Mundus Brief: February 2022

January was a month of mixed emotions in terms of the news. The best news was without doubt that the pandemic was entering a “new phase”. News of what this would mean formally, in terms of restrictions, was eventually announced on February 2, as PM Andersson opened restaurants and bars from February 9. But by January it was already clear that Omicron was far less deadly for Swedes, and the mood was quickly relaxing.

Or at least it would have been, if it were not for the simmering conflict in the Ukraine. The location of 100,000 Russian military personnel close to the Ukrainian border has been interpreted globally as a sign that an invasion could be imminent. As US President Biden and the EU attempted to see if jaw-jaw diplomacy could ease the crisis, Sweden prepared for war-war. The military presence on Gotland, Sweden’s “unsinkable aircraft carrier” in the Baltic Sea was increased and a bit less obviously, Sweden’s military mobilised across the country. Buried in amongst the facts of the mobilisation was a deeper theme that Sweden’s military capabilities were bouncing back after two decades of being ignored with the end of the Cold War. Finally Micael Bydén, Supreme Commander of the Swedish Armed Forces, was able to project a sense that Sweden had some assets to play with. Clearly nowhere near enough to deter any serious invader, but given that the conflict wasn’t in Sweden’s immediate vicinity, and given that Sweden’s response was coordinated with other European powers, the moves were acknowledged positively by allies.

The obvious question for Swedes was whether now was the time to take matters to their obvious conclusion and formalise alliances through NATO, ending hundreds of years of non-alignment and ambiguity. As the global media peered in to see if Sweden and Finland would make the move, the political debate reached a crescendo at Sweden’s annual Folk och Försvar (Society and Defence) Conference, which Mundus attended (digitally). Our coverage in the Monthly Policy Review looks at the debates, particularly at what opposing sides of politics are arguing over defence spending and the NATO option. For those eager to be under the umbrella of NATO it must be encouraging that sentiment against joining has fallen by a third since 2018.

Another political battle royale is being fought out on energy policy. As long-term Mundus readers may be aware, Mundus has had more than a passing interest on this topic for several years. The issues are complex and we regret to say have been poorly addressed by both sides of politics. Fundamentally this is due to voter disinterest, with Swedes being nominally green-tinged in their sentiments, but not seeing it as a core issue. Political parties have therefore been keen to profile themselves as greenish, but not sufficiently engaged to make any changes that would rock the boat. Necessary decisions have been postponed time and again until now it is too late to seek an elegant solution. Sky high power prices in December fortunately eased substantially in January, but not before the Government decided to give SEK 6 billion in handouts to homeowners. To put this into context, the subsidy is almost at the same level as the SEK 8 billion that the government gave to industry to go green this year. Could there be an election coming?

Meanwhile, petrol, and especially diesel prices have increased significantly. The Swedish government would like for voters to concentrate on Sweden’s usage of renewable biofuels, whereas what Swedes are far more animated about is the cost of fuel, especially those in the country with long distances to travel. 5% of Swedes have now joined Bränsleupproret (Eng. The Fuel Uprising). Meanwhile, Sweden is left with a large import bill to pay as it scrapes up a considerable percentage of selected biofuels, and Sweden’s forest industries are disappointed that the Government has done so little to encourage them to produce it domestically. Despite all the noise, a surprising fact is that 7 of the 8 political parties actually voted for the new rules. 

Another issue where some political parties might now wish their voting records were otherwise is nuclear power. In 2016, the Löfven Government agreed with the Moderates, Christian Democrats and Centre Party that Sweden would target 100% renewable power by 2040. Although the wording of the Energy Agreement did not force nuclear plants to close, it did nothing to support its continuation and energy utilities decided to phase their plants out. What was not foreseen at that time was the huge expansion in demand for electricity, e.g. for producing hydrogen and green steel. And neither was it known that local regions would be as resistant to locating wind turbines on their land as they have been. Now the Moderates and Christian Democrats have changed their minds and would like to see more nuclear built – this is expressed as “replacing the goal of 100% renewable electricity production by 2040 with 100% fossil-free energy”. However, new nuclear plants have proven to be extremely expensive forms of power. Britain is paying GBP 23 billion to build just 3.2GW of nuclear at Hinkley Point, which the British taxpayer will be subsiding by billions. Given this, Swedish utilities have been unexcited about building more nuclear. The rhetorical argument is being made that Sweden needs reliable power, not the variable power that comes from a wind turbine. But the Moderates seek to avoid a discussion about price. Or as Centre Party leader Annie Lööf put it, Moderate leader “Kristersson does not want to solve the energy issue. He wants to print it on election posters.”

And so we return our attention to the forthcoming election campaign, which is starting to get under way, although it won’t hit full speed until the spring. Political parties are preparing  the ground for the arguments that they hope will see them rewarded by voters on election day on 11 September. 

And Mundus is also preparing. The February edition of the Monthly Policy Review features our extended “Elections Scene Setter”, helping readers understand key political processes and facts that will shape the outcome.

And going forward, each edition of the Monthly Policy Review will feature a review of one of the key battleground policies. To get you started, Mundus has prepared an Election Guide with information about the political parties, the election campaign and how the elections will be run. 

One issue that Swedish voters won’t need to worry that much about is the economy, which has hit a sweet spot. As already reported last month, Sweden’s economy is growing very strongly. And with the December flash GDP estimate being positive, Sweden is one of only 5 (out of 38) OECD economies that is experiencing a “super recovery”. Long-time Mundus readers will know our view that this good news has been brewing for two years, as we have argued (see here & here) that Sweden took decisions at the beginning of the pandemic that were going to have a big benefit down the track. Not only is GDP above where it was before the pandemic, but GDP has grown faster than economists expected before “Covid-19” became a household name. Unemployment is falling and with inflation believed to be more under control in Sweden than other leading economies – notably the US and the UK, but also Germany, the good times look set to continue. The MPR story, Swedish Economic Outlook 2022 – A Bumpy Road to a Bright Future?, looks in-depth at what Sweden’s banks believe will happen to the economy in 2022.

We have added a new blog on our website called “Behind the scenes at Mundus”. It is written by our intern this spring, Charlotte Perlaky. Read more here ➢