STOCKHOLM--With the latest effort by Sweden to cool its housing market postponed by a court, concerns are escalating that political stagnation, a faulty institutional set-up and high household debt risks sending the triple A economy into a tailspin.
A move to force homeowners to pay down the principal of their mortgages -- what many economists say is the very least needed to avoid a housing bubble -- was postponed after a court in April said the Swedish Financial Supervisory Authority (FSA) lacked a legal mandate.
"The housing market in this country is dysfunctional and households are borrowing more and more and more," Stefan Ingves, the Governor of Sweden's central bank.
"This is one of those places in the world where the indecision bias has figured prominently and we are still seriously heading in the wrong direction."
His remarks highlight the bank's quandary -- forced to cut rates and buy bonds to ward off deflation while a fast-growing economy and low rates are pushing home prices up at the same time. With a bubble already feared, GDP grew 2.7 percent in the fourth quarter, the fastest in more than three years.
The legal setback, which may only be resolved next year as lawmakers scramble to rewrite the FSA's mandate, could have been a small problem if other policies were on the cards.
REUTERS
