The Swedish economy in the time of coronavirus
To avoid a financial crisis, Sweden is – during the spring of the coronavirus – pursuing a financial crisis policy, says economist Fredrik N G Andersson. According to him, the key to emerging unscathed purely in economic terms can be expressed in one word: preparedness.
What can we learn from history to help us understand our times? All societies come from somewhere and are heading somewhere. It is not based on chance. It is a lesson that we can use in times of crises, not least now when the new coronavirus has shaken the economy of Sweden and other countries, considers Fredrik N G Andersson, Associate Professor of Economics at LUSEM.
“My colleagues and I have for many years argued that there is a need for preparedness in financial policy. A crisis will come, we don’t know when, but it comes and as a result, we need to spend money. Then there is a need for stable state finances,” says Fredrik N G Andersson.
How do you define a financial crisis?
“Normally, a financial crisis means that the financial system is in the process of collapsing; that the banks are on the way to bankruptcy. We are not seeing that now. This may be because the central banks have acted early and ensured that there is a lot more money in the financial sector. However, Sweden and many other countries have still acted as though we had a financial crisis. We perhaps avoid a financial crisis by pursuing a financial crisis policy, but it is not sustainable in the long term to act in that way.”
“We have a coronavirus drama now in many acts, which will carry on for several years. The first act is the immediate health crisis in which we close down large parts of our economy and there is a considerable fall in our production.”
“The second act has not started in Sweden yet, but we are on the way. That is the recovery in which we remove restrictions and try to get back to some kind of normality. Act two concerns looking at the scale of the financial losses we have sustained. There is a pent-up demand among people, to travel and go to restaurants. But will we reach the same level as before? Or do we need to stimulate the market?”
“All major crises leave an impression on society and people. It usually leads to economic and political change and that is the third act, the long-term aspect that will be evident in a few years.”
Purely in economic terms, can we cover the support measures that Sweden is taking at the moment?
“Yes, as we had the preparedness goal in the financial policy. We start with a national debt of about 35 per cent of GNP. It will be about 45 per cent including what the state is borrowing this year. If we were to double our national debt, it would still be less than in 1995. But we must, of course, spend sensibly and consider that the loan and interest are to be paid in the future.”
Are economic crises built into our social system?
“This crisis is different from others, as it is not created by the economy, but by the virus. Karl Marx said that market economy always goes from crisis to crisis and that is true, even though it did not perhaps lead to the end result that he had in mind. So yes, crises are built in. And that is due to one factor – the human factor. We act in uncertainty and we make mistakes. If important people make mistakes then, of course, a crisis is the result. We will always have crises and should therefore be prepared to handle them.”