Europe in the grip of austerity
Swedish Social Democrats back cuts
By Dick Forslund
STOCKHOLM — "They looked like two songbirds sitting together on a branch — and with about the same brain power." This was one Swedish writer's comments on the September 20 press conference at which the "two blocs" in Swedish politics announced a "historic agreement". The two live birds in question were Conservative Party leader Carl Bildt and Social Democratic Party leader Ingvar Carlsson.
After a week of panic negotiations, Sweden's mighty Social Democratic Party (SAP) agreed to the biggest austerity program in the country's modern history.
Even by some in the SAP itself, this is seen as a catastrophic capitulation to the right and the international money traders and loan sharks — coming one week after Carlsson denounced the "dictatorship of the market" in a rhetorical outburst against government policies.
Now, however, he has agreed to a cut in the government budget of more than 40 billion kronor (about US$8b) — equal to 2% of the country's gross national product. For many workers, pensioners and the poorly paid, this means a significant deterioration in living standards.
The panic and the resulting "national unity" were caused by a sudden and massive run on the Swedish currency in the two weeks preceding the referendum on the Maastricht Treaty in France. This forced the Swedish central bank, the Riksbanken, to borrow 16 billion ECU (SKr120 billion) and put short-term marginal interest rates up to a fantastic 500% for a few days.
The turbulence around the krona was triggered by a decision by neighbouring Finland to let its currency float (and thus fall freely). The money traders expected that the Swedish currency would follow suit and started to sell kronor by the billion.
In fact, there are many perfectly acceptable "bourgeois" reasons why the krona does not deserve devaluation. The inflation rate is 2% — among the lowest in Europe. The trade balance is positive for the second year running. The budget deficit for 1993 is estimated at around 3.4% of GNP. While this is higher than in some other European countries, if the total public debt is counted in relation to public assets, you get a net asset corresponding to 1.5% of GNP. The European average is a net debt of 44% of GNP.
In one day in Sweden it is estimated that goods and services to the value of SKr3 billion are produced; on the international currency market, the equivalent of around SKr2000 billion changes hands in a day.
This market usually pays little attention to small currencies such as the Swedish krona or the Finnish mark. But if some dozens of money their assets from one pocket to another, and if big business in the country concerned goes along with this, then a currency like that of Sweden will start to reel.
Hundreds of thousands of Swedes who took out big loans to buy apartments or maintain consumption in the 1980s are now faced with massive interest payments. Even after the moment of acute crisis and the austerity package, on September 23 the interest on an ordinary loan for an apartment is at 24.5% compared to 12.5% a year ago, while, even three days after the Grand Deal, the Riksbanken is still protecting the krona with a short term marginal interest rate of 50%, as against 16% two weeks ago.
It is thus clear that, despite the draconian onslaught on welfare, the "market" is still not satisfied, believing that Sweden will still devalue — or that the Germans will revalue the deutschmark upwards.
After a week of condescending media explanations to the "ignorant" public about what "the market" demands, signs of public anger and disbelief are beginning to appear.
The package was to be voted on at the opening of the autumn session of parliament on October 6. On the same day the blue collar workers' trade union confederation, LO — which is tied to the Social Democracy and has over 2 million members — was scheduled to hold a demonstration against rising unemployment (currently at 7%, the highest rate in Sweden since the 1930s) and a year of the new right-wing government's austerity policies.
Left-wingers in the unions pushed for such a demonstration four months ago. However, the union leaders were not to know, when they called it in May, that when October arrived they would confront not only the four-party government coalition but also "their own" party, the SAP — LO chairperson Stig Malm is also a member of the seven-person inner circle of the SAP.
He has thus put his signature to the chainsaw package, and must now protest against himself.
Meanwhile at a local level, the LO is busy building the demonstration, appealing to the workers to "go out in the streets and say what you think. The LO leadership thus finds itself in a somewhat delicate position.