Mundus Brief

Mundus Brief

Our February round-up

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. 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! 

New government gets down to business
Following the lengthy hiatus, the second Löfven administration is now getting on with business. It has made a fast start, aided no doubt by the large degree of continuity amongst its’ ministers and a lengthy period of reflection, allowing it to consider its priorities.

As we wrote in the February Brief, the government quickly got on with what it had agreed to under the January Agreement (JA). In the days following its confirmation by the Riksdag, the government announced the introduction of new environmental taxes and began the process of terminating the employment of 4,500 staff at the Employment Agency (Arbetsförmedlingen). The most straightforward issues were thus dispensed with, and the blame for the restructure at Arbetsförmedlingen was laid at the feet of Moderate Party leader Ulf Kristersson.
 
But, the issue of tax reform will not be so easy to deal with. The government, together with the Centre Party (C) and the Liberals (L), have promised that “an extensive tax reform will be implemented”. In the words of the January Agreement, “​The reform will increase employment and the number of working hours with reduced tax on jobs and entrepreneurship, contribute towards achieving climate- and environmental goals, strengthen Sweden’s competitiveness, balance out today’s growing economic gaps, lower the marginal tax and result in fewer paying the state income tax, simplify by limiting exemptions, reducing household debt and contribute to improving the functioning of the housing market, increase the tax portion of the financial sector and safeguarding welfare long-term.” The ambition can only be described as impressive, but with one economic commentator describing it as “a wishlist for Santa Claus” it has analysts wondering how issues will be prioritised.
 
And, with the left (S & MP) believing that they have agreed to shift taxes from income to capital, and the centre-right (C & L) being even more certain that what has been agreed to is a cut in the overall amount of tax, political challenges and fights are guaranteed. The government decided to get onto the front foot, with the Finance Minister, Magdalena Andersson (S), saying that she wanted to see new taxes brought in, in order to compensate for the tax cuts agreed in JA, which primarily benefited high-income people. This brought an immediate riposte from Centre Party leader Annie Lööf, warning that S would not get its budget through without Centre’s agreement. So, what was agreed under JA, and how can the two sides believe such different things? That is the subject of our feature story in the March edition of the Monthly Policy Review.
 
Another political theme that Mundus is watching with interest is the country’s commitment towards its policy of being the first fossil-free welfare state. The policy was announced with much razzle-dazzle by the first Löfven government, and was supported by the Alliance opposition. But, such policies are easier to announce than they are to implement. Sweden is widely held up for admiration as having made the biggest reductions of GHG from its economy. In Mundus’ view, this is fair praise. But, the easy gains have now been won. It will be much harder to wean the transport system off fossil fuels, or to raise SEK 15 billion of new environmental taxes (as promised by JA) without having yellow vests on the street. During February, Sweden’s Transport Administration (Trafikverket) declared the government’s policies unrealistic. One wonders what will happen when the government needs to move from virtue signalling to virtue delivery? Gothenburg decided that it wanted to try, declaring that it was going fossil-free by 2030, and all the city’s passenger cars needed to be fossil-free fuel, while travel by bicycle, pedestrian and the use of public transport will be prioritised.
 
Vale Jan Björklund
The political fallout from the election, tiring negotiations and final agreement continued last month. And, as many of us had predicted, it led to the political demise of Liberal leader, Jan Björklund, who had struggled to reconcile contrary views within his party, and failed to keep the party’s opinion polls above the threshold 4% to stay in the Riksdag. Annie Lööf (C) is also under pressure in public opinion. Ratings of confidence in her plummeted, and her party’s share of opinion polls fell. However, Lööf’s position seems to be secure, for the moment. Lööf has given interviews recently, highlighting her views of what it means to take responsibility. The real winner of the negotiations has been the Christian Democrats (KD) and its leader Ebba Busch Thor, who have both strengthened significantly in opinion polls.
 
