In Sweden, Business Shrugs Off Election Drama

Political crisis leaves Sweden's economic untouched.

Sweden has long presented itself as a global model of liberal and social-democratic values of equality, tolerance and moderation. So the prospect of a populist, anti-immigrant party with neo-Nazi roots making the biggest gains in a general election and becoming part of the incoming government was cause for much soul-searching prior to last month’s balloting, not just in Sweden but across politically volatile Europe.

In the event, the right-wing Swedish Democrats gained 17.5% of the vote: a 5% improvement on their previous showing and enough to give them the third-largest bloc of seats in the Riksdag. Their leader, Jimmie Åkesson, immediately staked out his party’s role as kingmakers in forming a new government.

Given that the election results have left the two main parliamentary groupings, the center-left “red-green” coalition and the center-right Alliance, searching for a road back to power, there is some truth in that claim. “Neither of the main political constellations is even close to a majority,” observes Tommy Möller, professor of political science at Stockholm University, “which means that, unless they cooperate with each other, the forthcoming government will be dependent on the Swedish Democrats.”

Swedish politics is facing an unparalleled crisis, and furious horse-trading is likely to go on for weeks or even months. That doesn’t mean the very un-Swedish turmoil will have much impact on business, the markets or underlying fiscal policy, however. “The political deadlock should have only a limited impact on business confidence,” says Andreas Wallström, chief analyst at Nordea Markets, “since Sweden is a small, export-oriented economy, and business sentiment is more dependent on global rather than domestic factors. Also, the election result was very much anticipated and should already be discounted within the private sector.”

Indeed, the strong Swedish economy continues quite happily on autopilot. “Regardless of the government finally in place, there will be no change in overall fiscal stance,” says Wallström, “as there’s a broad consensus across all parties in the Riksdag to follow the strict fiscal framework of targeting one-third of GDP in budget surplus. As the fiscal stance remains unchanged, there’s no reason to expect that monetary policy will be affected. Hence, we don’t see that the political deadlock has any influence on the Riksbank’s policy.”

That’s not to say that the coming months will not be bumpy. So far, all of the mainstream parties have refused to cut a deal with the Swedish Democrats, on account of their white-supremacist roots. One possible solution to the political stalemate being bruited about is a German-style “grand coalition” between the two main groupings. More likely, however, would be for one of the two smaller parties in the center-right Alliance grouping, the Liberal and Center parties, to switch support to a new center-left coalition—in which case they, and not the Swedish Democrats, would become the true kingmakers.