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DEBT

Higher debts hit Swedish households

While Swedes struggle to cut spending and put more money in the bank, a new survey shows that households are poorer and more indebted than at any time in recent memory.

Higher debts hit Swedish households

Swedish households lost more than 300 billion kronor ($42 billion) in the first quarter of 2008, according to the SEB bank’s Sparbarometer index, which has tracked the wealth and savings of Swedish households since 1996.

The index’s debt quotient, which measures the level of debt in relation to assets, is at the highest level ever recorded by the Sparbarometer.

“Falling stock prices and an increase in new loans has dug into households’ net worth. At the same time, housing prices haven’t kept up,” said SEB economist Gunilla Nyström to the TT news agency.

According to preliminary figures, housing prices fell 2.4 percent during the first quarter in 2008.

Swedes took 45 billion kronor out of their private savings in the first quarter, most of which went to consumption.

The second quarter’s withdrawals from investment funds amounted to 24 billion kronor, while 35 billion was placed in bank savings accounts.

“The trend from the last quarter in which households consumed their savings has now been broken,” said Nyström.

At that time, money was used to maintain people’s standard of living despite higher prices for food and fuel, as well as higher lending costs.

But now the threat of a slowing economy appears to have sunk in to Swedes’ consciousness, causing them to prepare for tougher economic times.

Taken in aggregate, however, household assets are nearly four times greater than debts.

“But there may not be many who feel that way. Many of the assets are placed in secured savings such as the corporate pension system and public pensions, in savings accounts which households can’t access,” said Nyström.

And despite the high debt quotient, 27 percent, household net worth looks good on average, according to Nyström, who suspects that the rate of indebtedness will decrease.

“A few years ago, indebtedness was increasing by more than 12 percent a year. Now that rate is down under 10 percent. But many households have poor liquidity,” she said.

COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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