Political instability undermines growth, the restoration of public finances is increasingly hypothetical and the famous “spread”, the interest rate gap between France and Germany continues to widen, a sign of growing investor concern about the French situation. How to get out of the impasse? In Europe, a country on the brink of the precipice in 1992 has succeeded, Sweden, which today displays squared public accounts, solid growth and a low unemployment rate. The method? A cocktail of radical measures taken thanks to a political consensus, obtained after months of discussions. Anna Stellinger, director of European and international affairs for Swedish employers, reveals the secrets of the method. It remains to be seen whether France is sufficiently politically mature to initiate such a revolution…
L’Express: France is facing a serious public finance problem. Sweden also went through this in 1992, which led to a very serious financial crisis. Do you have to be at rock bottom to bounce back?
Anna Stellinger: Several ingredients explain the overhaul of the Swedish system at this time. The first is, as you recall, the seriousness of the financial crisis which hit the country in the early 1990s. At the worst moment of the speculative attacks against Sweden and its currency, interest rates rose to 500%! This means that everyone was affected. This crisis was not only intellectual and hypothetical, it was visible to all Swedes in their daily lives, when they went to the bank to negotiate a mortgage or buy a car. Result: when politicians began to point out the roots of the evil, and to say why things needed to change, they did not have to convince for very long since everyone was experiencing this crisis very closely. The second determining element was political consensus and the desire to make long-term reforms. Today, more than thirty years after this deep crisis, the public debt has reached just 32% of the country’s GDP.
Exactly where should we start?
Through the political aspect: obtaining a total consensus with all political forces on the need to change the model. Second step: agree on “what to do”. And the “what to do” was not a budgetary makeover to raise a few billion here or there. We got to the bottom of things with a major decision which is the adoption of budgetary discipline. From now on, we are obliged to have a balanced budget and we cannot propose new expenses without finding the revenue to finance them. No government, whatever its color, has for decades had the right to increase a deficit or increase the debt. This golden rule provides security. Because when the country goes through an economic shock, as at the time of Covid, it has the means to support the economy and the most fragile. We didn’t stop there. We have also switched the pension system from a pay-as-you-go system to a funded system. Everyone is now responsible for their own pension and contributes towards their own pension. Finally, we have sorted out public spending. Each line has been studied. This cleaning was carried out seriously and almost always by consensus. With, each time, the objective of changing things in a robust way.
In France, this work on public spending makes part of public opinion fear an unraveling, a dismantling of the welfare state…
I can understand it, but the way in which Sweden managed this profound and lasting transformation was done in accordance with this framework. Few people today say that Sweden is not a welfare state. We want to be an attractive country but with a healthy economy.
How great were the sacrifices? And above all, were they fairly distributed?
Everyone had to tighten their belts. Businesses, households, employees, retirees…
You are not talking about state reform. But here too, the Swedish model is very different from that of France…
In France, I often read that people talk about an obese state. In Sweden, the ambition has been to lighten it. The government is very small. If I combine the positions of all the ministries, we must arrive at less than 5,000 civil servants! The rest of the state agents work in government agencies, which are sometimes considered too numerous and expensive by certain political parties. I have led two personally. These agencies have a budget allocated each year by the central government. Unable to display unbalanced accounts. Their accounts are audited every year and if a budget surplus appears, an agency cannot keep more than 3% of this surplus in its coffers. Furthermore, the government sets the objectives in a mission letter, but leaves complete independence on the means to be implemented to achieve them. Agency directors are autonomous. What matters is the result. This autonomy makes it possible to depoliticize public action. Finally, agents are employees – there is no lifetime contract in Sweden – and their remuneration is linked to their performance.
How do you explain the impossibility of reforming France?
The reasons are multiple. The first, and perhaps the most important, is that in France, debt is not taken seriously enough. Public debt has been growing for decades and the subject has almost become trivialized in public opinion. It’s as if the French, in their vast majority, thought that “because it’s France”, a debt crisis will never catch up with them.
