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What France and Other Nations Can Learn from Sweden’s Hard-Earned Fiscal Lessons
When Sweden’s then–Finance Minister Göran Persson flew to New York in the early 1990s to persuade Wall Street investors to keep buying Swedish debt during the country’s financial crisis, he stayed in a cockroach-infested budget hotel.
Persson—who later became Prime Minister—wrote in his 1997 book “Those Who Are in Debt Are Not Free” that the trip symbolized the finance ministry’s strict “absolutely no extravagance” policy.
Cutting costs on ministerial trips was just one small part of a sweeping austerity drive that would eventually give Sweden the fiscal flexibility that most of Europe lacks today—allowing it to unveil one of its largest public spending packages in decades, including billions for defense, energy, and tax cuts.
For other nations—especially France, now mired in a deep budget crisis—the lessons are straightforward, if not simple:
- Leaders rarely act until things get truly dire.
- Lasting success requires public, union, and opposition buy-in.
- A strong global economy—and a bit of luck—helps enormously.
Living Beyond Its Means
After years of overspending, Sweden’s debt nearly doubled by 1994, reaching about 80% of GDP, up from 44% in 1990. At its worst, the budget deficit hit 12%, investor confidence collapsed, and the Riksbank briefly raised interest rates to 500%.
The government responded with drastic cuts to welfare, defense, and education—equal to about 8% of GDP. The economy shrank for three straight years by more than 1% annually, unemployment surged, and banks suffered heavy credit losses, marking Sweden’s worst downturn since the Great Depression.
“We had a banking crisis, a foreign exchange crisis, and a debt crisis,” recalled Stefan Ingves, the former central bank governor who helped oversee the cleanup of Sweden’s “bad banks.” “To some extent, we were at the end of the road,” he told Reuters.
In response, the government imposed strict spending caps and built budgets to run surpluses over the business cycle. It reformed pensions to encourage private savings and deepen capital markets, while unions and employers agreed to limit wage growth.
Gradually, the reforms worked—helped by a weak krona that boosted exports. The economy grew 4.1% in 1994, and within a decade, debt had fallen below 50% of GDP.
“In an open economy,” Ingves noted, “structural reforms pay off.”
The Pension Revolution
One of the most significant changes came in the pension system, where payments were linked to market returns and life expectancy. This reduced fiscal pressure from an aging population—though it shifted more risk onto individuals.
According to Eurostat, France, where the retirement age remains politically sensitive, spends over 13% of GDP on pensions, compared with 10.7% in Sweden. When healthcare and other social benefits are included, the gap widens further.
No Such Thing as a Free Lunch
The transformation wasn’t painless. Thousands of public sector jobs were cut, and the country inherited a legacy of underinvestment in energy, transport, and healthcare infrastructure.
But the harsh memories of the 1990s ensured that no subsequent government dared to backtrack.
“One government after another has stuck to the rules,” Finance Minister Elisabeth Svantesson told Reuters. “There is a consensus—that’s Sweden’s strength.”
Decades of discipline are now paying off.
With public debt just above one-third of GDP, Sweden has pledged to raise defense spending to 3.5% of GDP, invest 440 billion kronor ($46.7 billion) to expand nuclear power, and contribute 105 billion kronor in support for Ukraine.
At the same time, it has cut income tax and VAT on food, increased spending on jobs programs—and still borrows at rates lower than Germany’s.
Unlike many developed nations, Sweden navigated both the 2008–09 financial crisis and the COVID-19 pandemic without taking on heavy new debt. But replicating its path will be far tougher for France and other debt-laden eurozone economies.
A Different Global Landscape
Sweden’s exporters thrived in the robust 1990s global economy, buoyed by the IT boom and globalization—conditions far removed from today’s world of rising protectionism from Washington to Beijing.
“Sweden wasn’t in good shape,” Ingves said, “but the rest of the world largely was.”
Europe’s political landscape has also changed. Since the 1990s, the rise of far-right parties—including in Sweden—has made it harder to build consensus for unpopular measures like tax hikes or welfare cuts.
Some analysts argue that France hasn’t yet hit the tipping point that Sweden did in the 1990s—or that Ireland, Portugal, Italy, and Greece faced during the eurozone debt crisis two decades later, when they were forced to overhaul their public finances.
Despite its troubles, France can still borrow at relatively low rates—around 3.35%—giving it breathing room for now.
But as Adrian Prettejohn, European economist at Capital Economics, put it:
“France will only be forced to confront its fiscal problems the way others have—when things get worse first.”
($1 = 9.4155 Swedish kronor)
