In the mid 90s of the last century Sweden experienced an economic collapse. It had to go through a radical restructuring process and came out of it with a model that many Slovenian officials, from both sides of the political spectrum, refer to as an exemplary modern welfare state.

The problems that Slovenia faces today are somewhat similar to the problems Sweden faced then - a rising budget deficit and excessive public spending, a high public debt which is becoming unsustainable, and bad loans rolling in bank balance sheets. The solutions to these problems are also relatively similar. Among other things Sweden has a golden fiscal rule (which still has to become operational in Slovenia) and also had a bad bank.

The biggest difference is in today's factual state. Ever since the last global financial crisis Slovenia has had a contracting economy (with shorter breaks). Sweden was also affected by the crisis in 2008, but came out of it already in 2010 recording a high economic growth of 6%. The OECD forecasts a 2.3% growth for Sweden next year, and a 3% economic growth for 2015.

And all that despite its relatively high taxes. How do you get a combination of high taxes and at the same time competitiveness and economic growth?How did they accomplish all that in Sweden, where they still use their own Krona instead of the Euro currency? MMC got the answers from Olle Schmidt, an MEP, a member of the EU Committee on Economic and Monetary Affairs and vice-president of the Alliance of Liberals and Democrats for Europe ALDE.

You are invited to read MMC's interview.

Slovenia is still deep in the crisis, while Sweden is faring relatively well. As you have already weathered a crisis before, you must have done something right. What was that? What can be learned from your example?
We behaved very recklessly in the 70s in 80s and got a big bang in the beginning of the 90s. In the aftermath, we learned a lot. We learned, that you cannot spend money that you do not have.

Sweden is a very specific Nordic welfare state. It has relatively high taxes and a high redistribution to citizens, social welfare, a health system and care for the elderly. To support all that, we need an economy that is actually working. We need high growth.

The events in the 90s were a big shock for us all. Therefore we created an environment that was more sustainable. We did that with a high consensus among the political parties. This is the process that is happening in the European Union (EU) today.

So, if you ask me, why are we better off today: the main reason lies in the fact that we had behaved badly in the 80s and 90s, which brought us to change the whole system: our budgetary system, an independent central bank, we introduced severe structural reforms. We realized that you have to have the public economy in order. These are the main reason for our relative success today.

What was the reckless behaviour?
Our inflation and salary targets were not sustainable. We spent more money than we had. Our deficit increased due to public spending. This was visible from the markets point of view. The Swedish currency, krona, could not keep up to our anchor. Krona was anchored to a basket of different european currencies.

The market told us: this is not good enough. Even a large Swedish insurance company at the time would not buy national sovereign bonds. They thought it was unsustainable.

Then we underwent a very shocking period. We lost hundreds of thousands of jobs in a very short time. It took us about seven years to recover. There were deep cuts. We cut in the welfare sector, the unemployment insurances and so on. It was a harsh time especially for the municipalities and local governments.

It was a harsh time but it was necessary and I think the majority of the Swedish citizens thought that this could bring something good in the end. There was a tendency to say: we have to cope with this together.

The political parties, the social partners, the trade unions and the businesses, they all coped with it together.

There was a consensus in a broader perspective. You cannot see that in countries like Portugal, Greece or Spain in that sense.

I travel a lot. I have been to Greece many times and that is what I tell them: try to bridge the differences. If you do not do that, you will have major problems in trying to get connected to the citizens about the need of doing this.

Because this is harsh. It is dramatic. And some citizens will, of course, be hurt. But it is a consequence of a policy that is not sustainable and reckless. That is what you can see in certain countries in Europe today.

But I am not preaching! I do not want to do that, because we are different. But you ask me, what I think should be done, and I think a little more consensus could help to resolve the crisis.

How did you solve your banking problem?
We had a different system. We have been discussing this in the relation to the banking union. Actually, we socialized the banks. It was rather strange, but we did that. The government took over the loans and installed the bad bank for the bad loans. Some of the banks that had severe problems were merged. Five to six years later, we privatized the banks again.

That is why a lot of Swedish citizens today own bank shares and equities. Even I myself, my family and my children, we were all offered to buy some shares. It was a minor part, but we did.

All the money - even more - that was put into the banks, has returned. All of it was repaid to the Swedish taxpayers and to the government.

