Thirdly, most countries have implemented extensive fiscal policy stimulus measures. The OECD estimates that these measures have accounted for just over half of the reduction in general government net lending in the OECD area. In the United States, where stimulus packages have been introduced on an unprecedented scale, the OECD estimates that these active stimulus measures have accounted for as much as three-quarters of the deterioration in public-sector finances. In the euro area it is instead the automatic effects on tax revenues and cyclical expenditures that have predominated. Consequences of the deterioration Extensive historical studies of financial crises show that they are often followed by a severe weakening of public finances and prolonged periods of subdued GDP growth. 2 The deterioration in public finances that we have seen during this crisis will keep GDP growth and inflation down in many regions for some time to come, as the weak finances will enforce fiscal policy contraction and/or may lead to higher interest rates. A tighter fiscal policy is inevitable to make public finances stable in the long term. Restoring the deficit to the level that prevailed prior to the crisis, and one might ask whether this will be sufficient, is not simply a case of replacing the fiscal policy stimulus measures implemented during the crisis with corresponding tightening measures after the crisis. In addition, expenditures have to be replaced as potential GDP and thus potential tax revenue have fallen due to the crisis.
Broken line represents OECD’s forecast  14  90  94  98  02  06  10  Source: OECD  BIS Review 56/2010  Sweden’s central government debt and gross public debt Percentage of GDP 90  90 Central government debt  80  80  Gross public debt  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0 50  55  60  65  70  75  80  85  90  95  00  05  10  Sources: Swedish National Debt Office and OECD  General government net lending in Sweden, the euro area and the United Kingdom Per cent of GDP 10  10 Sweden Euro area United Kingdom  5  5  0  0  -5  -5  -10  -10  -15  -15 90  92  94  96  98  00  02  04  06  08  10  Note. Red broken line represents the Riksbanks’s forecast, blue and yellow broken lines represent OECD’s forecast.