Mundus Brief: April 2022

THE NORWAY NATO OPTION

Events and opinion are moving fast. Very fast. 

In our March Mundus Brief, we wrote with the Ukraine war being just over a week old. The battle for Kyiv was inconclusive, and it still seemed possible that Russia might overrun the capital, implement regime change and end the war. A barrage of heavy sanctions against Russia, including freezing its central banks foreign exchange reserves was still being laid down. The future hung precipitously in the balance.

March was a pivotal month for the Ukrainian forces, which fought off the invaders, surprising many observers. The West also surprised itself. For a brief moment in time, culture wars are forgotten as the US, Europe and beyond unite against a common foe. Given the military, diplomatic and economic adversity facing Russia, the war began to look like it would drag out, with neither side able to achieve military dominance. And that is the situation as we write today, with the defence and security environment likely to be one of confrontation for the foreseeable future, possibly lasting years. 

Last month we reported that Prime Minister Magdalena Andersson had poured cold water on the idea that it was time to look at the NATO option again. Swedes were told that it would be unwise to do so in the midst of a crisis. The opposition disagreed, but with an election still 6 months ahead, a change to Sweden’s non-aligned status seemed far off.

FINLAND PULLS SWEDEN ALONG

Sweden has remained outside conflicts for over 200 years. For much of this time its position was one of formal neutrality, a position that morphed during the Cold War to non-aligned, meaning that while it leaned to the West it had no formal defence pacts. The reasons for Finland remaining outside of NATO were quite different. Finland has fought a number of conflicts over the last hundred years, most notably in the Winter War against the Soviet Union. During the Cold War Finland remained neutral, appeasing the Russian bear. However, following the fall of the Berlin Wall and the collapse of the Soviet Union, Finland was able to join the European Union, moving increasingly closer to the West. But it stayed out of NATO. According to one Finnish colleague, Finns felt that while they had a difficult neighbour, they thought that they could understand it and believed that it would act reliably. The Ukraine war shattered this perception, and Finns are now deeply troubled by their 1,300km border with Russia. The percentage of Finns wanting to seek the safety of NATO has doubled since the war began. 

Mundus has been in Helsinki this week for meetings with our customers. There is a sense that change is in the air. In our meetings with over two dozen diplomats, no-one argued that Finland would keep its current status, and one Finn that we spoke to said that there was now a sense of inevitability that Finland was about to make a NATO application. It was reported in Swedish media this week that Finland was in progress, preparing an application. We will not need to wait long to find out whether that is true or not, as the Finnish Government has said that it will table a White Paper identifying its security options before Easter. 

If there is to be a move towards the security of NATO Article 5, for a number of reasons it is widely understood that Sweden and Finland will do so together. Firstly, Finland and Sweden work closely together on defence issues. This mutual security arrangement would be challenged by only one of the countries being a NATO member. Secondly, in the event of a war with Russia, it would be hard for NATO to arrange defences without using the territory of the non-aligned country. Or to put it more clearly, if Russia were to invade Finland, NATO’s routes to come to Finland’s defence must use Sweden, or take a very circuitous route around. And thirdly, public opinion is likely to exert a serious influence on any Government trying to stay non-aligned when all of its Western allies are NATO members. Therefore, in our April 2022 edition of the Monthly Policy Review (MPR), we conclude that Sweden will be applying to join NATO, either in 2022 or in 2023.

As argued above, it seems likely that Finland will soon be applying to be a NATO member. However, our in-depth analysis presents a number of supporting rationale, and highlights some little-known facts about Swedish neutrality, including Sweden’s advanced nuclear weapons program during the Cold War and the assistance that Swedish spies lent American and its allies. 

The case for a Swedish NATO application is based on hard military logic. In the last month it has been widely reported just how exposed the Baltic states are to a Russian thrust towards the Baltic Sea, which lies just 200km from the Russian border. The Baltic countries perilous position was underlined by Estonia’s Prime Minister, Kaja Kallas who argues that NATO needs “war-fighting capabilities” and permanent bases in the region, and up to 25,000 troops, and that Nato fighter jets on patrol in the Baltic states should be allowed to shoot down enemy aircraft. Similarly, the Swedish island of Gotland has been described as is an unsinkable aircraft carrier, a quality that would also remain were it to be captured by Russian forces, with scary ramifications for the rest of the region.

Another factor, and one not to be underestimated, is politics. With Swedish public opinion now tilting towards NATO, and with a majority of opposition parties (M, C, L and KD) campaigning for an application, S is exposed. With defence likely to be a major issue during the September election campaign, PM Magdalena Andersson would like for this issue to be settled, allowing S to campaign on different issues.

SABUNI TO TAKE TIME OFF IN NORWAY?

Earlier today, Liberal leader Nyamko Sabuni resigned from her position. The Liberals have been polling appallingly for years, and face the likelihood of being eliminated completely from the Riksdag unless they can double their vote to meet the 4% threshold for a seat. The problem predates Sabuni’s time as leader, but she has been unsuccessful in bettering the position. Things got much worse for her when she allowed herself a “thought bubble”, saying that she had considered moving to Norway in the event of a Russian attack. The contrast with Ukraine’s President Zelensky staying as Russian troops swarmed around Kiev was too much for some. Sabuni is now free to take time off wherever she wants.

THE ECONOMY STRUGGLES

Figures published by Statistics Sweden show that Sweden’s economy was struggling even before the outbreak of war. The February Flash GDP estimate was a drop of 0.8%, surprising analysts who had expected to see growth of 0.5%. With strong headwinds now in the form of extreme energy prices and global downgrades in key markets affected by the war, Sweden’s near term outlook is not as strong as expected some weeks ago. Swedbank was one to downgrade its forecast, with growth expected to be 2.8%, down from 3.4% last time the bank opined. Inflation is expected to continue to deteriorate, with the war driving higher prices in energy and food, which will feed through more broadly into the economy. What the Riksbank will do about this looming problem depends on its leadership, and with Governor Stefan Ingves due to be replaced at the end of 2022, the MPR looks at who his likely successor will be, and inquires if it is time for a woman to lead the Riksbank?

BUT BUSINESSES CONTINUE THE GREEN TRANSITION

The main business story for the month was Ericsson’s bribe fiasco. Having already agreed a settlement with the US Department of Justice for earlier corruption problems, it emerged that Ericsson had paid tens of millions in bribes that may have ended up going to ISIS. Worse than that, it had sat on this knowledge without making any public announcements. Such was the depth of anger amongst some shareholders that the Annual General Meeting (AGM) took the unusual step of refusing to discharge the Board from liabilities for the previous year. CEO, Börje Ekholm, maintained that he had advised the company’s management to notify of the issue, and the AGM did later re-elect him and the other members of the Board. Nonetheless, the matter is another black mark against Sweden, which has a growing reputation for poor corporate governance.

On a more positive note, the green transition continues to power ahead in the Nordics. The March 2022 Nordic Green Indices reached their highest level ever of 107. Sweden accounted for 36% of this, with a continuous stream of investments made in wind and hydrogen. Sweden is fortunate to be in this position, and owes its corporate sector some gratitude, as government policy remains sub-par. Our third MPR story looks at the recent annual assessment by the Climate Policy Council, which concluded that while policy had reached “steering speed”, the urgency of climate problems required significant acceleration in the years ahead. With none of the major parties taking strong policies to the election it remains to be seen whether Sweden can achieve its aspiration to be the first fossil-free welfare state.

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