Do you think the path of saving the banks through a bad bank was correct?
That was our choice and our proposal. We understand the problem, because this is what the banking union is partly about. The taxpayers should never be a part of solving the crisis again, as it is done now.

But if the whole banking and financial system is jeopardized by some banks or even one bank only, then you should not exclude the option of the government becoming a lender of last resort.

That is what we have been suggesting in the banking union, but it has been heavily criticized from the commission and other euro member states. But I think we have finally reached an extensive compromise, a list of categories. The lender of last resort is not mentioned in that way, but that is what they will discuss at the summit.

Sweden has a golden fiscal rule implemented. Do the governments follow it well?
Pretty well. We have a discussion now, that perhaps we should not be so restrictive during the crisis, that we should be more proactive in the field of investments in infrastructure and other similar measures. Those viewpoints are coming from the opposition.

But we still have our experience from the 80s and the 90s, which some politicians tend to forget. You need some sort of a backstop. You need to have the economy in order. We know that well, because we are dependent so heavily on export.

As I said, we are a welfare state, so we need growth and we need someone to buy our goods. Therefore we are heavily dependent on the European market. When the European market broke down, as it did after Lehman Brothers, you could see even a factory like Volvo Trucks lose almost everything in one month. There was a dramatic drop in orders. Unemployment rose dramatically as well.

The automatic stabilizers, as the welfare system, the unemployment insurance etc., had to catch in. I think we are not that special, we have the same problems all over Europe, but perhaps for some countries in a lesser degree. In principle, I think it is necessary to have these economic buffers.

What Europe is doing now: the reforming of the Growth and Stability pact, the six-pack and two-pack, a European semester, annual growth surveys, monitoring fiscal surveys and so on; all these fiscal measures show, that Europe needs the kind of system that we introduced in Sweden in the 90s.

Would you agree that the current Eurozone crisis is in a way also a balance of payments crisis? If so, how should Europe tackle this layer of the crisis?
You mean the current account surplus for Germany and so on? This is one of the important factors, yes. We need growth all over Europe. I can understand the European Commission’s criticism towards Germany.

But all of us, especially those in the eurozone, would have had even more severe problems, if Germany had not done their homework with th Schröder-Fischer government in the beginning of 2002-2003. Therefore, at least from my point of view, it is difficult to criticize Germany.

On the other hand, the Germans ought to invest more in their own country and they ought to spend more. That would ease the problems for the whole of Europe. But we know, that this is historically problematic in Germany, if we remember the 20s, the 30s, the hyperinflation and the problems they are so afraid of. We are all countries and a continent with a history that is not so easily forgotten. Though I think that with the German grand coalition, another sentiment will emerge.

But on the other hand I think the structural reforms in France, Spain, Italy and Greece - they simply have to happen. And if it doesn’t happen, the European Central Bank simply cannot do everything alone. They have the monetary policy and they can ease problems on a short or medium term. But to achieve long term growth we need to have structural reforms in these big countries. Unfortunately there is a lack of reforms.

Yet in Sweden you combine high taxes and a welfare state with competitiveness and economic growth. How?
How does a bumblebee fly? It should not fly, as it has too small wings. But the bumblebee does not know that and it flies anyway. [laughs] Yes, that has been discussed widely and analyzed by economists, how is it possible to combine high taxes and economic growth. Personally I think it is a combination of a small country by population that is rather harmonized internally.

Now we have changes, we are becoming multicultural, but that is also good for a country like Sweden. We have natural resources like forests, ore and minerals to export.

At the same time we have been very successful in creating world leading companies in manufacturing and in pharmaceuticals. We have Volvo, we have Saab, although some of them have problems. Saab does not exist in the car making industry any more. Volvo Cars is owned by the Chinese. However Volvo Trucks is still in Sweden.

By next year, Sweden will endure peace for a full 200 years. This is unique and exceptional. We have had peace in our country for 200 years. We have been so lucky! I have to emphasize that sometimes we have avoided war in a rather cowardly way. We have not been proud of it all the time, at least not the older generations. We also did not have any violent revolutions. Democracy came in a rather peaceful way.

Combine this with a culture that says clearly: You need to work! If you do not have a job and do not want to work, you will have social problems. You are almost what you work. This is the way we live in my country.

In rather harsh historic conditions and harsh nordic nature, we have created an attitude that you need to sort out your problems to achieve a better life. In the beginning of the 20th century, Sweden was one of the poorest European countries. In the following decades, especially up to the 70s, when Europe was trying to recover after World War II, we already had an up and running industry.

