1. Vincent Reinhart Resident Scholar April 18, 2011 The Road to Stable Public Finances The Importance of Being Prudent--Sweden's Fiscal Approach 1

2. Vincent Reinhart Resident Scholar April 18, 2011 Getting to know a Swedish Model 2

3. The fiscal position of AEs and EMEs in 2009… 3 AEs EMEs IMF, Fiscal Monitor (4/11)

4. …but the IMF expects the situation to improve 4 G-20 AEs G-20 EMEs IMF, Fiscal Monitor (4/11)

5. Much of the improvement is cyclical in the aggregate … 5 G-20 AEs G-20 EMEs IMF, Fiscal Monitor (4/11)

6. …and across countries from 2009 to 2011 6 IMF, Fiscal Monitor (4/11)

7. As also reflected in the composition of deficit reduction from 2009 to 2011… 7 IMF, Fiscal Monitor (4/11)

8. We know from R&R that economies grow more slowly after a severe financial crisis… Real Growth ofUnemploy-Change inhouse Real GDPmentequityprices per capitaratepricesT-1=100 percent level T-10 to T-63.34.18.173.3 T-5 to T-24.43.514.592.1 T-13.23.4-15.1100.0 T (Crisis)1.65.1-27.6 95.1 T+1-5.86.8-4.583.7 T+2 to T+53.09.010.976.4 T+6 to T+103.86.212.182.8 Source: Carmen Reinhart and Vincent Reinhart, "After the Fall," Jackson Hole Symposium, 8/2010 8

9. …and from R&R that economies encumbered by debt grow more slowly 9

10. Thus, the real growth imbalance between AEs and EMEs will stay wide… 10

11. With this growth imbalance, Slow-growing AEs willFast-growing EMEs will 11 Keep monetary policy accommodative Seek to enlarge the market for government debt Continue to import a U.S. monetary policy that is inappropriate for domestic conditions Both will be more favorably inclined to placing restrictions on finance

12. Vincent Reinhart Resident Scholar 1150 Seventeenth Street, N.W., Washington DC 20036 email: Vincent.Reinhart@aei.orgVincent.Reinhart@aei.org website: http://www.aei.org/scholar/129http://www.aei.org/scholar/129 Phone: (202) 419-5203 12