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EU concerned by Swedish economic imbalances

Economy | 2012-02-14
The European Commission begins detailed examination of Sweden and eleven other European countries with “large macroeconomic imbalances”.


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The danger for Sweden is increasing household indebtedness, "which is now at high levels despite a slowdown in credit growth."

The private sector debt stood at 237 per cent of GDP in 2010, far above the Commission's threshold of 160 per cent.

“This reflects very strong increases in house prices over the last fifteen years which have started to stabilise only recently,”  the Commission said in a statement on Tuesday.

The Swedish house price indicator exceeds the threshold value 6 per cent, ending up at 6.3 per cent.

Sweden also exceeds the indicator for the current account balance because the surplus of 7.5 per cent (average over three years) is considered too high, and the threshold is set to 6 per cent.

The other eleven countries are Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Slovenia, Spain, Britain and Hungary.

The new EU rules on economic governance includes not only tougher budget rules, but also a macroeconomic surveillance. On Tuesday, the Commission presented the first "Alert Mechanism Report" that identifies the EU countries that require closer scrutiny.

The Commission's detailed investigation may lead to concrete recommendations for what each EU country must improve. Ultimately, if the recommendations are ignored and the situation as very serious, the EU may ultimately impose sanctions on euro area countries.

“Commission is right”

Sweden’s Finance Minister, Anders Borg, says that the EU Commission is right in that household debt has to be taken seriously.

“The Government shares the view that there are risks, but Sweden has already implemented, or will implement, measures to mitigate the indebtedness,” he told reporters, according to news agency Direkt.

"We are, for example, among the first countries to strengthen the capital adequacy requirements for banks, there are lending ceilings and guidelines regarding amortization. These are good measures to mitigate the high indebtedness," he said.

He further said that the government does not share the EU Commission's assessment that Sweden has large current account surpluses.

"It’s the countries with current account deficits that are causing problems. Countries with surpluses have employment growth and economic development. It’s the countries with deficits who need to take steps to allow for a stronger competitiveness," said Anders Borg. 


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