The Mundus Brief: December 2018

The game of Blind Man’s Bluff, known as Blindbock in Swedish, involves blindfolding one player, who is then spun around to disorient them, and then needs to catch the other players. For the last 3 months, that has felt to be a reasonably analogy for Swedish politics.

Successive political parties have had their turn to be “it”, blindly lurching around without much chance of catching enough other players to form a government. Maybe that is about to change. As we write 5 political parties – S, C, L, MP and V – are involved in tangled negotiations about the formation of a new government.

How did we get here?
The beginning of November saw Moderate leader Ulf Kristersson’s second effort to form a government fall short. The Speaker made him take a vote in the Riksdag and the result was – as expected – a failure. Following that, Centre Party leader Annie Lööf was given an opportunity to lead negotiations which might lead to a government where she was not the Prime Minister. This too failed, giving Stefan Löfven his second attempt. Löfven is approaching the task with the air of a confident man. He declares that he has done his preparation and the party is fully behind him. Löfven is regarded as an excellent negotiator, and he will need to perform brilliantly if he is somehow to square the circle of seemingly contradictory demands.

On the one hand, he was presented with the Centre Party’s “non-negotiable list” of policies, which he needed to accept if he wanted to be Prime Minister. This list was subsequently endorsed by the Liberals, who added in some extra demands about education reform. The proposed policies were for market friendly, liberal policies, including reduced taxes on work and businesses, liberalised labour and housing markets and ownership reform for rural areas.” Left Party leader, Jonas Sjöstedt, not unfairly, said of the demands: “I do not think even Annie Lööf thinks Stefan Löfven would accept policies to the right of the Reinfeldt (M) administration,” adding that his party demanded influence if their votes were to be relied upon.

For a Löfven government to gain majority in the Riksdag it needs not only the votes of the Green’s – which it assumes it will get – but also Centre, the Liberals AND the Left Party. Also, Annie Lööf has said that she would not tolerate a government influenced by either of the extremes – the SD or the Left Party. She has also said that she would rather eat her shoe than provide support for a government led by Stefan Löfven. Although, that was five years ago. Further, the Social Democrats’ natural ally, the unions, “think this is a terrible proposal,” according to labour union LO’s Chairman Karl-Petter Thorwaldsson, who said he would not want Sweden “to participate in the overwhelming change that is taking place in many other countries.”

Swedes regard the Social Democrats as a party of power – prepared to go to great lengths to gain and exercise power. However, that does not mean that the party does not have core beliefs, having spent 100 years building up social democracy and entrenching the role of the union movement. It will perceive the Centre Party demands as extreme, and more than one commentator has thought that even S would not sell its soul just to stay in government.

The economy turns south
But, given economic pressures, it may be the sort of push that the party really needs. The news on the economic front suddenly does not look anywhere near as good as it did in summer. Both Swedbank and SEB published their economic outlook, with both forecasting growth to be lower than recent years, bumping along at around 2%. Finansinspektionen (FI), Sweden’s Financial Supervisory Authority, also said that it sensed signs of slowdown in its stability reportEarlier in November the inflation rate came in at 2.4%, lower than economists’ forecast of 2.6%. But it was a surprise when the third quarter GDP figures showed the economy had shrunk by 0.2% as a result of the weak housing market. Some forecasters now even believe that this could lead the Riksbank to put its interest rate hike on hold. 

Stories from Mundus Business Insights

Sweden losing unemployment race in Europe
Sweden has dropped from 12 to 18th place in the ranking of the EU countries with the lowest levels of unemployment over the last four years, reports Europaportalen. This is a development that is in stark contrast to the Löfven government’s target of having the lowest unemployment rate in the EU by 2020. Since September 2014, unemployment has shrunk faster in the rest of the EU than in Sweden. If this development continues, unemployment in Sweden could soon be worse than the EU average. Bloomberg writes that unemployment is back to haunt Sweden after years of an employment boom. “Even amid the longest expansion in four decades, unemployment in the largest Nordic economy still hasn’t got back to pre-financial crisis levels. The jobless rate is hovering at more than 6%, far above the level in its Scandinavian neighbors and in global economic powerhouses such as Germany and the U.S.”

Business leaders want lower taxes to attract talent
If Sweden wants to maintain its place as one of the world’s most competitive economies, then several taxes should be axed and the property market should work better, according to Jacob Wallenberg at a seminar on taxes at Näringslivets Hus, writes Di. “Among others, we should be able to attract the best people, the ones who will sell our products, lead our companies and research.” The Chairman of Atlas Copco and SKF, Hans Stråberg, said he wished to see “a clear reform agenda with fewer rules and changed tax structures,” the newspaper wrote.

Stockholm housing situation costs billions
The Stockholm Chamber of Commerce presented an analysis of the economic consequences of the housing situation in Stockholm. The press release states that Stockholm every year loses out on SEK 36 billion, which is equivalent to SEK 100 million each day due do a lack of housing. The Chamber of Commerce further writes that 50,000 more people had lived in and around Stockholm if there was accommodation, meaning SEK 4 billion in tax incomes is lost. “Sweden and Stockholm need the capacity to implement necessary and courageous reforms that could correct the problems. Therefore, I think it is imperative that the government that takes the initiative initiates broad housing policy talks and takes a big deal with the entire housing policy” says Andreas Hatzigeorgiou, CEO at the Stockholm Chamber of Commerce.

Spotify to expand
Spotify will expand its operations to the Middle East and to Northern Africa, writes Breakit. The 13 countries Spotify is expanding to are UAE, Saudi Arabia, Kuwait, Oman, Bahrain, Algeria, Morocco, Tunisia, Jordan, Lebanon, Palestine and Egypt

In the latest edition of the Monthly Policy Review

Our latest Monthly Policy Review profiles three distinct issues for Sweden. Our headline story covers the COP24 climate change negotiations, looking at Sweden’s expectations and negotiating position. Cautious optimism is the catchphrase. Then we have two stories looking at different aspects of EU policy; PESCO – the Permanent Structured Cooperation for defence, and Sweden bristling at changes that strike at the heart of the Swedish labour market model – its one of the few issues uniting Swedish politicians of all brands.

Our final story looks further into the rollercoaster of Swedish politics, particularly the dynamics and pressure created by the budget vote, scheduled for 12 December, forcing the pace of government formation negotiations.

Where to next for Sweden?

At the time of writing, Sweden’s politics are delicately poised. It could be that an unstable compromise arises in the haste to agree a government before the budget vote. If it were to happen in the next few days that a S + MP government were to emerge, supported by C + L on the right and V on the left, one assumes that this would still be a large shift rightwards in terms of economic policies, possibly with the tradeoff that social policies, such as refugee family migration and climate policies are also advocated, giving those on the left of MP, S and also V something to cheer about. Our best guess is that that is about a 50/50 chance. 

If this attempt falls apart, then the options really do look stark. The two remaining possibilities would be for C and L to declare its attempt to forge a government with S over, and to try to find a way back to the Alliance, supported by a hungry SD. The optics of this would look terrible for C and L, but perhaps they could manage it if they convince people that they have really tried with S. The problem for both C and L is that the only other alternative would appear to be to go back to the polls. Both parties would be likely losers at a new poll, having disappointed supporters in one way or the other in the last 3 months. And with the most likely result of a new poll being something quite close to the status quo, chances are Sweden’s politicians would have forced the country through the process only to end up in the same arguments all over again. 

Surely now is time for the blind man to slip off the blindfold and survey the scene with some clear sightedness.