The second explanation is almost cultural. It is the inability to achieve political consensus, although political confrontation is not a bad thing in itself, and sometimes in Sweden we do not have enough major debates. Third point, the absence of strong unions and a fairly weak culture of social dialogue. We have extremely responsible social partners, with a very high level of unionization. The employers really respect the employee unions, and vice versa. Employee representatives are invited to board meetings, they are listened to. These are service organizations, which explains our very high unionization rate.
This quality of social dialogue plays a big role in salary negotiations. When salaries are negotiated each year, the benchmark is that of the exporting industry. This is what we call “the brand”. The goal is to maintain the country’s competitiveness, and union and employer organizations adhere, with a few exceptions, to this standard.
Fourth and final explanation, France does not have the culture of “flexicurity” in employment, even if I don’t really like this term. Clearly, what matters in Sweden is people, not jobs. When it was necessary to close the mines a few decades ago, we did it without drama because the priority of all those involved was to take care of those who lost their jobs. When a company disappears due to lack of competitiveness, we do not try to keep it alive at all costs. These are four essential ingredients for reform which, unfortunately, France lacks.
Your observation is very pessimistic…
Yes and no. France has lost so many opportunities for reform in recent years… But the country has tremendous assets. He knows how to mobilize for very big things. France remains the most attractive nation in Europe in terms of foreign investment. Added to this is the excellence of research, particularly in artificial intelligence… France has so many cards in its hands! It’s been so long since the country made reforms that you may have forgotten how to implement them.
Europe seems quite divided on a major subject, that of the trade agreement with the Mercosur countries signed by the European Commission on December 6. Do you understand France’s categorical refusal?
It’s irrational! 50% of our wealth in Europe comes from foreign trade, compared to 25% in the United States. We are very dependent on our openness to the world. Historically, this openness has brought us a lot. Europe now has around forty trade agreements with nearly 70 countries around the world, and that is an excellent thing. Negotiations with the Mercosur countries have been going on for more than twenty years. These countries are very important to us, with even greater potential.
We already know, with the return of Trump, that relations with America will be more complicated in the future. It’s the same thing with China. We therefore have an absolute need to diversify and strengthen our trade with other geographic areas. And then, we also need the raw materials that Mercosur produces. Strategic autonomy is not about withdrawing into oneself. It is, in reality, more flexibility, more agility. Without being “naive”, which is what we often hear from those who would like a more protective Europe. Wanting more economic ties with other countries around the world is not naive, it has been the recipe for success for many decades. In Sweden, unions are also supportive of trade deals as they see them contributing to a stronger economy. Without a strong economy, we cannot maintain a strong welfare state.
Do you fear a trade war?
I won’t use that word. War is something else! Let’s talk about trade conflict instead. At the same time, international trade continues to grow. Globalization is not dead. And trade continues to increase, particularly in Asia. Trump’s return to the White House obviously complicates things. He is often said to be fickle and emotional. In reality, since 2017, he has always done what he said in the field of foreign trade. We must therefore take it very seriously and confront its plan to increase customs duties.
How should Europe respond?
Above all, you have to keep a cool head. We can, like last time in 2017, have targeted responses, by imposing taxes on very specific products, like bourbon or Harley-Davidsons… Trump unfortunately does not like multilateralism. But what he likes is negotiation. Never forget that it is a “deal maker”. So, we must negotiate… Europe has the means to make itself heard. On one condition, stay united. I find that we sometimes lack self-confidence. Europe must build its own path, and not limit itself to reacting to America or China.
Among the solutions proposed by former Italian Prime Minister Mario Draghi to counteract Europe’s loss of competitiveness, there is the idea of a new large joint loan. Are you in favor of it?
The Draghi report was well received in all European countries. His analysis is very fair but his pessimistic and dark tone goes less well in Sweden and in most Scandinavian countries. Let’s recognize it: when it comes to competitiveness, not all European countries are in the same situation. Of the multiple solutions proposed, everyone retained the 800 billion euros of annual investments. Before talking about a new major loan, let us first take stock of the previous major recovery plan of 750 billion euros. Was the money well used? Furthermore, when we talk about additional investments, is it private or public money? I think the bulk of spending should come from the private sector. Too many European countries are in debt, and the appetite for debt is limited among others. In this context, the capital markets union is imperative to help raise the necessary funds. This is one of many recipes.
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