NEVER WASTE A CRISIS:

By 1991, at age 23, Mr. Borg was advising the grown-ups in Stockholm, where the cabinet of then-Prime Minister Carl Bildt was deregulating everything in sight in a bid for growth. Welfare was frozen and housing subsidies slashed, along with tax rates at the top and bottom of the income scale. The government introduced a private option for health insurance and a voucher system for "free" schools (just don't say "for profit") that today educate 10% of young Swedes. Eventually even the bank assets were sold off, at no net taxpayer loss.

The panic had left a "scar" that Mr. Borg says "transformed a lot of our society." He says "no country should wish for a crisis," but Sweden's helped forge a national consensus for the kinds of reforms against which Southern Europe is now revolting: checks on government spending, changes to taxes and welfare to encourage work, and labor-market liberalization.

Since becoming finance minister in 2006, Mr. Borg has further nudged down income and business taxes, abolishing Sweden's "wealth" tax on assets of more than 1.5 million krona ($215,000) and scrapping most property taxes. In 2010, Prime Minister Friedrik Reinfeldt's center-right alliance became the first non-Socialist government in modern Swedish history to win a second term. Health care is now heavily subsidized rather than fully nationalized; in 2010 Sweden got its first private drugstore since 1971.

Employers now have the right to lay off employees in a downturn, giving Sweden an advantage over most of Europe, where labor restrictions of all kinds make employers reluctant to hire even in good times. Union membership runs to 80% of the workforce (both blue-collar and white), and national collective bargaining still sets working times and wages. But Sweden today competes with the world, since a 2008 reform made it one of the easiest countries in Europe for non-European Union immigrants to work legally.

Stockholm has also tightened eligibility criteria on unemployment benefits and sick pay. "There used to be almost a percentage point of the workforce going into early retirement every year--now it's 0.2%," Mr. Borg notes. To sweeten the "overhaul from welfare to workfare," a reform Mr. Borg says has been "very much inspired by the Clinton administration," a new earned-income tax credit returns up to 6% for low- to middle-income workers. 

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