Mundus Brief: June 2022

As the Reinfeldt area ended in 2014, the stage appeared set for a new phase of Swedish politics. Many sensed that the challenges that were beginning to pile up would require a different dynamic than the evolution that built Sweden’s modern economy and welfare state. At the time the issues were “limited to” the wave of refugees from the war in Syria, the rise of the Sweden Democrats, a dysfunctional housing market and the feeling that the famous welfare state was beginning to suffer from a lack of focus and resources. Mundus witnessed this trend and decided to launch Mundus News to cover what we expected would be a heated policy debate. What followed was indeed a political drama that at times began to seem like a never ending soap opera, with the right-wing sniping at, but always failing to hit the juggernaut of the Social Democrats and their various support parties. Given the new challenges of the war in the Ukraine, NATO application and inflation, one can hope that this phase might draw to an end with the Swedish elections in September. Sadly that seems unlikely.

The Mundus Brief is your chance to read a summary of what happened in Sweden last month and our chance to let you know what we’ve been looking into in our publications. We try to keep the Mundus Brief brief and entertaining; a counterbalance to our more serious news and analysis. We hope you find it an interesting read!  /The Mundus Team

THE NEW NATO ERA

Displays of military superiority come in different shapes and sizes. Some can be as small as the drones used to fend off columns of advancing tanks. But at 257m long, the bulk of USS Kearsarge was impressive as it imposed itself in central Stockholm. It was a definitive display of American and NATO firepower, symbolising a new era, as Sweden seeks to have its NATO application approved.

The war in the Ukraine is now 100 days old. Much has changed since it started, as can be noted from the commentary provided in Mundus Briefs. Our March Brief, published at the end of the first week of the war noted that the NATO option was there, but we thought that it was unlikely to be invoked by Magdalena Andersson’s Government. Yet a month later, the April Mundus Brief was already advising that a NATO application was a foregone conclusion. Within weeks, this proved to be correct, as Sweden (and Finland) went through a tightly choreographed display of policymaking on the fly. 200 years of neutrality was discarded as wishful thinking, with Russia’s appetite for military aggression and territorial conquest on display for all to see.

Naturally, analysis in our Monthly Policy Review (MPR) has focused heavily on the Ukraine War and the NATO application. In May, the MPR investigated Swedish rearmament and defence spending, which fell as low as 1% of GDP by 2017, was now rapidly increasing, and is targeted to hit 2.0% by 2028. The same article also looked at the defence of Gotland – the so-called unsinkable aircraft carrier – indispensable for the defence of Sweden and the Baltics, and an increase in the numbers of conscripts. While the focus is chiefly on the military, the implications for domestic politics are never far off, a fact underlined by the frenetic politics which could have resulted in a government crisis this week.

On 15 May, Mundus published a special article evaluating the conclusions and implications of the all-party report “Deterioration of the security environment – implications for Sweden”. While the report stopped short of recommending a NATO application, the unanimous conclusion from all parties in the Riksdag was that the security situation in Europe was now structurally altered, necessitating a response from Sweden, and signalled changes to Sweden’s policy of neutrality and non-alignment. Although the Left Party (V) and Greens (MP) made written reservations against the majority view to take benefit from the US and UK nuclear weapons umbrella, the reality was that there was now a political supermajority in favour of a NATO application in both the Riksdag and in Swedish public opinion. Therefore, it was inevitable that the Social Democratic Party would confirm the apparent decision of its leadership to join NATO on 15 May, paving the way for the Riksdag to endorse this view on 16 May and that PM Andersson would advise officially that that was the Government’s position the same day and that the application itself was submitted on 18 May.

With the Finnish Government running a parallel process, half a step ahead of Sweden, and with the choreographing of meetings with US President Biden and a visit by British PM Boris Johnson, both of whom promised to defend Sweden and Finland against any threats in the interim period before the two countries could join NATO, it seemed that this was a done deal. Enter Türkiye’s President, Recep Tayiip Edogan, who demanded that Sweden end its weapon’s export ban and expel Kurdish terrorists that he said were hiding in Sweden. Confusion reigned in the days following his surprise intervention, with speculation that Sweden must quickly cave to this pressure. However, after the initial wobble, consensus now seems to be concluding that Sweden will not budge to any significant extent. For starters, the Swedish Government is really not in a position to meet Erdogan ́s demands to extradite Kurdish refugees to Turkey. This decision would need to be taken by its independent judiciary, with political interference in such a serious matter anathema in Sweden. Secondly, with the Swedish public having concluded that Turkish accusations are unfounded and its demands unreasonable, it would be politically harmful for the Government to make concessions at this point, especially in light of the feeling that for the moment, Putin has his hands full trying to eke victories out in the Donbas, rather than menacing Sweden. And finally, within some policy circles there is a belief that Erdogan will suffer increasing geopolitical pain from his intransigence, and that he will eventually concede his stance under American pressure and/or incentives. Mundus’ view is that having advised that it actually has no weapons embargo in place against Türkiye, Sweden will allow certain weapons exports but do little more to appease President Erdogan. That belief has been reinforced via assurances given by the Social Democrats Party Secretary, Tobias Baudin, that the Andersson Government would not change its position on assurances made with a Kurdish MP.

