Sweden Shows Europe How to Cut Debt

Bloomberg
Editorial
January 5, 2012

Sweden faces a difficult year, like every other European economy, but unlike the rest of the European Union, it’s equipped to cope. There are lessons here, especially for the EU’s other non-euro countries.

Scandinavia’s biggest economy will see growth slow to less than 1 percent in 2012, down from an impressive 4.5 percent in 2011, according to the National Institute of Economic Research. Sweden relies heavily on exports to the rest of Europe, and the EU’s protracted economic crisis will set it back.

Shortly before Christmas, the Riksbank cut its benchmark rate for the first time since 2009 to 1.75 percent. The NIER predicts further reductions this year in response to a weaker economy and slower inflation. This prospect underscores the seriousness of the situation -- and how valuable it is at such times to have an interest rate to change.

The value of monetary independence is the first and most important Swedish lesson. Sweden stayed out of the euro system when the currency was introduced in 1999, and in the past several years, the government has used this monetary flexibility to the full.

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