Sweden’s Financial Crisis Synthesis

Bäckstrom sintetiza los efectos de la crisis financiera que sufrió Suecia a principios de la década de los noventa.

a) Most of the banking system fell into deep crisis. One bank went into liquidation, while the rest of the system required extensive governmental emergency aid.

b) Property values fell by approximately 35% over four years. Equities fell by 55% over a three-year period.

c) Despite the central bank’s 500% interest rate, it was impossible to defend the Swedish krona, which was pegged to the euro’s forerunner, the European Currency Unit or Ecu. The krona depreciated by around 25% in the autumn of 1992, a year after the crisis began.

d) The crisis triggered a sharp economic downturn. GDP fell by 7% over three years, and unemployment rose by 7% over five years.

e) During a three-year period, government debt increased by about 50%, with the public deficit reaching 12% of GDP. Falling GDP led to declining tax revenues, while rising unemployment led to an automatic increase in public expenditure.