One important factor was that many low-productivity firms went bankrupt in connection with the sharp economic slowdown at the beginning of the 1990s, while other firms implemented cutbacks of lowskilled labour that had less qualified tasks. When the economy began to grow again there was plenty of unemployed labour, and it was possible to attain high growth without inflation gathering pace. Another cause was the IT boom towards the end of the 1990s, which also contributed to productivity growth. In the years ahead, we can also expect to have good productivity growth in Sweden. Increases in productivity growth can be a solution for large parts of the corporate sector, but this is less often the case for parts of the public sector. Quality care and education often require a strong presence of human labour. Nevertheless, there is probably much to be gained by organising and financing the public sector in new ways. The contribution made by trade union organisations in this regard could prove to be a decisive success factor. Here, the Nordic countries have an advantage over others through a high degree of organisation and an established cooperation between employers and employees. The education sector also faces considerable challenges. When the current generation of teachers in Sweden retire, a substantial increase in new teachers will be needed. According to the National Labour Market Board, the number of new recruitments required to replace retired teachers is forecast to come to around 100,000 up to and including 2015.
Thus in the period 19942006, the cumulative appreciation of the real effective exchange rate ranged from 8% in Slovenia to 105.9% in Lithuania. 8 Economic theory offers arguments that real exchange rate appreciation is not dangerous as long as it reflects changes in the equilibrium real exchange rate. However, policy makers in these countries, especially in the recent years, are not really comforted by these theoretical discussions which consider that real appreciation is only movement to equilibrium. What they are seeing in their countries are common signs of overheating of the economy and loss of competitiveness, which deepens the external imbalances. In the beginning of transition, current account deficits were understandable and not too much cause for concern, as these countries were importing technology and previously unavailable goods. However, the size of the deficits in the last several years exceeds the level that is usually deemed sustainable. Thus, the current account deficit in the new member states in the period 1996-2005 ranged from 5% to 7.7% of GDP, but in the last two years it has been reaching 10.1% and 11.3% of GDP. The average current account deficit in the SEEU countries in the same period is even higher, and it is estimated that in 2007 it will reach 16.3%. 9 Even though deficits are projected to fall in some of the countries, in general they remain a cause for concern in most of them. Besides the trade deficit which,  7  Source: IMF World Economic Outlook Database, April 2008. 8  Source: Eurostat.