Sweden Heading for Political Gridlock

Sweden may face weeks or even months of political gridlock after an inconclusive election result left the biggest Scandinavian economy without a clear candidate to form a government.

Neither the Social Democrat-led coalition of Prime Minister Stefan Lofven nor the opposition Alliance bloc won enough votes to form majority governments, as a nationalist group that has talked of dragging Sweden out of the European Union drew in almost a fifth of the electorate, Bloomberg reported.

Sweden is the latest European country in which a populist surge fueled by anti-immigration sentiment is changing the political landscape. Though Lofven has presided over an economic upswing that has fed a rise in employment, Sunday’s vote shows many Swedes were more concerned about tackling a record influx of foreigners after about 600,000 immigrants entered the country of 10 million over the past five years.

A near complete preliminary count of electoral districts gave Lofven’s parties 144 seats in the 349-member parliament, and the Alliance 143 seats. The anti-immigration Sweden Democrats, which are not part of either bloc, were poised to get about 62 seats, not quite as many as some pre-election polls indicated but significantly better than in 2014.

The result is set to trigger a potentially bitter contest between Lofven and Ulf Kristersson, who leads the Moderate Party that dominates the Alliance bloc. Lofven, who led his party to its worst election result since 1921, has made clear he rejects the nationalist agenda of the Sweden Democrats, ruling out cooperation with the party. Kristersson has been less clear. The 54-year-old former gymnast, who has led the Moderates for a little less than a year, was quick to call on Lofven to step down after the vote count became clear.

At Nordea Bank AB, the biggest Nordic lender, economist Andreas Wallstrom warned that the result sets the stage for a protracted period during which the main parties will fight to form a viable government. But he also noted that the outcome is unlikely to alter the trajectory of monetary policy. The Swedish krona rose about 0.3% against the euro on Monday morning, as traders decided the near-term fallout of the election result was likely to be limited.

  Swexit Off the Agenda

Importantly, a so-called Swexit is off the agenda, after the Sweden Democrats got slightly less support than some polls had indicated before the election, according to Robert Bergqvist, chief economist at SEB AB. That means the central bank’s plan to start raising interest rates by the turn of the year probably will not be disrupted, he said.

Anders Borg, a former finance minister for the Moderate Party, said the market reaction was an expression of relief. Some polls before the election had showed the Sweden Democrats becoming the biggest party in the parliament. Now, they are set to be the third-biggest.

“For the established parties, this is a little bit of a relief,” Borg said in an interview with Bloomberg Television’s Markus Karlsson in Stockholm. “Now I think economic policy will to some extent be on autopilot and therefore I think the market also takes relief.”

As leader of the center-right bloc, Kristersson wants to cut taxes and some social benefits in order to get more people into the labor market. It is an agenda he would be able to push with the support of the Sweden Democrats. Jimmie Akesson, who leads the nationalist group, wasted no time in calling on Kristersson to affirm his willingness to collaborate.

“Now it’s up to you to show how you plan to form a government,” Akesson said, as supporters gathered in Stockholm chanted his name. “Do you choose Stefan Lofven or do you choose Jimmie Akesson. I want an answer to that question now.”

Lofven struck a defiant note after the result was clear, and said he plans to continue as prime minister until parliament votes on his future when it convenes in two weeks. He also said Sweden’s political parties need to wait until the election outcome is clear, given how close the result between the two political blocs was.

  Bastion of Political Stability

The inconclusive outcome with the prospect of weeks without a government is highly unusual for Sweden, which has tended to be a bastion of political stability.

Carl Michael Palmer, a 17-year-old member of the Social Democrats who lives in the Stockholm suburb of Skarholmen, said “it will definitely take some time to form a government. Lofven needs to take his time.”

The Sweden Democrats, meanwhile, are celebrating their ascent after rising from obscurity a little over a decade ago to a position of incontestable political influence today. Their leader, the 39-year-old Akesson, attributes his success to challenging what he characterizes as the political correctness of the establishment. Most notably, he has been an outspoken critic of the rising number of immigrants in Sweden. He has also worked hard to gentrify a party that has its roots in Sweden’s white supremacist movement, drawing in more voters.

Michael Grahn, chief economist at Danske Bank A/S in Stockholm, said the Sweden Democrats will hold the balance of power.

Jonas Thulin, head of asset management at Erik Penser Bank in Stockholm, described the outcome as “the most uncertain result we have had in modern times” and said a second election could become a “possible scenario” that investors need to consider.

With Lofven deciding he does not want to step down, he now faces a confidence vote in parliament two weeks after the election. If he loses that, the speaker of parliament presents a new candidate to become prime minister. If that person fails to form a government, it opens the door to fresh elections within three months.

Magnus Blomgren, an associate professor of political science at Umea University, said the likely election outcome reflects not only the fact that the immigration issue was prominent in voters’ minds, “but also the disappointment over the established parties. This is an indication that there’s a disbelief in the established parties in a fairly pronounced way.”