If You Want Good European Economic News, Look To Sweden

If you're looking for some uplifting European economic news, that search will likely take you outside the euro zone and into Stockholm.

The country's second-quarter report on economic growth released Monday shows the country expanded its gross domestic product by 1.4 percent from the previous three months and by 1.8 percent from last year, smashing estimates of 0.3 percent and 0.8 percent, respectively.

Sweden will probably see a slowdown heading into 2013, as the export-driven economy will begin to feel the euro zone's pain and the stronger currency will hurt competitiveness.

"With Swedish exporters likely to feel the effects of the ongoing crisis in the euro zone -- as well as the near 10 percent appreciation of the Krona versus the euro seen since the middle of May -- it is hard to believe that the growth rates seen in the first half of the year will be fully maintained in the second," said Jonathan Loynes, chief European economist for Capital Economics.

Meanwhile, euro-wide business and consumer sentiment fell for a fourth consecutive month, according to the European Union's Economic Sentiment Indicator, which was also released on Monday.

Since the euro zone sovereign debt crisis exploded in 2009, Sweden has been outperforming the euro zone. Its growth has been stronger and its contractions less painful. In the past nine quarters that the German economy has grown, Sweden outperformed the euro powerhouse in all but one of those quarters. In the first quarter of 2011, the Nordic giant exhibited a China-like growth rate of 8.1 percent.

So what's going on in Sweden, home to IKEA, H&M and Volvo?

For one thing, Sweden manages to balance its budget and has reduced the number of public- sector workers while keeping unemployment down.

All of this has led America's tea party patriots and others to hail Sweden as a shining example of fiscal conservatism and a condemnation of Keynesian stimulus spending.

"Instructive is the culture and economic transformation in Sweden," Ted Abrams wrote in May on the blog of Washington, D.C.-based FreedomWorks, the conservative nonprofit group that advocates tax cuts and reductions in government spending on social safety net programs. "Yes, Sweden the home of central government and high taxes -- the benevolent government, adored by socialists everywhere. Sweden has changed. They are reducing taxes and cutting spending. Sweden's Finance Minister, Andres Borg, reasoned that government policies -- high taxes and rigid regulatory controls -- had caused decades of economic stagnation."

The attempts to hail Sweden as a model of fiscal responsibility may be a matter of relativity. When Swedish government officials talk about austerity and cutting social entitlements, they are talking in one of the world's most taxed and entitled societies.

Swedes still live, and will continue to live, with a cushy social safety net, including a hybrid health care system largely funded by the government with private options for those that can afford it. Also, according to OECD estimates, Sweden still paid 46.4 percent of its GDP in taxes in 2009; the U.S. pays 24 percent. The personal income tax rate is as high as 58 percent, not including the 25 percent Value Added Tax -- tax rates that would be vehemently opposed by the same Americans lauding Sweden as a shining example of fiscal conservatism.