Swedish Government Slips Into Minority as Anti-Immigrants Rise

Swedish Prime Minister Fredrik Reinfeldt won a second term in office, though his four-party coalition will rule as a minority after the anti-immigration Swedish Democrats won seats in parliament for the first time.

The government won 49.3 percent of the vote, with more than 99 percent of ballots from Swedish districts counted, the election authority said. The opposition won 43.6 percent.

Reinfeldt’s coalition probably lost six seats since the 2006 election, giving it 172 lawmakers in the 349-seat parliament, a Sveriges TV estimate showed. The opposition probably lost 14 seats and will have 157 lawmakers. The Swedish Democrats, which wants to cut immigration by as much as 90 percent, won 20 seats, SVT estimates. Turnout was 82.1 percent.

“I don’t foresee any big volatility on the back of this or any big policy changes for the Swedish economy,” said Espen Furnes, a fund manager at Oslo-based Storebrand ASA, which oversees about $54 billion. Still, “if they’re not successful in talks with the Green Party and have to seek approval from case to case, that could have a weakening effect on stocks and currencies, and perhaps even cause interest rates to rise more than they otherwise would.”

The krona reversed earlier losses against the euro and was up 0.2 percent at 9.2104 at 11:38 a.m. in Stockholm. The benchmark OMX Stockholm 30 stock index was up 0.3 percent at 1085.55.

‘Sideways’

“The krona will strengthen 3 percent against the euro by the end of the year, but we will see a period of sideways trading since we don’t know what will happen, which type of minority or majority government we will have,” said Carl Hamer, chief currency strategist at SEB AB in Stockholm.

Reinfeldt, who reiterated he won’t work with the Swedish Democrats, last night said he will talk to the Green Party, currently part of the opposition bloc, in a bid to secure a more stable parliament.

“We have a responsibility in this uncertain parliamentary situation to seek a broader support and we have indicated that it should start with discussions with the Green Party. I hope for a good response from them,” he said.

The premier presided over the biggest economic rebound in the European Union, cutting taxes and running the EU’s narrowest budget deficit. Sweden’s $430 billion economy will expand 4.5 percent this year, the best performance in the 27-member EU, recouping most of last year’s 5.1 percent decline, the Finance Ministry said on Aug. 20.

Majority Needed

“What the markets need is a majority government, but since our finances are in such good shape, I don’t think they’ll react too harshly if there’s not a majority,” said Bo Lundgren, head of the National Debt Office, last night.

The Swedish Democrats have tried to cast themselves as kingmakers, though both the major blocs have ruled out any collaboration. Besides its anti-immigration stance, the party campaigned on a pledge to raise spending on elderly care, jobless benefits, longer prison sentences and introduce compulsory military conscription.

“The other parties have warned of this situation and warned that we will create problems,” Jimmie Aakesson, Swedish Democrat leader, told party members today. “My promise to the Swedish people is that we will not create problems, we will take responsibility for Sweden.”

The country’s budget law will probably prevent the Swedish Democrats from blocking the passage of fiscal bills because a budget can only be obstructed if a parliamentary majority puts forward an alternative proposal, said Tommy Moeller, political scientist professor at Stockholm University.

‘Never, Ever’

The main opposition party, the Social Democrats, who made its worst election in almost 90 years, lost after it failed to convince voters it is the sole guardian of the welfare state, preventing its leader, Mona Sahlin, from becoming Sweden’s first female premier. It last night reiterated that it will “never, ever, not a single time,” work with the Swedish Democrats.

“One shouldn’t exaggerate the risks of a political crisis since the Social Democrats and the Green Party have said they’re prepared to act responsibly for the sake of the country,” Moeller said.

Sweden has been ruled by minority governments since the current one-chamber parliamentary system was introduced in 1971, with the exception of six years of majority coalitions starting in 1976, and the last four years under Reinfeldt.

“It couldn’t have happened to a better country,” said Par Magnusson, chief Nordic economist at Royal Bank of Scotland Group Plc in Stockholm. “This is Sweden, we don’t do turmoil here.”

Sahlin told supporters at a party rally “we lost, we admit that. Now it’s up to Fredrik Reinfeldt to show how he intends to rule Sweden with a minority government.”

Compromises

There will be “negotiations and compromises on issues outside the budget and there the government may run into problems,” said Jonas Hinnfors, political science professor at Gothenburg University. “Reinfeldt will send out feelers about a semi-permanent cooperation with the Green party, even though I don’t think he’ll invite them into government.”

Should the Green Party refuse to work with the government, Reinfeldt will rule “with jumping majorities on individual issues, which is how the Social Democrats ruled the country for decades,” Hinnfors said.

The government, which pushed through 70 billion kronor ($10 billion) in income-tax cuts in its first term, plans to cut taxes on incomes and pensions by a further 25 billion kronor through 2014. The last four years of tax cuts for wage earners were equivalent to 2.3 percent of gross domestic product. The government says the cuts aren’t at the expense of welfare.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

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