The Nordic Experience of Financial Liberalization
Edited by Lars Jonoug, Jaakko Kiander and Pentti Vartia
Chapter 2: The Great Financial Crisis in Finland and Sweden: The Dynamics of Boom, Bust and Recovery 1985–2000
2. The great financial crisis in Finland and Sweden: the dynamics of boom, bust and recovery, 1985–2000 Lars Jonung, Jaakko Kiander and Pentti Vartia INTRODUCTION1 The beginning of the 1990s witnessed a severe recession in Western Europe. The climax was the European currency crisis in the autumn of 1992 and summer of 1993. The recession turned most severe in Finland and Sweden, the northern periphery of the continent. The timing and the nature of the deep crises in the two countries were astonishingly similar – it was the crisis of the twins. To policy-makers and economists the power of the crisis came as a major surprise. The general view had been that such a depression could not happen in advanced welfare states like Finland or Sweden with a long tradition of full employment policies and strong labour union influence on the design of economic and social policies. Figure 2.1 demonstrates that the annual percentage growth of GDP was negative over the period 1991–93 in both countries. Unemployment mirrored the depression, shooting up in both countries in the early 1990s. The rate of unemployment rose from a level of around 3 per cent in Finland during 1989–91 to around 18 per cent at the beginning of 1994. Unemployment in Sweden followed the same pattern, starting from around 2 per cent in 1990 and rising to a level of 10 per cent during the period 1993–97.2 The co-variation between economic developments in Finland and Sweden was high, although the...
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