SWEDEN’S ECONOMY ENTERS A CHALLENGING PHASE

Swedish defence policy was not the only casualty of the Ukraine War. The economy, which had rebounded quickly after one of the world’s shallowest Covid dips had a poor first quarter. As we reported in last week’s Mundus Business Insights, 1Q22 GDP growth was downgraded from the flash number of -0.4% to -0-8%. However, the same revision also saw the absolute level of GDP increased, meaning that Swedish GDP rebounded from the pandemic even more strongly than thought. Analysts are sanguine about the outcome, believing that Sweden will grow moderately in 2022, with growth driven by industry, which is still very positive, and households, who are depressed, but still spending.

Households’ mood, which has been riding high following years of falling interest rates and low inflation, has soured in the face of the challenges of rising interest rates, piling pressure onto record high mortgages, skyrocketing energy prices and now rising inflation, which combined to result in the biggest fall in real wages in three decades. According to calculations made by SEB, a family with two children with a housing loan will receive an average of SEK 63,000 less in spending power this year.

The capital markets have also tightened rapidly. This week it was reported that the value of US and UK IPOs has fallen by 90% this year. And the NASDAQ Index, a measure of sentiment in the tech sector, is down 24% this year. This is already beginning to show an effect in Stockholm’s effervescent tech sector. Having experienced several party years of buoyant growth, Stockholm tech is waking up to a hangover. Companies such as Storytel had already announced restructuring earlier in the year, but May brought the shock of Klarna announcing both a significant 1Q22 loss and global layoffs of 10% of all employees. In addition to the 700 who will lose their jobs (not all of whom live in Stockholm) the message is ominous for many others who work in tech, and signals that for the moment the boom in this sector of the economy is over. 

ELECTION EMERGES FROM THE NATO SHADOW

On 11 September, Sweden goes to the polls. For a brief guide to the political parties and how the elections will be run, download our Guide to the Swedish elections.

Typically, in an election year, political posturing and campaigning are in full swing by now. However, domestic politics lazed in the shadows during May, as the Government and the opposition allowed space for the NATO debate to conclude. And in a normal election year, foreign policy typically plays a minimal role, with integration, crime, welfare and education crowding it out as an issue. This is another area where the Ukraine war has had an effect, with Magdalena Andersson demonstrating political skills and statesmanship that have given her and the Social Democrats (S) the jump on the opposition.

S received an immediate benefit after Andersson took over from Löfven as PM, with its support rising from 25% to 30% in November. But the trend had levelled out until the February invasion of the Ukraine saw S support rise again, so that it is now at its highest point since the last election, and with S support up 4% over 2018. 

The opposition needed to do something, and it has now played its hand, bringing on a vote of no confidence in the Minister for Justice and Home Affairs, Morgan Johansson, who is accused of mismanaging the wave of crime, and especially gangster executions that have spread across Sweden. Here the Government is on much shakier ground, having presided over 8 years of relative inaction on both integration and crime, which has seen Stockholm and Malmö suburbs become gangster paradises, eventually leading to riots, as the Dane, Rasmus Paludan, baited Muslim’s with Koran burnings. The Opposition’s near success in toppling Johansson display’s the Government’s weakness in this area, giving it something to aim at as it seeks to turn around its poor polling in the lead up to the election, where SD, KD, M and L collectively are polling at 46.9% of support compared with S, MP, V and C which have 51.1%. 

That the opposition had cause is not really being debated. Crime and violence are spiralling in Sweden. At question are the tactics being employed in an effort to make political gain. As is being noted in today’s editorials, there was a time that self-respecting opposition parties would have enjoyed the battle for ideas in an election that is just 3 months away. Instead, they chose to use parliamentary procedures to try to claim the scalp of the Minister for Justice and Interior, Morgan Johansson, who is also the Deputy Prime Minister. Their charge against him was a general one of not pursuing his responsibilities vigorously enough, rather than any specific act or misdeed. For this, they were willing to put at risk Sweden’s NATO application. But the Government has not come out of it cleanly either, with many feeling that its response of saying that it would resign if the No Confidence vote was successful also went too far. In the end, the matter was resolved when Amineh Kakabaveh, a defector from the Left Party, did not support the vote. She said that she had received assurances from the Social Democrats that they would not change their agreement with her that they would engage with Kurdish dissidents, the PYD, hated by the Turkish Government. Depending on who you believe, this may or may not be critical for Sweden’s NATO application. But already, many pundits are wondering whether the soap opera of Swedish politics has descended to the point that it is putting Swedes’ confidence in politics at risk.

What is no longer in question is that the election battle has begun and the first shots have been fired. Or that if the opposition parties have their way, then crime and integration will be the chosen battlefield for the campaign. Undoubtedly, these are important issues, where there is likely to be significant differences between the parties. And therefore, in the countdown to the election, this will be the focus of our analysis in the Monthly Policy Reviews as we highlight what the parties promise to deliver in 2023 and beyond.

So, hold onto your seats and prepare yourselves for a gripping election campaign.

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