‘Political Mess’ in Sweden Carries Dangerous Economic Sting

Updated on
  • Swedish PM faces majority opposition seeking to block him
  • Economists say housing, immigration, tax agenda all at stake

A Scandinavian bastion of consensus-driven politics is in tatters.

Prime Minister Stefan Lofven only just managed to hold on to power last week. But he emerged much weaker and speculation is rife that his left-leaning minority government will struggle to get anything meaningful through parliament until elections next year, if it survives that long.

Stefan Lofven

Photographer: Simon Dawson/Bloomberg

The bitter stand-off has been about three years in the making, and Swedes are now living with a “new domestic political landscape with weaker minority governments,” according to Robert Bergqvist, chief economist at SEB AB, one of the country’s biggest banks. He predicts Swedish politics will “hobble” through this electoral cycle, with no guarantee the uncertainty will end after September 2018 elections.

The list of challenges facing Sweden is long, Bergqvist said. He points to an overheated housing market in need of reform as prices and debts keep rising, as well as the need for better integration measures following Sweden’s large intake of asylum seekers. There’s also a tense geopolitical climate that can “rapidly deteriorate,” he said.

No one suggests Sweden’s economic prospects will change overnight and the economy is strong for now, but a long phase of legislative stalemate will put that strength at risk, he said.

Lofven, a Social Democrat who wants to raise taxes to finance more welfare, has fought an increasingly hostile opposition. Parties representing a majority in parliament last month sought no-confidence motions against three of his ministers after a government agency bungled a cyber-security breach.

Lofven got rid of two of the ministers, but kept one, his defense minister. The main opposition parties have said they won’t back down until all three ministers are out and are still planning a no-confidence vote for next month. Government investigations into the cyber-security breaches are due to be completed by Jan. 31, it said on Thursday.

It’s a “political mess” that will last until elections next year, according to Torbjorn Isaksson, chief analyst at Nordea Bank AB, Scandinavia’s biggest financial institution.

The opposition has also made clear it won’t accept the raft of tax increases the government wants to include in its budget proposal for 2018 and has threatened to cast no-confidence votes against other ministers, or the government as a whole, to stop them.

An Ipsos poll published by Dagens Nyheter on Thursday suggests Swedes are getting tired of the conflict. It shows 42 percent of Swedes want the defense minister, Peter Hultqvist, to stay. Only 21 percent think he should step down.

The Elephant

The elephant in the room is the anti-immigration Sweden Democrats, a party formed from extreme right-wing groups which has so far been shunned by the country’s mainstream politicians. It is anti-European Union and wants to impose permanent border controls.

The big influx of immigrants from countries such as Syria and Iraq has helped the Sweden Democrats in the polls, and they now enjoy the backing of about one-fifth of the electorate. At SEB, economists are wondering whether the main opposition group, led by Anna Kinberg Batra of the Moderate Party, craves power enough to consider allying itself with the Sweden Democrats.

“Unless we see any dramatic change in public opinion, a possible right-wing government in 2018 will need support from the Sweden Democrats,” economists at SEB wrote in a client note.

— With assistance by Hanna Hoikkala

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