Nr. 12-2011 Published monthly by:
The Swedish Chamber of Commerce
in Estonia


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Contrasts Despite last year's impressive economic support programs by the EU and IMF, the financial situation in the so called PIIGS countries continue to worry economic analysts. Meanwhile, the Swedish krona hasn't been as strong since November 1992.

e-focus has taken a look at some of the comments made on the contrasts between the shape of things inside the Eurozone and the Swedish krona.

As Moody's recently lowered Greece's credit rating, worries on the financial shape of this country as well as Portugal, Ireland, Italy and Spain started to climb up on the agenda again.


The country is wrestling with big structural problems and has come behind in terms of competitiveness and education. The budget deficit is more than 7% of the GDP which causes worries, even if the trend shows signs of a lower future deficit. The foreign debt level is 76% of the GDP which makes it way below Greece's and Italy's.

Newly resigned Prime Minister José Sócrates tried to introduce a budget cut package, hoping to convince the international finance community that Portugal can make its way out of the crisis by it self.

This is now an open issue and doubts remain whether Portugal can handle the interest payments on its foreign debts.


Ireland is fighting a budget deficit equaling 32% of its GDP. The unemployment level is high, domestic consumption has decreased and the interest levels are high – saving the bank sector has been costly for the country.

The new Prime Minister Enda Kenny, has promised to support EU's goal of Ireland reaching a 3% budget deficit level of the GDP by 2015.


Prime Minister Silvio Berlusconi's Italy has a sky high foreign debt level totaling 119% of the GDP. Following last summer's 30 billion euro public finance savings program, domestic consumption is low.

However, Italy's exports have increased following the recovery in the world economy, and both domestic and foreign investments have started to pick up in a positive way.


GDP decreased with more than 6% in the fourth quarter of 2010. Moody's downgrading of Greece's credit rating was based on worries that the country can't get in taxes as expected, as well as worries on what might happen when last year's 15 billion euro support package ends in 2013.

However, the country's crisis has resulted in some important structural changes. The pension age has been increased and salaries in the public sector have been frozen. Analysts believe that this might support Greece's long term competitiveness.


Economic growth is sluggish and unemployment has reached a sky high 20% average level. Among young people, the level is double as high.

Domestic demand is low and investments are few. The foreign debt shows signs of increasing, though the current level is rather reasonable at 64% of the GDP.

Spain has an ambitious savings program ongoing, but has difficulties to reach the targets due to high costs for the unemployment.

The Eurozone

- The Eurozone now constitutes 331 million people. But while the monetary union had stabilized Europe's currency to an inflation rate that is less than 2%, the lowest inflation in 50 years, Europe has been less successful when it comes to an economic union. We have a lot of work to do there, said Jean Claude Trichet, President of the European Central Bank in Frankfurt, at the World Economic Forum meeting this winter.

At the same meeting, the German Chancellor Angela Merkel warned against complacency about the risks of a further financial crisis, saying that all the international mechanisms needed to prevent another crash are not yet in place.

- Can we safely say that we can prevent further crises from happening? Do we have the necessary mechanisms in place to ensure sustainable growth globally? We have laid down the groundwork, but we are not there yet, said Angela Merkel.

As for the Eurozone rescue fund, the finance ministers of the Eurozone reached an agreement March 21st, on how the Eurozone members will contribute to the would-be European Stability Mechanism to be set up in 2013. According to Äripäev, Estonia managed to convince the other meeting participants that those countries' whose GDP is less than 75% of the Eurozone average will contribute with a special discounted rate for the first 12 years counted from entry into the Eurozone.

The Swedish krona

The cost of one euro is now well below SEK 9:- which can be compared to SEK 10:26 at the end of both 2009 and 2008. In a prognosis SEB expects the euro-SEK exchange rate to be 8:50 at the end of this year, and 8:40 at the end of 2012.

The Swedish krona hasn't been as strong as it is now since November 1992, just before Riksbanken, the Swedish Central Bank, allowed the currency's exchange rate to float.

Historically, increased commodity prices and sluggish trade at the main international stock exchanges has been a lousy economic environment for the Swedish krona. In addition, there is now the unrest in the Arabic world, which normally wouldn't have made life easier for the krona either.

Despite the historical influences, the Swedish krona remains strong and analysts cite six reasons why:

1. Sweden's State finances are in top shape
2. The growth is strong and stable (+5,5% expected for 2011)
3. Inflation is low (1,4% in January 2011)
4. The foreign debt is low (currently 35% of the GDP, expected to decrease to 20% in the next few years)
5. Riksbanken, Sweden's Central Bank, started to increase the repo rate, the monetary policy interest rate, already last summer (following the February 2011 increase, the repo rate is now 1,5%)
6. The foreign trade surplus is impressive and continues to grow (ended up at +6 billion euro for the fourth quarter of 2010, compared to +4,5 billion euro for the same period 2009)
The strong Swedish krona has injected revived energy among Swedish tour operators. It's cheap for Swedes to go abroad nowadays and news on increased capacity from Sweden to holiday resorts are frequently reported. Foreign exporters, including Estonian exporters aiming for the Swedish marketplace have also got revived energy.

However, parts of Sweden's industrial community are troubled.

- The revenge of the krona will break the spine of Sweden's exports, commented Ole Terland, President and CEO of Rottneros, a Swedish pulp producer.

- If the krona becomes too strong, it could actually force Swedish manufacturers to move production abroad, said Mauro Gozzo, chief economist at the Swedish Trade Council, in a recent comment.

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