Sweden – Re-formed Government Still Fragile

The center-left government headed by Prime Minister Stefan Löfven’s SAP was toppled from office by a confidence vote in June, as the Left Party, one of three parties keeping the minority administration in power, withdrew its support to protest plans to ease rent controls as a means of addressing a housing shortage. The development was not unexpected, as the viability of the arrangement hinged on the aversion of the support parties (which also included the Liberals and the Center Party) to an early election that might produce a victory for the center-right Moderates and/or a formal role in government for the far-right populist SD.

Similar considerations have at least temporarily prevented an early election. In the aftermath of the confidence vote, Center Party leader Annie Lööf withdrew the proposal to ease rent controls. After Moderate leader Ulf Kristersson failed to obtain majority backing to form a new government, Löfven was re-elected prime minister on July 7, thanks to the abstention of 60 lawmakers, which under Swedish parliamentary rules counts as support for the government in a confirmation vote.

The general thrust of policy would not be much affected by a change in the composition of the government, but the repeated bouts of political instability in recent years underscore the risks inherent in the mainstream parties’ increased dependence on the support of the parties further from the center to ensure a legislative majority. Recent polling data suggests that support for both the Left Party and the SD has increased slightly since the 2018 elections at the expense of the SAP and the Moderates, respectively.

Before the confidence vote in June, officials had become embroiled in a dispute with the central bank over reforms that would expand the scope of economic factors considered when setting monetary policy. Riksbank Gov. Stefan Ingves rejected the reforms as contrary to EU rules regarding the independence of the central bank, an argument that suggests the government risks undermining the confidence of investors if it proceeds with its plans.

The political ructions are not expected to adversely affect the economy’s recovery from a pandemic-induced contraction in 2020, and the Finance Ministry has recently made a positive revision to both its growth and budget forecasts, with anticipated real expansion of 4.7% (up from 3.2% in April) expected to facilitate the narrowing of the general government deficit to just 2.2% of GDP.

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