the fundamentals for a tiger leap out of this crisis".

AFP/The Local (news@thelocal.se)

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Your comments about this article

07:31 October 16, 2011 by shahislam
A well communicated member of the modern day Public can easily understand why it is deplorable when the IAHs or the governing heads of the West, which e.g.: advised or planned crackdown on violent protesters (Imported young men? Whatever it is but adoption of violence by either side is never supportable by any wise and sane minds because any government negativity may only beget multiple negativities of suppressed public anger in both short and long terms and to be honest, the Police could have removed or dispersed the crowd of violators by more honest means) of recent G-20 summit in Toronto (Which could also be held quietly and pleasantly in a remote country-side with enough safety-protections), under what kind of logical explanations, should encourage the protesters of overseas to be sentimentally violent against any of the governments of foreign lands with or without manipulating the powers of Medias? Global public is already suspicious from recent crackdowns in the West and would immediately lose its faith, if it finds out any clue of dishonest means or exaggerations of Medias and then, there won't be much of a good outcome to personally benefit the invisible original planners. It inevitably happens all the time because there is another Highest Justice of Omni-powerful: the Creator of Cosmos. And the silent punishments take places on very personal levels that can be known by none publicly. When nothing happens after death, then, who cares among the all present at the bed-side of a dying bad leader or adviser about how the soul or living body functions of the dying person (who planned and/or participated in the killings of many human souls that were unwilling to perish) was feeling at the time of death!

And today we, as a think-tank of 'Middle class or not extremely rich people', can start to learn about how to apply formulas like Keynesianism in the Third world to facilitate tomorrow's politics of (without distinguishing among things of morality such as on the basis of 'mine or other's comforts and happiness' 'foreign or domestic policies' etc.) 'The all happy-new-generation of Global Public of better wisdom'.

However, in the near future, if Cosmic courses of changes may somehow continue undisturbed, then, in a percussive manner, lots of small victories of "the public of the 'isolated lands' (which, for the Western good influences have recently become better than a collective old-styled illusionistic mindset of imposed political or religious beliefs, believed 'the states of isolations by boundaries' on separated pieces of lands meant to be their own countries for themselves)" will take place and many of the smaller government-powers will start to be gradually abolished but the credits, for the sake of making an earthly sense should tentative superficially and very honestly, for greater purposes, be given to the "new global public of better wisdom".
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