Sweden – Impasse Not a Threat to Economy…Yet

As polling data indicated would be the case, the elections for the Riksdag held in conjunction with regional and municipal voting on September 9 produced another hung Parliament, as the incumbent Red-Greens bloc made up of Prime Minister Stefan Löfven’s center-left SAP and the Greens won a total of 144 seats (including the 28 claimed by their informal partner, the Left Party), compared to 143 for the center-right Alliance, a four-party coalition headed by the MS. With neither the Red-Greens nor the more centrist members of the Alliance willing to countenance a formal partnership with the far-right xenophobic SD, which boosted its seat total to 62, the paths to forming a viable government (and avoiding a second election that could produce a very similar result) are limited.

Löfven lost a confidence vote in late September, paving the way for MS leader Ulf Kristersson to take a stab at forming a government, while the SAP leader remains at the helm in a caretaker capacity. Kristersson is intent on forming a minority government made up of just the Alliance parties, but such an arrangement will not be viable unless he can count on either the SAP or the SD to ensure majority support for the budget, and both Löfven and SD leader Jimmie Åkesson have taken a hard pass.

Löfven’s hopes of convincing the Center Party to join a Red-Green government failed when Center leader Annie Lööf rejected any possibility of participating in a government that depends upon the cooperation of the Left Party for its majority. Lööf has proposed the alternative of a grand coalition that would team some or all of the Alliance parties with the SAP (and, if necessary, the Greens), but Löfven has stated that a partnership that is based primarily on a shared desire to keep the SD out of power is undemocratic, and therefore unacceptable to the SAP. Meanwhile, Åkesson is biding his time, hoping that a protracted impasse will wear down the resistance of the Alliance parties to a formal partnership with the SD. However, there is little chance that either the Center Party or the Liberals might agree to work with the SD, even on an informal basis.

The prospect of a prolonged impasse (even in the event of a second election) comes at a time when the country’s export-heavy economy has been put at risk by protectionist trade measures introduced by the US. Fortunately, the economic fundamentals are strong enough to enable Sweden to withstand a bout of policy uncertainty without significantly undermining the confidence of investors.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This excerpt is from our latest Political Risk Letter publication, for more information please contact us at (315) 431-0511 and sales@prsgroup.com

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