Swedish PM Headed for Loss in First Round of Power Struggle

(Bloomberg) -- All signs point to Prime Minister Stefan Lofven losing the first round in his battle to remain in power as Sweden seats its new parliament.

The 349-person legislature reconvenes on Monday two weeks after an election that saw the nationalist Sweden Democrats grab 62 seats and Lofven’s coalition hang on to a one-seat lead over the center-right Alliance opposition. First up will be the election of a new speaker and then the premier could face a confidence vote as soon as Tuesday.

Swedish PM Headed for Loss in First Round of Power Struggle

Daniel Suhonen, head of the left-wing think-tank Katalys, said he has no doubt that the opposition four-party Alliance is "definitely going to grab" its chance in ending the Social Democrat’s dominance.

The determination of the opposition and the nationalists came into full view over the weekend. The Alliance on Friday proposed its own candidate for speaker and the following day received the backing from the Sweden Democrats. The speaker plays the key role in deciding who will get the first try at forming a government and also sets the timing on the confidence vote in Lofven.

Breaking Promises

The premier has so far refused to resign, pointing to his lead over the Alliance. But that doesn’t factor in the large bloc of nationalist lawmakers, who have tended to vote with the center-right. While both sides of the establishment have refused to work with the Sweden Democrats, the situation could become more fluid as talks intensify.

“Lofven knows that in the end it’s going to be a right-leaning government, but he’s making it more costly for the Alliance parties by not stepping down voluntarily,” Suhonen said. “They’re going to break their promises to not rule with the support of the Sweden Democrats.”

The speaker battle sparked sharp reactions over the weekend. Lofven’s coalition partner, Green Party leader Isabella Lovin, said the move indirectly gives the nationalists power over forming the next government, which is what they had "warned against," according to news agency TT. Social Democrat group leader Anders Ygeman told newspaper Dagens Nyheter that the speaker job, normally seen as impartial, was now being “politicized.”

Rounds Ahead

The Moderates, the biggest opposition party, said they welcomed the Sweden Democrats’ decision. Party leader Ulf Kristersson has excluded outright negotiations with the nationalists but hasn’t rejected using their support to take power. That view is largely shared by the Christian Democrats. The other partners in the Alliance, the Liberal and Center parties, have so far signaled that they would be unwilling to form a government that relies on such support.

Liberal leader Jan Bjorklund on Monday reiterated that there won’t be an Alliance government that relies on the Sweden Democrats.

"It’s not just the PM vote,” he said. “It’s fully possible that Ulf Kristersson could get a majority in the PM vote. But two months later you have to get a budget through parliament and that isn’t possible without negotiating with the Sweden Democrats. That’s the problem and that is something that we won’t do."

The Liberals instead want to see negotiations between the blocs in order to find support for an Alliance government, Bjorklund said.

‘Forget it’

That was quickly rebuffed by Ygeman, group leader for the Social Democrats. “Forget it,” he said at parliament.

The Social Democrats are eager to lure over the Center Party and Liberals to their side, but have so far come up empty.

Government talks can go four rounds of speaker recommendations, but Sweden has always found a solution in the first attempt. It’s likely to go beyond round one this time. The margin is razor thin and the Sweden Democrats have vowed that it will need to have influence to back a government.

The party has already been successful in shifting the Swedish debate and could win further concessions on tightening immigration, according to Ann-Cathrin Jungar, an associate professor at Sodertorn University who specializes in the European far-right.

Ahead of the election, the party also excluded its most extreme members and may now go further in trying to become a “normal” party, she said. But none of the blocs can count on its support, she said.

“They want something in exchange,” she said. Party leader “Jimmie Akesson has said that they could support a government that’s led by the Moderate party and adopts its migration policy.”

The markets have so far taken the political turmoil in stride. The krona has gained almost 1 percent since the Sept. 9 vote.

Experiences from other European countries show that it’s possible to do fine without a government for long periods of time, SEB analyst Elisabet Kopelman said in a note.

Fiscal policy is expected to become more expansionary regardless of who prevails since both blocs have pledged increased spending. But if no new government is in place by the budget deadline on November 15, fiscal policy would be more neutral since the current budget would just be extended.

“The interest for a snap election is probably low among all parties, expect perhaps for the Sweden Democrats,” she said.

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