Sweden Sinks Into Political Chaos as PM Ousted in Key Vote

Sweden’s Prime Minister Stefan Lofven lost a confidence vote in parliament, toppling his minority coalition and plunging the largest Nordic economy into political chaos.

Lofven says he’ll now talk to his allies in parliament to figure out whether he can still patch together a viable coalition. Failing that, he may call a snap election, he said after losing Monday’s vote. If Swedes are forced to head to the polls early, it would be the first time since 1958. If Lofven resigns, the speaker of parliament will ask the biggest parties to try to form a new government until scheduled elections take place next year.

Sweden Sinks Into Political Chaos as PM Ousted in Key Vote

The krona was little changed against the euro after the vote, with most analysts pointing to Sweden’s stable budget, low debt and top credit ratings as enduring metrics that will probably be unaffected by the political turmoil.

A long-standing housing shortage in the country famous for a generous welfare system has led to a surge in home prices, as well as calls to liberalize a rental system that is based on negotiations between tenants’ and landlords’ organizations. However, while Lofven’s center-right supporters strongly back market solutions, the mere suggestion of some kind of deregulation is anathema to his traditional allies on the left.

The prime minister’s fate seemed sealed after he refused to back down from a deregulation plan aimed at Sweden’s rental housing market. The gambit by Lofven, a Social Democrat who’s presided over a fragile minority coalition since inconclusive elections in 2018, angered the Left Party, who said Lofven had crossed a red line.

The Left then won support from a group of conservative and nationalist parties, eager to eject their political foe. On Monday, 181 of the 349 lawmakers in Sweden’s parliament voted against Lofven.

Sweden Sinks Into Political Chaos as PM Ousted in Key Vote

Carl Bildt, a former Swedish foreign minister, was quick to note the historic nature of Lofven’s defenestration, as he becomes the first head of government in the country’s history to lose office through a no-confidence vote.

The Economy

Sweden’s political instability has yet to spill over to its economy, according to Johanna Jeansson of Bloomberg Economics. “Confidence in Sweden’s economic outlook is stronger than confidence for the government,” she said on Monday.

“We expect the ongoing recovery to continue as the pandemic eases its grip at home and in Swedish export markets,” Jeansson said. “Weak governance is more of a risk in the very long-term, dampening the prospects for needed structural reform of the housing and labor market.”

But Finance Minister Magdalena Andersson voiced her concerns on Monday, and pointed to the need for stability as Sweden navigates its way out of a pandemic in which it lost many more lives than its neighbors in the Nordic region.

“A political crisis is not good in this economic situation,” she told reporters in Stockholm. “We are just beginning an economic recovery and a lot of businesses are considering whether to hire, whether to invest and there is a risk that those decisions will be postponed as a consequence of the political uncertainty.”

GDP: Sweden Is Ahead of EU Majors

Sweden Sinks Into Political Chaos as PM Ousted in Key Vote

Lofven, a 63-year-old former union leader and welder, has spent the past 2 1/2 years in a coalition that looked shaky from the start. His Social Democrats governed together with the Greens, and could only stay in power as long as they were backed by the Left Party, the Center Party and the Liberals, who see eye to eye on few key pieces of legislation.

The ouster of Lofven is the latest sign that Swedish politics have been fundamentally altered since the rise of the anti-immigration Sweden Democrats. The party has just under a fifth of the seats in the country’s parliament, preventing either bloc from reaching an outright majority. That reality has prompted parties to the right to agree to consider working with the Sweden Democrats, once deemed too xenophobic to be embraced by the mainstream.

Until today, the prime minister had survived seemingly intractable conflicts, and emerged victorious from previous no-confidence motions brought against him. His removal from office now sets the stage for an uncertain political future in Sweden. If the country holds an early election, it’s far from clear that the next government will be much more stable.

“Given the situation in the parliament, it is highly unlikely that parties will agree on a new prime minister,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “So either Lofven will find a way to stay in power with the same parliamentary support as today - although with a different programme - or there will be a new election. Lofven’s best argument for staying in power is that it’s only a year to go until the next ordinary election.”

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.