Business

Saturday 14 December 2019

Boom and bust is the past - it's time to focus on a more prudent model

Colm Kelpie

WITH their renowned and generous welfare systems, one might have thought the Nordic model would have drowned like the rest of us during the financial crisis. But the opposite happened and countries like Sweden weathered the storm better than their European counterparts.

Experts will point to the fact they entered the crash with already sound public finances. And it is this element of fiscal prudence, also favoured by Germany, that impresses Finance Minister Michael Noonan, who yesterday signalled Sweden, Denmark and Germany were the models we're seeking to emulate. No more boom and bust, just steady as she goes. But the Scandinavians learnt the hard way. In the early 1990s, they underwent their own financial trauma. Sweden, for example, famous for its social model, was hit by a deep financial crisis. Banks became unstable and two were nationalised, unemployment rose, government spending got out of control, and so did Sweden's national debt.

Since the 1990s, however, successive Swedish governments have been balancing the budget and continued to do so in the run-up to the crisis.

When the crash hit, strong public finances, a resilient export sector and a reasonably healthy labour market protected Sweden from the full effects of Europe's problems, although growth did slow sharply.

But it's not all plain sailing, and cracks have been appearing as geopolitical risks and a sluggish recovery across the 28-member EU bloc weigh on activity.

Sweden's economy contracted slightly in the first quarter and barely grew in the April to June period as its key export sector was hurt by sluggish overseas demand, particularly in Europe.

The country's finance minister Anders Borg cut his forecast for growth this year to 1.9pc against a forecast made in July of 2.5pc. Denmark is struggling with a slowdown. The country's economy unexpectedly slipped into negative growth in the second quarter, while the Germany economy is suffering from weak Eurozone demand for its exports and sinking business confidence. Even the star performers have their weaknesses.

But Mr Noonan is correct. Shifting away from a boom and bust cycle to a more sustainable model must be the focus as Ireland's recovery expands.

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