No prince to save the krona
IN NOVEMBER 1992 the Swedish krona fell victim to the pressures that were building up in Europe. Interest rates rose overnight to 500%. Billions of dollars were spent by the central bank to defend the krona. But all this was in vain. The Swedish government was forced to follow the example of Britain and Italy and devalue the krona relative to other European currencies. DICK FORSLUND — Stockholm, April, 1993 present value but 100% of the expected market value of the possession the following year. The subsequent clean out revealed instances of pure criminality or loans given out at such speed that they were not properly recorded.
The credit losses of the Swedish banks were more than SKR70bn during 1992 up 100% on the previous year. A loss of 100bn is estimated for 1993. An oftreneated forecast is of CKR300hn in total
B Y APRIL 1993, a little more than half a million people, or 12.3% of the workforce, were unemployed. Some 4.8% of them are in various government training programmes (AMS), but this system was designed to meet unemployment rates of 3-4%. Furthermore, as part of the public sector, the AMS is also obliged to cut its budget. 35% of all industrial workers are unemployed and cuts in the public sector mean more sackings.
Sweden is thus coming to the culmination of a policy initiated in the 1980s with public sector and real wage cuts under the previous bourgeois coalition that came to power in 1976. The policy was maintained by the Social Democrats when they resumed government in 1982-91.
But increased profits did not result in the promised rise in investment. Instead hundreds of billions of kronas were used to buy shares at the stock market and real estate, leading to an upward spiral in prices and increased demand.
The banks cooperated enthusiastically, lending out money and pushing up the spiral. Between 1982 and 1990 the Swedish GNP increased by 20% while the market share of shares in real estate companies increased by 800%.
Speculators in real estate and the banks continued to borrow and lend money in the belief that the spiral would go on for ever. As late as summer 1991, the Social Democrats put forward a motion that big government pension funds should no longer be constrained by conservative investment rules and be allowed to buy shares on the stock market.
In 1988, the Social Democratic government completely abolished restrictions on bank lending, removing the last obstacle to total frenzy. In some cases the basis of a new bank loan to a real estate owner could be, not 50, 60 or 80% of its repeated forecast is of SKR300bn in total credit losses when the carousel spins to a stop sometime around 1995.
It is interesting to compare the degree of downturn in the OECD countries with the degree of speculation. In fact, the countries which are now suffering the worst recessions are those where the bourgeoisie has most effectively succeeded in imposing its profit policy. In Sweden, a mass labour party was the agent of this change. Resistance was confused and the policy was extremely successful. The resulting speculation was crazy and the recession is now among the most serious.
Foreign observers have also felt that there was something special about the Swedish real estate festival. At the end of the 1980s the Swedes were always among the fastest and highest players on the property markets of London, Brussels or Amsterdam - markets which have also now collapsed. In relation to this, Swedish socialist economist Sten Ljunggren has shown, with a wealth of statistical eviden that the man proment cad to inc
Unemployment in Sweden 1965-1991 (thousands)
600
500
400
300
AMS
200
100
Oppet
0
1965
1970
1975
1980
1985
1990
AMS - unemployed covered by government training programmes
Oppet — "open unemployment",
", uncovered by such programmes dence, that the main argument used to justify austerity is wholly false.
The claim has been that the Swedish people has been living beyond its means, consuming more than it produces and that cuts in the public sector and living standards are therefore needed to close the gap. However, a study of Sweden's trade balance shows that the country's deficit is wholly the result of the activities of the capitalists. They have invested money in speculation and lost it. This loss alone converts the plus in the trade balance to a minus for the period from 1980 to now.
In a situation where the whole finance system has proved completely incapable of handling the large sums in movement the only sane option is to nationalize the whole thing. In that way the government could set a low interest rate for credit and take control of hundreds of billions of krona.
Instead of being the tool of the money
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International Viewpoint #245 May 1993
traders these vast sums could instead be used to clean up the state finances and the state budget deficit.
