Political Turbulence in Sweden

The new Swedish prime minister who took office after the September elections announced on Wednesday that he is calling extra elections. They will be held in March, as early as the constitution allows. This will be the first time in more than half a century that Sweden has held an extra-ordinary general election, and the announcement has caused quite a bit of political turmoil.

This is a dramatic situation, and yet another sign that Sweden is in some relatively deep trouble. As a background, let me explain the two reasons why the extra-ordinary election will be held.

The first is superficially a constitutional rule de facto forcing an incumbent prime minister to resign if he cannot win parliamentary support for his annual budget. However, underneath the rule was a clash between two different approaches to economic policy. On the one hand, the incumbent prime minister’s green-socialist coalition wanted to raise a number of taxes; on the other hand the opposition alliance, consisting of four center-right parties that governed Sweden up to the September elections, wanted a continuation of their moderately better tax and spending policies. The parliamentary majority lined up behind the center-right alliance budget bill.

One ingredient in this was that the green-socialist coalition wanted to raise payroll taxes on workers below the age of 25. While technically a “return” of the rate to where it was before the alliance government cut it, there have been credible estimates that this increase would cost tens of thousands of young people their jobs. More importantly, it would bar hundreds of thousands of them from finding jobs in the future.

On top of this tax increase the green-socialist coalition wanted to open a new “trainee” program for young people in the nation’s socialized health care system. In short, their plan was to tax away private-sector jobs for young men and women and then, by means of conditioned unemployment benefits, coerce them into the “trainee” program.

In short, the difference between the center-right alliance and the green-socialist coalition was a difference between a modestly market-oriented approach to fiscal policy and a doubling down on heavy-handed statism. The parliamentary came down in favor of the former, leading the prime minister to give up hopes on pushing his cabinet’s budget through the Riksdag.

The second reason for the new election has to do with the Swedish Democrats, a “third party” in the parliament. With 13 percent of the votes in September, the SD became the third largest party in the Riksdag. The green-socialist coalition has sternly declared that they do not want to engage in any talks whatsoever with the SD, the reason being the SD’s more restrictive policies on immigration. Beyond that issue, though, the SD is essentially a traditional European social-democrat party, which should appeal both to the green-socialist coalition and the center-right alliance (which is basically as committed to defending the Swedish welfare state as the socialists are).

Because of their refusal to even talk to the SD, the green-socialist coalition turned the SD into a political enemy. When the SD found that there were only moderate differences between the green-socialist coalition’s budget and the bill put forward by the center-right alliance, they decided to let their disdain for the green party (a sentiment that the greens have carefully reciprocated) become the deciding factor when they came to the budget vote in the Riksdag. Determined to put an end to a coalition where the greens had a lot of influence, the SD cast their votes for the budget bill from the center-right alliance.

The prime minister, himself a social democrat, responded as many had predicted, namely by calling an extra-ordinary election.

There is no doubt that Sweden is politically less stable now than it did a couple of days ago, and there are some reasons to see it that way. The Riksdag, the parliament, is essentially in legislative deadlock after the budget vote. Even though the alliance alternative won the vote and its budget became the law of the land, they cannot actually implement their policies until they have parliamentary majority. By contrast, the green-socialist coalition can no longer seek parliamentary approval of their policies without risking yet another embarrassing defeat.

 It is too early to predict what the March election will bring. But don’t be surprised if the biggest party of the center-right alliance reaches out to the Swedish Democrats. The SD has a potential of 15-18 percent in the new election and could therefore become so big that the moderates could form a government with them alone. Today, many commentators and analysts would consider this unthinkable, but as I will explain in a later article, there are several reasons why this is actually one of the most probable outcomes of the March elections.

Until then, Sweden will be in a state of uncertainty. Keep your money out of that country but do keep your eyes on it.