Moreover, entry into the EU and reforms in the tax and social security systems helped create better conditions for economic growth. Today, Sweden's central government finances are healthy, there is a surplus in the current account, inflation expectations are anchored around the Riksbank's target of 2 per cent and unemployment has fallen to a level that is far below the European average. Potential growth The decisive factor for economic growth and thereby the resources available for wage increases, earnings or an expansion of the public sector is the economy's long-term production capacity. Another term for this is potential growth, which determines the rate at which the economy can grow without giving rise to inflationary pressures. So it is demand in the economy in relation to production capacity that to a large extent determines the future path for inflation. Potential growth is therefore of vital importance for monetary policy. In turn, the long-term production capacity is determined by how much we work (the labour supply) and how productive we are (productivity). The labour supply depends partly on the number of people that work and the number of hours each person works. Important factors here include the age structure in the economy and the number of people on sick leave. Productivity is partly dependent on investment and technological progress - for example that machinery becomes more modern or that it is employed more efficiently. Educational levels also affect productivity. Knowledge can be put into practice in production and increase opportunities to assimilate new ideas and innovations.
Social progress is one of the key objectives of the European integration process: “The Union shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress … It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child”. (Article I–3 of the draft European Constitution). Welfare is not only a remedy for the failure of insurance markets, but also a tool to promote inclusion, solidarity and a sense of fairness. In the three post-war decades (the so-called “Golden Age”), which especially in Europe were marked by high growth rates, use of advanced technologies, high growth employment, stable lifetime employment, welfare started to emerge, at different times and on different scales depending on the country, as an integrated system that protects its citizens from significant risks. The European model redistributes many more resources for social purposes than the US and Japanese systems: on the eve of the crisis, the total expenditure on pensions, unemployment benefit, for children and families was, in relation to GDP, more than twice that of the US and Japan. This can take different forms as regards the composition of social policies and the degree of labour protection.