It is of course true that speculation is an international phenomenon. But nationalization of the finance system in one country would be a step forward. After the speculators' attack on the krona during autumn of 1992 — leading to two austerity packages jointly negotiated between the social democracy and the government "in the national interest" it was discovered that the finance departments of the big Swedish companies were the main actors behind the "blind assault" of the market. In November, the Swedish Riksbanken finally gave up defending the krona, letting it loose from any fixed relation to the European Monetary System(EMS). Since then the krona has floated and lost over 20% of its value against all currencies.
However, neither the former Social Democratic government nor the present rightwing government have had any intention of moving against the bankers and speculators. The current government, indeed, has refused to nationalize the most bankrupt banks, among them Scandinavia's biggest bank, the Skandinavska Enskilda Banken, the SE-bank.
Instead, the government has offered the banks emergency aid, handing over SKR 73.5bn in support. This money is at once pocketed by the big companies who are full of praise for the "risks" of capitalism until these risks apply to them. Furthermore, to support the sick banks and please the finance departments of Swedish big finance, the government also supports the Rikchank's hich interect rote nolicy
Liquid capital of Swedish companies in billions of krona (stable prices)
1600
1400
1200
1000
800
600
400
200
0
T
T
1980
1982
1984
1986
1990
1988
Swedish balance of exchange (billions of krona)
40
20
A
-20
B
-40
1986
1980
1982
1984
1988
1990
1992 1994
A — Added result of the trade balance, the balance in services, state transfers and investment in Third World countries.
B — All the above sectors minus "capital balance"; in short, Swedish capitalists lost on real estate in London and Brussels.
the Riksbank's high interest rate policy, which is currently strangling the economy.
The speculation bubble burst at the end of 1991. Since September of that year a coalition of four bourgeois parties inspi-
96
80
60
40
20
1975
1970 red by neo-liberal theories has been in power. The so-called System Shift to a
"real market economy" was announced in the middle of the biggest recession in SweTotal value of shares on Stockholm stock exchange in relation to GNP 1980 1982 1984 den since the 1930s and with a finance system on the brink of collapse.
The government's arrival also coincided with the moment when the effects of
1988
1990
24
International Viewpoint #245 May 1993
1986
another measure struck the state budget with huge force - the new tax system, agreed upon by the Social Democratic government and small Liberal party in 1988.
According to the Reaganite "trickle down" theory, if middle income earners, the rich and companies paid substantially less tax, this would stimulate the economy. The dynamic effects of the tax cuts in terms of growth would lead to an overall increase in state revenue. In the real world, however, a huge hole of more than SKR100bn suddenly appeared in the state budget.
The political ambitions of this government and the ideological conviction of its leading circles are: to smash the welfare state through massive austerity and privatization; to comply with the economic demands of the Maastricht Treaty on European union even before the date for the Swedish referendum on the issue is set; to put the fight against inflation first and use unemployment as a necessary evil to purge the economy; to deregulate everything that can be deregulated; to roll back the gains of the labour movement and remove as many restrictions as possible on economic power holders in Sweden.
To achieve its political goals it uses the whip of the budget deficit. It is strangling the economy with a high interest policy and austerity while hoping for an international upturn that "must come"
But the prince on his white horse seems to have got stuck somewhere in Germany. *
State income (billions of krona)
479
500
447
451
372
400
317
317
304
300
200
100
1990 1991
1988
1989
1992 1993 1994
The steep fall begins in the fiscal year 1990-91 with the effects of the new tax system. So far, there are no "dynamic effects" from the giveaways to higher income-earners and capitalists in sight.
The state debt (billions of krona)
1000
800
600
Interest
400
200
Deficit
1970
1975
1980
1985
1990
The main part of the Swedish state debt is interest on loans from companies and the wealthy. It exploded in 1990 when the "tax burden" on the rich was eased with the new tax system.
Speculation and crisis (industrial production 1990-92 compared with stock market inclex for the same period
15%
Norway
Austria
10%
5%
0%
-5%
Sweden
-10%
Canada.
-15%
200
400
800
600
1200
1000
There is a strong co-relation in OECD countries between the increase of the stock market index with the seriousness of the economic downturn. Only three countries differ from a pattern for which Sweden provides a striking example.
International Viewpoint #245 May 1993
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