Fiscal Responses and Future Challenges
Edited by John Wanna, Evert A. Lindquist and Jouke de Vries
Chapter 7: The global financial crisis in Denmark and Sweden: a case of crisis management ‘lite’
From a comparative global perspective, the two neighboring Scandinavian countries, Denmark and Sweden, share the fate of being among the countries least affected by the global financial crisis (GFC) (Finansministeriet 2011b). Gifted by sound public finances prior to the crisis, both countries were in a position to stimulate their economies after the outbreak in the autumn of 2008. However, partly due to diverging histories and institutional features, differences remain on two key dimensions. Firstly, with regard to fiscal performance, Swedish public finances were hardly affected by the crisis and soon re-bounded, whereas in Denmark the deficit eventually exceeded the 3 percent limit set by the European Monetary Union (EMU) and so activated the excessive deficit procedure over 2011–13. Whilst the Swedish debt to gross domestic product (GDP) ratio began to decline after peaking in 2009, the Danish debt continued to increase. Secondly, considering institutional preparedness, the cornerstones of the Danish budgetary framework have remained untouched since the 1980s; whilst Sweden enshrined in law a rather textbook-oriented top-down budgetary and fiscal framework in midst of a previously severe economic crisis in the mid-1990s. The GFC was not used as a window of opportunity for institutional reform in the Swedish case; whereas in Denmark it did provide an opportunity for launching not only structural labor market reforms that had stalled amid party politicking for years, but also institutional reforms of the budgetary framework – with heavy reference to Sweden.
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