Pedestrians walk near election campaign posters for the Liberal Party in Stockholm, Sweden. (Photographer: Mikael Sjoberg/Bloomberg)

Panic Grips Swedish Establishment Facing an Election Beating

(Bloomberg) -- The birthplace of Ikea flat packs and Volvo cars is starting to look just as vulnerable to the populist movement as Italy, Hungary and the U.S.

A bastion of welfare and equality, Sweden faces an election on Sunday that could be its most tumultuous in a century. As in other democracies across the world, the establishment is being challenged on multiple fronts. The long-dominant Social Democrats are headed for their worst result since general voting started in 1921. The biggest opposition party, the conservative Moderates, may see its backing cut to about half the electoral support it enjoyed at the start of this decade.

Panic Grips Swedish Establishment Facing an Election Beating

For a country that prides itself on stability and is seen as a model for social democracy across the world, the development is hard to grasp. But voters are now flocking to a party that was born of Sweden’s neo-Nazi, white supremacist movement.

The Sweden Democrats, whose stated goal is to rip their country out of the European Union, could win about 20 percent of the vote on Sept. 9. Fifteen years ago they weren’t even big enough to make it into the parliament. Meanwhile, the other end of the political spectrum is also poised to do well, with the former communist Left Party set to win almost 10 percent.

The vote could bring to an end the dominance of Sweden’s two main political blocs, which have defended centrist policies for the past century. The uncertainty has spooked investors, helping to weaken the krona to levels not seen since the global financial crisis.

Panic Grips Swedish Establishment Facing an Election Beating

The established parties are pulling out all the stops in an effort to maintain the status quo. The Moderates are promising tax cuts and the Social Democrats are offering families an extra week off work. Both want increased spending on healthcare and education. They also pledging to crack down on crime and further restrict immigration, allowing the Sweden Democrats to set the debate.

“I’ve been following politics for 50 years and I have never seen so many disparate and partly panicky plays from parties as in the past week,” said Marja Lemne, a political scientist at Sodertorn University. “Most parties have been struck by panic.”

Panic Grips Swedish Establishment Facing an Election Beating

So what’s the matter with Sweden? The nationalist groundswell has coincided with a record inflow of migrants and refugees. About 600,000 people flooded into the nation of 10 million over the past five years, straining public coffers and offsetting a broader drop in unemployment.

Voters are now rebelling against a course set by former Prime Minister Fredrik Reinfeldt, who at the start of the refugee crisis in 2014 called on Swedes to “open their hearts” to newcomers.

Sweden has long considered itself a moral superpower, keen on lecturing others on social equality and human rights. That will certainly be harder now, given the ascent of a party that wants to block asylum seekers and turn its back on the EU.

There’s also an economic analysis that suggests Sweden is feeling the same backlash against globalization that has angered voters everywhere, as they deal with rising inequality and stagnant wages. Sweden is one of the richest and most equal countries in the world, but even there the income gap has grown.

A recent analysis by Olle Folke, a lecturer at Uppsala University and Torsten Persson and Johanna Rickne at Stockholm University, among others, blamed the rise of the Sweden Democrats on tax and welfare cuts that started in 2006, as well as the financial crisis. The party’s new supporters can be found among voters whose living standard has deteriorated, in relative terms, since 2006, according to the study.

Strict budget rules and political gridlock have also held back the country’s recovery from the financial crisis. The Social Democratic-led government has built up surpluses and cut government debt to levels not seen since the 1970s. Unemployment, meanwhile, has been slow to fall, sticking above 6 percent.

"It would be naive to believe that the political situation doesn’t have anything to do with the fiscal austerity in recent years,” said Andreas Wallstrom, an analyst at Nordea Bank.
“This is the price."

Panic Grips Swedish Establishment Facing an Election Beating

The question now is what kind of Sweden will the election leave in its wake. Politicians facing a parliament in transition will need to make tough decisions and compromises on how to govern.

According to Magnus Blomgren, a political scientist at Umea University in northern Sweden, the level of turbulence facing Sweden on Monday will depend on just how big SD becomes. If the party remains smaller than the Moderates and the Social Democrats, then it will be largely status quo, he said.

“We will have three strong parties,” he said. “SD will be one of the three, blocking the democratic process. But if we compare it to 30 years ago, of course the political situation in this country is quite different. In that sense you can talk about a paradigm shift.”

Lemne says it was the 2014 election, when the Sweden Democrats’ 12.9 percent support prevented the main political blocs from forming a majority, was the real watermark.

“The fact that Sweden is going to be ruled by a minority government is neither uncommon nor scary,” she said. “It’s all about how big the Sweden Democrats are going to be.”

If it becomes the biggest party, then all bets are off.

Lemne says the “most disastrous” scenario would be the Social Democrats and Moderates forming a grand coalition, because it would make the Sweden Democrats the only opposition party.

Given the shift toward populism across the globe, the developments in Sweden are not surprising, according to Blomgren.

“But it has all happened very quickly,” he said.

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