Mundus Brief February

Lady luck has changed her affections, and things are not going Sweden’s way. Until fairly recently, Sweden had one of the best economies in Europe, a stable geopolitical situation and a solid future for its tech-driven industry. But now there are thorny challenges wherever you look. Sweden faces a hard-fight to get into NATO, not made any easier by its hard-to-comprehend constitution that seems to allow acts of individual malevolence to dictate national policy, its economy and housing market are in a downturn and it faces the need to pivot from flexible (IT)-tech-led growth to a new greentech ecosystem that requires a well-functioning energy market, something its politicians of all persuasions have been actively fighting for a decade. It is going to require a Herculean effort from its Government to deliver on this, and Swedes are far from certain that the Tidö Agreement parties are up for it. 

Let’s investigate …

Burning bright

Axel Oxenstierna
Photo credit: Modern Historia

Recently, over a lunch, Mundus was speaking with a Swedish official about whether the burning of the Qur’an, in front of Turkey’s Embassy, by Rasmus Paludan in January was an illegal act. One that could and should not have been given a permit by the police. As the official considered his response, he pointed at a huge painting that hung on the wall, and dryly observed that Axel Oxenstierna, the 17th Century Swedish Lord High Chancellor was partly responsible. “It was he who created the constitution that we now have.” Hence, there is one interpretation that Sweden’s ability to respond to events was hemmed in by its history.

The Government of Sweden’s website presents the official view of freedom of expression and freedom to demonstrate in Sweden. The website, which unsurprisingly was updated on 26 January, five days after Paludan consigned Sweden’s short-term chances of entering NATO to the dustbin, explains that “the constitutionally protected right to freedom of expression includes the right to express thoughts, opinions and feelings through speech, writing or images without interference by the authorities. This freedom can only be restricted if it is necessary for the fulfilment of certain purposes specifically set out in the Constitution, and a restriction may never go beyond what is necessary to fulfil these purposes.” However, one such restriction is hate crime, and there seems to be grounds that Paludan was offending against them given his attitudes based on religion. 

But, legally speaking, there is also room for doubt, and hence the police took the fateful decision to allow Paludan’s protest. The consequences of this were immediate, as Türkiye’s President Erdogan declared that he would not be ratifying Sweden’s NATO application. And to compound the situation Sweden now finds that its business interests and the safety of its citizens are now threatened in the Arab world and beyond, given the understandable offence caused to Muslims. 

Or is it understandable? That depends on your perspective. Many Swedes reckon that they would just shrug their shoulders if someone burned a Bible or even a Swedish flag. And so it seems that Sweden is tripped up by its differences with most other countries. As the rest of the world struggles to understand how Paludan’s burning of the Qur’an was allowed to proceed, Swedes are left scratching their heads as to why it caused such a stir. Subscribers to Mundus’ Monthly Policy Review (MPR) can read our analysis in the next issue. 

After the boom, the worst growth in the EU

When the IMF updated its global growth forecasts last week, the headlines read that the UK was the worst-affected large economy. But look again, and a surprising story emerges. Sweden is the only country in the EU that’s forecast to see its GDP decline in 2023. It’s rather a surprise for a country that has consistently stood out for economic success over decades. While the UK’s Brexit story is well-known, what makes Sweden an outlier? The IMF begins its summary noting “continued global headwinds, higher inflation, and interest rates started to put brakes on consumption and business confidence.” That sounds pretty standard for most economies, so the answer about why Sweden will experience a recession, whereas others will get away with weak growth, seems to lie with the housing market. Swedish house prices have been running hot for 20 years, and the market has the third highest returns of all markets tracked by The Economist over that period. That’s made households feel richer than they arguably were, and pumped a consumer spending boom. With house prices now down over 12% in the last 12 months, and with energy prices and inflation soaking up peoples’ income and savings, that boom is reversing. Or, as the IMF put it, “the weakening of the housing and commercial real estate market highlights the long-standing vulnerabilities in these sectors, such as their high exposure to variable interest rates, high leverage, and excessive rent control that render the housing market dysfunctional.” 

The IMF prescribed the following medicines. “It is important to increase efficiency … to better integrate the less educated and the foreign-born. A timely upgrade of the South-North electricity connections would contribute to stable and secure energy for households and business. To achieve Sweden’s ambitious climate goals, its carbon pricing should be complemented with increased investments in energy supply and transmission including in renewables and green infrastructure. All the above will help boost Sweden’s inclusive and green growth over the medium-term.” Easy to say. But harder to do, politically, at least.

Kristersson’s first 100 days

Franklin D. Roosevelt spoke of his first 100 days in office as US President. This was the time of the Great Depression, and he wanted to breathe life back into his “stricken nation.” Nowadays it is common for US politicians to look at what they have achieved, and the concept has now been adopted into Sweden. With Ulf Kristersson taking the opportunity to remind voters of his, and the Tidö Agreement parties’ achievements, Mundus conducted our own review. 

