Saturday, 19 September 2009

Sweden publishes its recipe for recovery

By Jason Corcoran

September 14

Letter from Stockholm

Sweden’s Finance Minister Anders Borg wouldn’t look out of place carrying an amp on a heavy metal road tour. He may sport a ponytail and loop earring but he isn’t known to be a headbanger. A trained economist, Borg can still play a crowd and his recent call for European Union restrictions on bankers’ pay has gone down well at home and abroad.

Borg, who chairs European Union finance ministers’ meetings as Sweden is the current holder of the EU presidency, has argued that “the banks were partying like it was 1999, but it is actually 2009”. He said the bonus culture must come to an end when the G20 meets in the US this month.

The former chief economist at ABN Amro Bank in Stockholm in the late 1990s warned there could be “social tension in our societies” if bankers’ compensation is not reined in. However, there was not much sign of social tension in Stockholm’s trendy Södermalm district last week where its inhabitants were enjoying the sunshine in crowded outdoor bars and restaurants.

The Swedish capital seems to have been relatively insulated from the global economic crisis compared with the country’s industrial cities, where national automotive icons such as Saab and Volvo are ailing and could end up in the hands of the Chinese.

Locals said the social democrats, which ruled for much of the past 60 years, were winning support in the regions but were still deeply unpopular in the capital. Borg’s centre-right Alliance party, headed by Prime Minister Fredrik Reinfeldt, swept to power in 2006 with a mandate to shrink Sweden’s welfare state. The Government wants market forces to dictate outcomes and has resisted calls to rescue the struggling car industry.

Borg’s recipe for growth has been to slash taxes and to axe some unemployment and sickness benefits in the Organisation for Economic Co-operation and Development.

As US President Barack Obama uses Sweden as his template for taking over corporations outright, the Swedish Government has been busy unloading its industries. State-owned pharmacies have been sold and the Government plans to sell its remaining 37% share of telecoms operator TeliaSonera.

Last year, it offloaded Absolut Vodka, which Borg said was a core function for neither a welfare state nor a nightwatchman’s state.

Borg maintains Sweden is better positioned to recover from the crisis than the UK or US because the state did not spend money on interventions and emergency measures.

He said last week he had revised his economic prognosis for economic growth upwards to 0.6% for next year. He expects Sweden’s public finances to balance within the next four to five years, with gross domestic product growth rising to 3.1% in 2011 and 3.7% in 2012.

Some 7.9% of the workforce in Sweden were out of a job in July, which was lower than expectations of a 8.3% rate.

The property market in Stockholm has rallied strongly after a dip last year. Policymakers are expected to raise interest rates sooner than the European Central Bank if and when the recovery takes hold.
There have been calls in the Swedish press for Borg to shed his ponytail.

But one civil servant drinking in the vast Mosebacke Terass bar overlooking the city said there was a fear the finance minister could lose his radicalism without his long tresses: “He’s our Viking-styled Samson and he would be just been another politician without his ponytail.”

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