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Political Economy

"The Swedish economy is driven by debt bubble" - Dutch Scholar Notes

Monday, 19 November 2012
Sweden has a housing bubble and the Swedish growth based increasingly on unsustainable debt. This is the claim of a Dutch scholar, Dirk Bezemer, an economist at the University of Groningen, in Holland who is working in cooperation with Swedish television, They have been examining the Swedish economic developed since the 1990s.

"I mean that Sweden is in a bubble. Swedish household debt has grown to unsustainable levels compared to the country's economy." said Dirk Bezemer, to Swedish television and who is an expert on how the debt and financial sector affects the economy as a whole. In recent years he has studied and predicted the debt situation and financial crises in a number of countries.

Practically, this is not a new phenomenon because on this network we have reported repeatedly how the Swedish economy is driven by debts of some sort. In the past the EU and the OECD as well as various credit rating organisations have said in the same manner that the Swedish economy would suffer in the future should their huge household debts, driven mostly by an exaggerated house prices not reduced.

"Sweden is a world leader in terms of housing and household debt, along with countries like the U.S., Holland and Ireland. In all other countries, this has led to a debt crisis and the housing bubble burst. Sweden is the only country where this has not happened," said he.

Holland, Bezemer's own country, is one of the latest in the series - and the first in the richer part of the euro zone - which is now affected by the crisis. Hollander's debt has been the highest in the world, but now home prices have started to fall.

According to some estimates, half of all Dutch households will within a couple of years have a debt that exceeds the value of their homes. And along with growing unemployment and an increasingly difficult economic situation, the bursting of the housing bubble has started to cause problems - more and more Dutch people are forced to turn to debt rehabilitator.

Swedish central bank Governor, Stefan Ingves and Swedbank's chief economist Cecilia Hermansson agrees that the Swedish debt worries.
"I think we had a debt that has grown too much. And we need a proper discussion about what really is a reasonable level," said Stefan Ingves to Swedish television.

"It is a worrying development. We have clearly had a debt that has grown too quickly," says Hermansson.

However, Ingves and Hermansson are pointing on the growth rate of debt reduction in recent times, which has been attributed to the tightening of lending requirements for things such as house purchases and real estate mortgages.

Nordea chief economist, Annika Winsth also emphasizes that debt has grown less rapidly lately. Winsth do not think Sweden has a housing bubble that may burst shortly.
"The debts have grown too much, I agree. But today I think we have a reasonable growth rate," said Winsth.

But Dirk Bezemer does not agree that the Swedish debt is under control. Unlike the Swedish central bank, Riksbank and most financial institutions Bezemer work with a new economic models that focus on the debt and the banking and financial sector and how it affects the economy as a whole.

This is why he concluded that Swedish growth has become more "debt-driven". Growth has become more and more linked to increasing credit flows to the financial sector.

"But with the debt Sweden already has can not be a sustainable building block for continued growth on growing financial sector. Should Sweden continues on the same path as now, the risk in my opinion great that bubble will bursts."
by Scancomark.com Team

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