Government leaders around the world face a daunting dual challenge: they must control and, in the long term, slash major budget deficits fueled by the economic crisis while at the same time improving the performance of the public sector so that it can meet its complex and ever-rising obligations.
Former Swedish prime minister Göran Persson is no stranger to that challenge. Even his political foes recognize his achievement.
In the early 1990s, Sweden suffered its deepest recession since the Great Depression. Although the Swedish crisis was homegrown, its causes and effects resemble the events unfolding in the world today. After years of strong domestic growth driven by easy credit and high leverage, a real-estate bubble burst, leading to the collapse and partial nationalization of the banking sector. Domestic demand plunged as the household savings ratio soared by 13 percentage points. In three years, public debt doubled, unemployment tripled, and the government budget deficit increased tenfold, to more than 10 percent of GDP, the largest in any OECD1 country at the time.