Mundus Brief: January 2020 in review

Mundus Brief returns after a Christmas vacation, and comes back to a Sweden that appears to be beset by issues, led by a political class going around in circles. As we wrote in November, domestic politics is being torn asunder by the emergence of the Sweden Democrats (SD) as a serious political force. What was less clear at that point in time was how closely the opposition parties could or would gang up on the government. Time has shown that adversity makes for strange bedfellows. The Left Party (V), a party that used to call itself Communists, has found a way to cooperate with the Moderates, a party that has always represented the nobility and capitalists, and the Sweden Democrats, a party with neo-Nazi roots, to put great pressure on Löfven’s minority government. 

A lot has happened since November. At that point the Government was locked in a tussle with the opposition over reforms to the Public Employment Service (Arbetsförmedlingen). Shortly afterwards the government caved in, postponing its reforms, reopening just closed offices in some country towns and giving the opposition parties a victory.

Since then it has gotten progressively worse. January saw a wave of explosions in residential areas throughout the country. The opposition parties were quick to level criticism at the Löfven administration for failing to tackle crime. Ulf Kristersson, the leader of the Moderate Party, drew links between criminality and mass immigration, arguing that the government needed to sharpen penalties and give the police more powers. SD spokesperson Adam Marttinen echoed the Moderate leader’s views, saying “mass immigration to Sweden has been a key factor in the rise in violence”, The Sweden Democrats have staked out this issue for years, claiming it as theirs, and giving it a narrative linked to immigration. This narrative has now essentially been accepted by the Moderates and the Christian Democrats (KD). In November, Ulf Kristersson even apologised for the way his party had responded to their arguments.

So, it seems that the rapprochement between the centre-right and the far-right in Sweden is well underway, and the normalisation of SD into Swedish politics is only a matter of time. If this occurs, it will change the outlook for Swedish policy dramatically. Currently, parties of the right (M, KD, SD) have the support of almost half of Swedes, while centre/centre-left parties (S, C, L, MP) hold 40% and the left (V), 10%. The decline for the Social Democrats is a persistent trend since the 2018 election. Furthermore, the party has dropped seven percentage points since the January Agreement was struck one year ago.

Meanwhile, during a Riksdag debate in January, Ulf Kristersson raised the issue of calling for an early election since dissatisfaction is mounting and the government is failing to get anything done. Indeed, as public discontent grows, the right-wing and the left-wing opposition will continue their attacks on the government and its cooperation partners this Spring. Our feature article in the February edition of the Monthly Policy Review, “The Shifting Tectonic Plates of Swedish Politics”, explores the complexities of the issue, and considers “what next?”

For those trying to interpret Swedish policy, what comes next is of critical importance, because the scope of the political battlefield is immense, in terms of the number and variety of policy issues that skirmishes are being fought over. In addition to immigration, integration policies are also contested. Under the January Agreement the Centre Party won acceptance for its model of market-led integration, discounting fees and taxes in order to lower the cost of employment of new arrivals. But this government policy is now threatened by a proposed amending budget from the right-wing parties that has attracted the support of the Left Party, and could deny the government the necessary funds to implement the reform. A pressured PM told Dagens Nyheter in mid-January that issues such as crime, migration and integration would have priority for his government and that Sweden should accept fewer asylum seekers. “It is vital that we only take in … as many as we can integrate.”

Further, beyond immigration/integration the parties are fighting over a number of other policy areas that many thought had been settled. Funding for welfare and municipalities has been a recent battlefield, with the government forced into concessions. For years, the media and politicians alike have debated an impending budgetary crisis in Swedish municipalities. Changes in the population composition – with part of the population 80 years and above peaking over the coming decade and more children, relative to the productive population – are putting severe pressure on already constrained municipal budgets. Adding to the gloomy budgetary situation, many municipalities are struggling to cope with the added financial burden of giving assistance to the large number of immigrants that arrived in Sweden in 2015, at a time when Sweden is entering a period of economic slowdown and increased unemployment. We investigated the issue further in the January edition of the Monthly Policy Review.

Another area is nuclear policy, which the parties put to bed four years ago, under the Energy Agreement. But M and KD have reopened this debate, saying that Sweden can no longer afford to abandon nuclear if it is to achieve deep decarbonisation. High-speed rail, another climate policy initiative that the Government seeks to develop via a dialog with the centre-right parties is also now at risk, with M saying it is too expensive, and hinting at the implications for money left over for welfare.

