How They Deal with Crisis in Sweden

Fellows Fall 2008

By Alisa Roth

May 26, 2009

Aired on American Public Media's "Marketplace"

In the early 90's, Sweden was facing a financial crisis that sounds a lot similar to what the U.S. is going through right now. Alisa Roth explores what the country did to get back on its feet and why it worked out well in the end.


Scott Jagow: The U.S. is not the first country to go through a financial disaster. Japan in the mid-90's, we've heard a lot about that. But there's another recent case that had a much happier ending. Marketplace's Alisa Roth went to Stockholm to hear the story.

Alisa Roth: It was 1992. Sweden, long known for its strong social state and solid economic growth, found itself staring down a financial disaster. Robert Bergquist was an economist at the Swedish central bank back then.

Robert Bergquist: We had a banking crisis, we had a currency crisis, we had a liquidity crisis, all this kind of all different crisis at that time.

Cheap credit had helped create a real estate bubble, and it was starting to collapse. Banks were starting to fail. Do you feel like you've heard this story already?

Fifteen years later, we know how this one turns out. Bo Lundgren was the minister for fiscal and financial affairs at the time of the crisis:

Bo Lundgren: First of all, you come to situation in a crisis where you have a loss of credibility, and you have to try to restore that credibility. The other thing is you have to see to it that the capital base for lending is restored.

To do that, the government set up a special agency to administer the help. It insisted that shareholders step up first, nd then dumped massive amounts of money into the system. It ended up taking over a couple of banks.

All in all, the government put up more than $18 billion. But it hung onto the assets for a long time, and managed to recover almost the whole thing. Some say it even recovered all the money.

A decade and a half later, economist Bergquist looks on the rescue almost fondly:

Bergquist: We are still talking about the crisis in the early 90's as something good for Sweden. It was painful. We lost lots of economic growth and so on and people got unemployed, but I think that it was a kind of starting point for a new era concerning economic development.

Many, including Bergquist and Lundgren, say that the changes that came out of the crisis will help Sweden through what could be tough times ahead.

So can the U.S. pull off a similar coup?

Former minister Lundgren has one worry: In 1992, his government had just been elected into office. So nobody was thinking about the next election. Congress, are you listening?

In Stockholm, I'm Alisa Roth for Marketplace.