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What Europe can learn from Sweden
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What Europe can learn from Sweden

22-06-2015 | Best read 2015 | Léon Cornelissen Sweden is an ordinary Western European country, but one that does just that bit better, according to Robeco's chief economist, Léon Cornelissen.

Speed read:
  • Sweden applied pure Keynesian approach during banking crisis 
  • Women’s participation helps the Scandinavian countries 
  • Housing market are priced on the high side
Nothing tops Sweden. In geographic terms, clearly, not very much does. But this Scandinavian country is also often held up as an example of how to do better. And not by just anybody – economists Brad DeLong and Paul Krugman, for instance, referred in 2008 to the Swedish approach to tackling a financial crisis as exemplary. Cornelissen puts it this way: "What the Swedes did was to apply a pure-blooded Keynesian approach."

In the early 1990s, Swedish banks ran into major problems when the bubble in the housing market burst. However, the approach taken by the Riksbank was very different to the method used to deal with these problems in the US and the European Union in recent years. "Shareholders were expropriated, leaders of banks that were being recapitalized fell, and managements were replaced."

There were no makeshift solutions and no 'Japanese convoy system' as Cornelissen calls it, where the strong hold up the weak. "Assets were removed from the balance sheet, packaged and sold at a discount. The banks went on as 'new banks'."

Better than ordinary
At the same time, the government's budget deficit increased rapidly. "A period of crisis is not the right time for austerity. True, the government deficit increases, but that can be brought down again in the course of time." What helped the Swedes, of course, was their own currency, which the country still firmly embraces now as an EU member and which absorbs the shocks.

Cornelissen characterizes Sweden today, 20 years after its banking crisis, as a major industrial power with growth that exceeds that of the Eurozone (just above 2%). This can be attributed to the high degree of participation in the employment market, above all among women; the extended pensionable age; the large number of immigrants; and a social security system that focuses on reintegrating those out of work into the employment market.
 
However, some of these advantages also have a downside. The high level of immigration in recent years has led to riots in Malmö and Stockholm, and the political tensions in this area follow a trend here that can also be observed in other countries. Thus growing income inequality has also increasingly become a source of unrest.

‘Sweden is just like any ordinary Western European country, only in many things a bit better’

"In Sweden we can see the same trends as in the EU. It's just like any 'ordinary' Western European country, only in many areas the Swedes do things that bit better." This doesn't mean that there aren't risks involved. The housing market, in particular, is priced on the high side, with the danger of a new bubble ahead. Deflation is also a latent danger, certainly with the low price of oil and falling transport costs. The country has a negative deposit interest rate (-0.25%) that can easily fall still further.

Visit a sauna
Cornelissen sees a very different story in other Scandinavian countries: "Finland is suffering from the Nokia effect. This company was once worth 40% of the Finnish market’s capitalization, but has now fallen into decline. In addition, the sanctions towards Russia are having a higher-than-average effect on this country. Finland is also fully dependent on Russia's gas – a far from pleasant situation to be in, considering the increasing war rhetoric in that country. Cornelissen is not particularly impressed by Denmark either: "The situation there is a bit schizophrenic, as the country's currency is linked quite tightly to the euro."

Can the rest of the EU learn from the Swedish model? Cornelissen certainly sees a few lessons to be learned. "The first of these is women's significant participation. Sweden and Norway, as egalitarian societies, are front-runners in this field. They have excellent parental leave schemes. In addition, they have a high-quality industry and a strong civil-engineering culture – a trump card for any country.

And their own currency is an important instrument for economic policies. Swedish companies have a culture of 'one for all and all for one', low in hierarchical thinking and notions of class and status. Maybe, like the Swedes, we in the Netherlands should visit a sauna more often: this is where all the barriers come down and everyone is on the same footing."

Léon Cornelissen

Léon Cornelissen

Chief Economist
"You can be sure of risk, you can’t be sure of return."
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Léon Cornelissen
Chief Economist


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