The 3 government parties, M, KD and L came to power, supported by SD, promising a new direction for Sweden on many fronts – and a radical change of tone on certain policies, such as immigration. We rated them a D-grade, so far. Perhaps this is tough, but when achievements are stacked up against the mounting challenges, we think it fairly represents the need for better performance. 

Given the right-wing basis of the Government, its natural supporters should come from business, but there is already a sense of frustration amongst business leaders that the Government’s priorities are wrong. For example, a group of 14 CEOs took up the pen in a letter to Dagens industri, the nation’s business daily, offering the Government a smörgåsbord of 41 reforms that they would like to “shake hands” on, in order to complete “a gigantic restructuring of the economy.” Amongst the policy areas to be addressed are climate change, societal resilience in the face of crises, free trade and globalisation, structural changes to address the deepening recession and an “electricity supply [situation which to call it] challenging is an understatement.”

And if business is already alarmed at a lack of direction, then green groups are openly up in arms. A full analysis as to why is beyond the scope of this newsletter, so we have published online the analysis provided to subscribers in our November Monthly Policy Review. A short version of the conclusion would be that the Tidö parties campaigned on the wrong energy policies, and a 180° turnaround is required. Amongst the most significant of these policies is its commitment to nuclear energy, which was sold as a fix to the acknowledged poor starting point in terms of the country’s energy needs and the need for affordable power. Our MPR analysis looked at the affordability question and suggested that nuclear power would be 55-60% more expensive than building offshore wind. Is it possible that we were wrong about the expense of nuclear energy? Yes, according to Tomas Kåberger, a Board member at Vattenfall, and previous Director General of Sweden’s Energy Agency. He argues that nuclear energy could end up being 300% of the price of wind energy, and just building it will cost SEK 40,000 per Swede. At that price, gone would be any green dreams for Swedish industry.  

Consequently, the issue is of some critical importance to Sweden, and hence the Government, where policy debates are clearly underway, but kept largely behind closed doors. The political differences are stark. SD is keen to blow up existing climate policies to win over their target voters, who suffer from the higher costs and often live in rural areas. On the other side, sits Sweden’s Minister for Climate and the Environment, Romina Pourmokhtari (L), who threatens to resign and take her party out of the coalition, hence causing a government crisis, if she does not get climate action. The stage looks set for a protracted debate and uneasy compromise – precisely the sort of outcome that business is against. 

The use of the words ‘blow up’ is perhaps unfortunate, as real explosions continue to occur in Stockholm and cities across the southern part of the country. Crime should be a strong point for the Government and SD, but unfortunately the use of guns and handgrenades is getting worse. To be fair, the Government does have a set of proposals, and even successful changes do take time to pay off. We will need to wait and see.

The situation is similar for other important policy areas, such as migration, integration and healthcare. 

So, what do the voters think?

Admittedly, Mundus may have a bias towards policy over politics, so we invited Torbjörn Sjöström, CEO of pollsters Novus Group for his interpretation. His full text is published as a guest on the Mundus Blog. He makes several interesting points. His central argument is that the Tidö parties oversold, by some considerable amount, their ability to deliver results. And they are now having their feet held to the fire by voters (and we add, the press). In Torbjörn’s words, “it is hard for the Government to say ‘it’s complicated’ when they now have the power over issues they said were easy when they were in opposition.” The most flagrant example of this was over compensation for high electricity prices, which government politicians promised to deliver by 1 November 2022, but will eventually only be paid out in February, too late for some people and businesses. But, there are several similarly significant promises that remain undelivered, and potentially, undeliverable. Hence, his conclusion that voters have simply lost trust in the Kristersson Government, and more generally with its political class. Further evidence of this was published this week, in another poll which looked at confidence in Swedish political leaders. The results were alarming. The only leader with a net positive rating was the former PM Andersson (S), who was given a 55% rating of High Confidence and a 40% rating of Low Confidence. The current PM Ulf Kristersson received (32%+, 63%-) and Ebba Busch, who manages the political hot potatoes of energy, climate and industry, received (21%+, 73%-). 

Where to next?

While 100 days is still early in the Government’s possible 4 year term, it needs to resolve difficulties over a variety of fronts. Somehow it must deliver a cohesive policy that hangs together for the fast-developing green industry which needs truly vast amounts of renewable power delivered this decade, together with meeting EU law in terms of managing the climate and environment agendas, and the wishes of a large percentage of Swedish voters, while keeping together a political coalition that runs from the nationalistic, and climate sceptical SD to the EU-loving Liberals. 

Mundus remembers back to a conference put on by the American Chamber of Commerce on 13 September, just two days after the poll. A former Social Democratic State Secretary for Labour and Employment was asked what she thought of the right-wing’s chance for governing. A wry smile came over her face, as she recalled the demands faced by her side in trying to herd the cats amongst S, the Greens and the Left Party. Perhaps Sweden’s voters only have themselves to blame in creating such a difficult political situation.