How Sweden Got Out of the Debt Trap

Sweden is one of the most successful countries in the world and one of the pioneers in building the welfare state. The welfare state was built on 100 years of virtually uninterrupted economic progress, which came to a halt in the 1970s. Sweden tried to cope with its rising unemployment and financing of an ever more ambitious welfare state by borrowing. Gross public expenditure and government debt both reached 70 percent of GDP in the early 1990s. Both welfare expenditures and government pensions were cut in the 1990s, and the accumulation of debt was reversed. Sweden is now one of the EU countries with the lowest debt ratio and has been able to avoid its rising again after the financial crisis of 2008. There appears to have been a wide consensus about what needed to be done among Swedish governing elites; economic reforms legislated by one elite were often prepared by expert groups commissioned by the other.