From political infighting to preparing for real fighting

That Sweden should spend more on defence is broadly agreed across the political spectrum. But how much more and how the funds will be deployed is another area of budget pressure and political tension. Last year a Defence Commission (Försvarsberedningen) submitted proposals to the Government, which is seeking to take forward via a Defence Bill for 2021-2025. Naturally, this became the central area of debate at the Folk och Försvar (Society and Defence) conference at Sälen in January, which is our second article in the Monthly Policy Review.

Our third story in the Monthly Policy Review looks at Sweden’s education system. Set against the backdrop of the perception of long-term decline in the Swedish education model, the recent PISA results, showed a bounce back, with Sweden now above the OECD average in mathematics, reading and science, were a relief for many. Nonetheless, with the OECD declaring that the Swedish school system “had lost its soul”, the Government is looking to shake the system up again, searching for better results and an increase in equity.

The Economy and Business 

2019 was generally a challenging year for the economy, given headwinds with trade wars, Brexit and challenges in the European car industry. After falling for 8 years after the Financial Crisis, Sweden’s unemployment rate increased by nearly one per cent in 2019, as several industries, in particularly construction, faltered.

But now, the economy is rallying. Nordea says that while Sweden is currently in a mild recession, the rise in the stock market and greater confidence in the housing market, complete with higher prices, makes households more confident, and should lead to increased consumer spending.

So, the overall economic pattern is for an economy bouncing along on the bottom of a weak, but not gloomy cycle. Negative factors include weakness in exports, caused by trade wars and a strengthening Krona, higher unemployment and general economic and political uncertainty, such as Brexit. Positive factors include the better housing market, low interest rates and the improved outlook for consumer sentiment and manufacturing. In fact, manufacturing is starting to look quite positive – with NIERs manufacturing confidence indicator rising 7.0 points to 101.8 in January.

Sweden’s companies are generally faring well, with many of them reporting good results during the January reporting season. Amongst those were Volvo Group (a truck manufacturer), Volvo Cars and H&M. The banks didn’t do as badly as expected. Although Ericsson disappointed the market in terms of its 4Q19 results, the company could well find itself in a sweetspot, given the large investments planned in 5G technology, and with its Chinese competitor Huawei locked out of key markets in the west.

Further positive assessments came in terms of Sweden’s capacity to innovate. Sweden was ranked fifth in Bloomberg’s global innovation index and came second in a European survey of knowledge-intensive jobs. Adding to the Swedish effort, Ibrahim Baylan, the Minister of Enterprise and Innovation inaugurated a National AI centre in Stockholm and a new life science hub opened in Stockholm to stimulate ideas in health. The fintech, Tink and online doctors, Kry each raised around a billion SEK in finance to fund expansion.

Everyone’s talking about the climate

The trends in global warming terms look ominous. In January, the Government appointed an inquiry to review legislation across the board to achieve Sweden’s climate targets. Further work is going on in the steel industry, with SSAB pioneering a hydrogen process that does not emit carbon, and the cement industry, where Cementa is seeking to bury its CO2 emissions under the North Sea. Lundin Petroleum also announced new climate strategy.

Although its typical to begin conversations talking about the weather, we couldn’t help ending the Monthly Policy Review with a look at January’s weather, as the monthly averages were published just as we went to print. With temperatures for the month 5-10°C above normal, the winter has been disastrous for many ski resorts, who literally have no snow. As it looks today, the south of Sweden has skipped winter altogether.

Where to next?

The job of looking into the crystal ball and divining the future for Swedish policy is getting more and more challenging. The tradition of safe, stable centrist governments in Sweden is breaking down as the electoral arithmetic fragments. That, coupled with immigration, an issue that allowed for the emergence of the SD which did not sit on the traditional left-right economic spectrum has made it harder to produce viable coalitions. And, as the number of policy challenges mounts up – think integration, economic reform, energy policy, housing problems, welfare, crime – the stakes get higher, over which group will get to implement its blueprint for the future. This had led to the increased rivalry between the parties, and made the country very difficult to govern. Hold onto your seats!