Mundus Brief: December 2021

Pondering what to write for this Monthly Brief we dug out the November edition. The words seemed prescient, beckoning on the chaos which was just days away. 

Recent months have been relatively quiet, at least in comparison with the frequently tumultuous events of much of Stefan Löfven’s reign

We also wrote that newly elected Social Democratic leader Magdalena Andersson might fail in her quest to become Sweden’s first female PM, but that it was in no-one’s interest to bring on an early election. Indeed, in the end, that proved right. Andersson did fail at her first attempt, but things went better for her the second time around and she was able to form government. And so, what was supposed to be a historic day when Sweden elected its first female prime minister instead turned into perhaps the strangest day ever in Swedish politics. The political mayhem did nothing for Sweden’s reputation as a calm, stable country. Nevertheless, Andersson will now lead a one-party government until the elections in September next year, but needs to govern on the opposition’s budget. Naturally, the events around “Super Wednesday”, as that day of political chaos was soon dubbed, and its aftermath form the lead story for our December edition of the Monthly Policy Review

The remainder of the December edition is dominated by climate and energy. Although Mundus has more than a passing interest in climate policy, this emphasis was more by circumstance rather than design. In the aftermath of COP26, it was impossible to avoid writing about Sweden’s take on the conclusions. We set out dutifully to do so. What we did not expect was that the article would need to change halfway through writing as the Green’s pulled out of the Government and Sweden suddenly had a new Environment- and Climate Minister. In more normal circumstances, that is where we would have left green issues.

In her first statement of government policy, Magdalena Andersson identified her three priority areas – welfare, crime and climate. Whether she will make much headway or not on the first two may be debated given the obstacles she faces in pushing policy through the Riksdag. But given that Andersson, as Finance Minister, presided over 7 years of relative inaction on climate, and now also needs to govern with a budget handed to her by the Moderates, Sweden Democrats and the Christian Democrats, it seems optimistic to believe that there will suddenly be a rush to fix climate policy. Indeed, her recent coalition partner, Märta Stenevi, spokesperson for the Green Party (MP), mused over S’s motivations, and said that she felt a “great deal of concern about how the pace of climate work will go now that we [MP] are not there pushing for it.”

This feels like a suitable point to raise the issue of electricity prices. As we write, the spot price hovers at, or close to its highest on record for the Stockholm area. It is true that prices are high across much of Europe, and yet Sweden’s current predicament is at least as much self-inflicted as it is a consequence of the lack of Russian gas or North Sea wind. As energy markets analysts have been saying for several years, closing down the nuclear plants in southern Sweden without building new large cables to connect Stockholm to the vast renewable resources in northern Sweden would lead to events such as this. In our story “Sweden’s Energy Crisis and the Winter of Discontent”, we trace both the history of Sweden’s energy market and the politics that have led to this point. Our heart wishes that there was an easy policy solution. It would be nice to believe that Jacob Wallenberg is right in wanting more nuclear power. Alas, our head believes that Anna Borg, Vattenfall’s CEO is closer to the answer when she argues for more wind (although what happens on still days is still a big question mark). Having spent a decade getting to this sad point, the solution may take just as long to emerge.

In other industry news, common sense prevailed and the Cementa crisis was averted for the moment, by temporarily extending the cement supplier’s license to operate. That issue is now dealt with until after the next election. 

Our final energy story, “A New Cementa? The Future of Sweden’s Hydropower” reviews how Sweden is attempting to deal with the EUs Union’s Water Framework Directive, which commits its member states to achieve a good status of all water bodies. A natural inclination is to believe that Sweden would have had the policy challenges resolved. That might well have been the case, but societal attitudes have moved on since Sweden handed out its hydropower licenses a hundred years ago. Now, Sweden is trying to avoid closing down too much of its hydro generation for the sake of migrating eels and salmon.

This little known case is yet another example of how laws made in Brussels, while sounding broadly consistent with Swedish policy directions, translate quite poorly when needing to be implemented locally. It also underlines just how much energy policy is affected by Brussels. Think also of the taxonomy regulations, which affect Swedish plans for managing forests (or biomass, as Swedish industrialists like to think of it). 

Our conclusion – the energy transition is in full swing, and seems set to remain on the front pages. We hope that future administrations have the capacity to deal with it.

Another example of the Brussels-effect is the EU’s minimum wage directive, which Sweden has been fighting tooth and nail for months. If one listens to Swedish politicians, it is said to put at risk the very foundations of Sweden’s industrial success. And yet, Sweden finally relented and agreed to a compromise that many would have predicted earlier. According to Eva Nordmark, the Minister for Employment and Gender Equality, this was due to Sweden’s smart negotiating strategy.

We have selected two final stories to note for November. Firstly, despite predictions that the emergence of “transient” inflation would force Sweden’s Riksbank to raise interest rates, the Riksbank itself saw no need for this. Currency traders were clearly bemused, with the Krona falling over 5% against the dollar and the Euro. The Riksbank appears to have convinced the markets that it is not likely to change its mind.

Finally, Volvo Cars IPO proved to be fantastically appealing to local investors. The stock was listed at SEK 53, but bumped over 20% on its first day to SEK 65, and currently sits at around SEK 73. Those who invested in the IPO and held their shares are now sitting on a 40% gain. Great news for the small investors, but Geely is unlikely to be thrilled at leaving so much money on the table.

Our closing thought is about the story we’re not writing about – the pandemic. We hope that is also the case next month.

Swedish elections