Sweden, officially the Kingdom of Sweden (Swedish: Konungariket Sverige) is a Nordic country on the Scandinavian Peninsula in Northern Europe. It has borders with Norway (west) and Finland (northeast). It has been a member of the European Union since 1 January 1995. Its capital city is Stockholm.
At 449,964 km² (173,720 square miles), Sweden is the third largest country by area in Western Europe and fifth in all of Europe. Sweden has a low population density of 20 people per square kilometer, except in its metropolitan areas; 84% of the population lives in urban areas, which comprise only 1.3% of the country’s total land area. The inhabitants of Sweden enjoy a high standard of living, and the country is generally perceived as modern and liberal, with an organizational and corporate culture that is non-hierarchical and collectivist compared to its Anglo-Saxon counterparts. Nature conservation, environmental protection and energy efficiency are generally prioritized in policy making and embraced by the general public in Sweden.
Sweden is highly open to the rest of the world, dependent on extensive cross-border transactions in goods, services, and financial assets and liabilities. Exports are now around half the size of GDP. Cross-border financial assets and liabilities are each 2½ times GDP. The banking system is more than 4 times GDP. Even more than in past decades, Swedish financial institutions and markets are pervasively linked to the rest of the global financial system.
Sweden has been buffeted by financial instability twice in the last twenty years. The dominant sources of the instability in the early-1990s crisis were domestic. In the recent global crisis, however, the underlying causes were predominantly external in origin, stemming from financial shocks emanating from financial markets and institutions outside Sweden.
Financial openness is essential to Sweden’s healthy economic growth. But openness comes with risks as well as benefits. Our report attempts to assess these risks and benefits. We analyze the policy responses of the Swedish authorities to the recent crisis and examine how policies might be adjusted to improve stability in the future. We advocate a continuing review of the desirability of adjustments in policies that would reduce Sweden’s external vulnerability.
When the financial crisis erupted in the fall of 2008 following the collapse of Lehman Brothers, the Swedish authorities responded with alacrity. In addition to adjustments in traditional monetary policy, they took a broad range of other collective-support activities including emergency lending, emergency market support, modification in government guarantees, and facilitating the orderly recapitalization or resolution of institutions coping with possible insolvency.