Nordic countries were a prime area of investment during the debt crisis in Europe first began, but many Scandinavian countries are seeing what could become their own debt crisis. Denmark and Sweden are seeing household debt hit record highs, and economist Paul Krugman said on the issue, “you wonder if that’s a crisis waiting to happen.”
Denmark, Sweden, and Norway, have public debt that is less-than-half of their eurozone counterparts and have the highest credit rating available at AAA, stable. All three countries fed a privatized spending spree that the International Monetary Fund (IMF) called reckless and poses a threat to stability.
For instance, Denmark consumers own their creditors an insane 321 percent of possible incomes. According to the Organization for Economic Cooperation and Development (OECD), reports that this is a world record (what a way to enter the record books). By the same measure, Norway is struggling with a 200 percent private debt burden, and Sweden is not far behind with 180 percent privatized debt. When disusing whether this will be the next debt crisis, Krugman said “I’m not sure, but it’s nervous-making.” The fabled economist said the region does not have another other choice but to reduce consumer debt to reduce risks.
Norway and Sweden are looking for options to reduce risks, but Denmark’s central bank Governor Lars Rohde said it was not really an issue because pensions and home equity can be tapped in times of trouble. Rohdes also said due to Denmark’s high savings rate, 1.5 percent of GDP according to data, households could survive a volatile jump in borrowing costs.
Norway and Sweden said that private debt burdens could warrant higher interest rates, in an attempt to make borrowing less attractive. However, Krugman had his views on higher rates. “I would not raise interest rates. The question is what other avenues are there: financial regulation? This is a really bad time to do it,” he said.