Foreign Ministry immediately under strain
Stefan Löfven must have been very glad to have Margot Wallström’s safe hands back at the wheel of the Foreign Ministry, with a series of crises and challenges during the past month. 
 
The biggest crisis could have been scripted in a Bond movie. In this amazing story, Sweden’s Ambassador to China, Anna Lindstedt, held secretive negotiations over the release of Gui Minhai, a Swedish citizen in custody in China. The story was that the Ambassador arranged for meetings in which Gui Minhai’s daughter, Angela Gui, met with Chinese businessmen and Ambassador Lindstedt in Stockholm. Lindstedt has been stood down from her position as Ambassador, but, coincidentally, was already moving back from Beijing to take up another position in Stockholm.
 
Sweden also managed to get into fights with both Guatemala and Hungary. In the Guatemalan case, Sweden recalled its Ambassador over concerns about corruption in the government. The rift with Hungary was more colourful, with the Minister for Social Security, Annika Strandhäll (S) saying that Budapest’s new family policies intended to increase the birth rate “reeked of the 1930s”. Hungary’s Deputy Prime Minister returned fire after which Sweden’s Ministry of Foreign Affairs summoned Hungary’s Ambassador to warn against making personal attacks.
 
What about the economy?
Generally, Sweden has had a good decade following the Financial Crisis. Its export-driven firms have prospered and its domestic economy has been supercharged by a bull housing market and negative interest rates. But, with the global free trading system under pressure and the housing market pull back leading to a dramatic reduction in the construction industry the economy looks weaker. Around half of Swedes are gloomy about the economy and the bank’s forecasts are also pessimistic. The problem is particularly acute in Stockholm, which benefited the most from the construction boom, and is therefore most exposed to the boom ending.

But, is the gloom overdone? Employment is still rising rapidly, salaries are increasing, the unemployment rate is falling and the 4Q18 GDP number of 1.2% (2.3% for the year) announced in February is healthy enough. Perhaps it is wise not to be too optimistic right now, with the Brexit outcome still posed delicately. Nonetheless, it appears unlikely that Sweden will enter a recession.

Swedbank in terrible strife
Swedbank is sick and it is not certain that it will make it out of the hospital. The challenge of Russian money laundering in the Baltics has been lingering for Nordic banks for a while. The issue had already claimed the Danske Bank’s CEO. Hence, it is a surprise just how poorly prepared Swedbank’s leadership was when challenged by the same problem. In the fortnight since the scandal was broken by the TV show Uppdrag Granskning, Swedbank has consistently appeared to be off the pace. Initially the company denied that there was an issue, and then when it accepted it, it then appointed EY as an auditor, only to fire EY days later, given EY was also under suspicion for its handling of the Danske Bank affair. Read our latest accounts from Mundus News here.
 
In contrast, Spotify continues to make the right moves. The company reported 4Q18 financial results above the market’s expectations, and good subscriber figures. Spotify also announced changes to its business strategy and commercial terms. Having fallen 40% during the bear market that ran from October to January, Spotify’s shares have bounced back, and are now near the level at which it listed last May.
 
IKEA, another iconic Swedish brand is going even further. Taking a leaf out of academic text books and with a nod to left-leaning NGOs, IKEA is embracing the circular and renewable economies in its business model. In addition to extremely demanding climate change targets the company announced that it was trialing the business of furniture leasing.
 
Last but not least
Elections for the European parliament are held in Sweden at the end of May. Although this is just around the corner, it barely seems to rate as news, with many Swedes being quite blasé about the outcome. The most newsworthy issue in Sweden so far has been that all Swedish parliamentary parties now accept Sweden’s membership of the EU, with both the Left Party and Sweden Democrats saying that they wont campaign for a Swexit. The lead story in this Monthly Policy Review is our preview of the poll. The article looks into the election process and reviews the Swedish candidates with prospects of an electable position on the ticket.
 
In our final article, the Monthly Policy Review looks at the 2019 Foreign Policy Debate, analysing the issues discussed and looking at which country’s Sweden’s parliamentarians were most focused on.

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