We were not bombed, we had a working industry, we could produce, we could export and we made a lot of money. At that time, we built our welfare state on a solid base. But then we started to spend more than we earned and problems emerged. We spent more than we had and we allowed salaries to rise by more than we could afford. All this gave us some lessons and experience. Today our labour market is functioning rather well with collective bargaining and very few days spent on strikes in comparison to the rest of the Europe, for example France.

I am trying my best to give explanations to what might have been the reasons, but now, it is all changing. We are getting global. We have a lot of immigrants coming to our countries.

Previously, it was your grandparents that came to our country. We had big of labour force coming from Yugoslavia that helped us build this industrial miracle in the 50s and 60s, that actually provided for the success that lasted until roughly 1975. But that was skillful labour force!

Now, we have mainly refugees coming from African countries. We have our responsibilities and we accept them. For me, it is compulsory. I live in Malmö. We have 35 % immigrants. We have problems, but it is good for the city and it is good for Sweden to have these immigrants.

But when citizens from former Yugoslavia came to Sweden, they could start immediately and they learned the language very easily. Nowadays it is more problematic. It is more problematic to integrate people without proper education and who perhaps haven’t even visited school in their whole life.

But all factors combined make Sweden what it is today. The answer is long and I hope you get my message.

Societies and economies are complex phenomena and require complex explanations. One of the important factors in the big equation is the nation's currency. Sweden does not use the euro currency, it sticks to the krona. How does this influence your economy at the moment?
This is a very difficult question. Because if you ask me, it has not been very helpful. But if you ask the Swedish citizens right now, over 80 percent would say that this has been beneficiary for Sweden to be outside of the eurozone. But in the long run, I think it has not been good for Sweden.

Our experience with the devaluation and depreciation of our currency hasn’t been good. Let us take a look at Finland. Finland is part of the eurozone and they have done almost as good as Sweden. But they have also been obliged to pay to the guarantees of the EFSF and ESM. To me that shows that Finland is a part of the EU in a more sincere way than Sweden. It shows commitment of solidarity.

http://www.efsf.europa.eu/about/index.htm
http://www.esm.europa.eu/

Now, Swedish businesses are saying that value of the krona is too high and it hampers the export-oriented industry. The volatility on a daily basis is also costly for the industry. But then again, if you ask the citizens, they feel it is good that we are not in the eurozone and suffering its crisis.

Your citizens are well informed about what is going in the country. Or at least, they can be, because Sweden is a very specific country in terms of access to public information and transparency. What can the public know about you, the politicians, and how does it affect corruption levels?
It was actually a Finnish priest, who came to Stockholm in 1766 and he introduced the transparency act to the Swedish parliament. At that time, Sweden and Finland were one country.

We have a very long history concerning openness and transparency. Almost everything is public and very transparent. My self-declaration does not contain my banking account, but it does contain everything deriving from it. Especially during the holidays, when the tabloids do not have so much to write about, I can normally read how much I earn, if I earned more than the year before, all the deductions and etc.

If you want to learn about my marks when I ended school in 1968, you can get them. This could be problematic for our finance finister. A tabloid presented that he was very bad in mathematics. His teacher told the tabloid that having a finance minister that was very bad at math was very bad for the country. But this shows that we can live with it.

My banking account is not public, but the total sum I have is. Also, every banking account I have, all my shares and equities and bonds, are contained in my declaration and sent home to me in April, when I sign the declaration. I will have the results in November.

If the information l get is correct I will send an e-mail or a text message to the authorities, that everything is alright. So, they do know a lot about us.

If you are an immigrant or otherwise new to Sweden, you will find this breathtaking and breaching your individual integrity. When I tell my colleagues here, that this is the way we do it in Sweden, they are astonished. We try to introduce this openness and transparency act to the European Union, but it is very problematic.

Actually, we encounter resistance. In the EU, there is a feeling, that everything is secret until it is revealed. We want the opposite. I tell those commissioners: If you give me a paper and tell me that it is a non-paper, then I do not want to have it. Because in my office, I want everything to be transparent, relevant and open for the public and media.

Openness and transparency are always the best ways of blocking corruption, crime and bad politicians. You cannot hide. It is not easy to admit it, but it is good.