Sweden's centre right leader wins historic second term but anti-immigration party denies Reinfeldt majority

In yesterday's Swedish elections the centre right Alliance won 49.3% of votes; the centre left bloc led by the once all-dominant Social Democrats won 43.6%; but the new anti-immigration Swedish Democrats won 5.7%. As with the performance of Geert Wilders in Holland, the mainstream right has been denied a majority by the strong showing of a nationalist party that trades on fears towards Muslims

Mats Persson from Open Europe, writing here in a personal capacity, examines the state of Swedish politics, examining the record of Fredrik Reinfeldt's government and also the implications of the election result.

Winning a second term as the first centre right prime minister in modern political history is a great achievement by Fredrik Reinfeldt, but the fact that a populist, anti-immigration party has claimed seats in Parliament clearly overshadows this accomplishment.

What has the centre right coalition government done right?

Fredrik Reinfeldt has managed to strike a good balance between making himself electable by moving to the centre/ modernising the party (the new “workers’ party”, as Moderaterna has called themselves,  has been a particular effective message), while sufficiently sticking to some conservative-liberal principles (in particular better incentives to work and more individual choice). This, in turn, has allowed Reinfeldt to keep support from the grassroots and stand out from the Social Democrats. David Cameron could still learn a thing or two from Reinfeldt in this regard.

The Alliance has done a good job of managing the economy – and particularly so during the recession – resisting the temptation to spend beyond means (learning the lesson from the 80s and early 90s). The Finance Minister, Anders Borg, ‘helped’ by an independent fiscal policy authority (similar to the one set up in the UK), rightly ranks amongst the most competent finance ministers in Europe. Sweden will have a budget surplus next year. Its GDP grew by 4.6% in the second quarter of 2010, compared to last year and it’s currently ranked second in the World Economic Forum’s competitiveness table (incidentally, helped by having its own currency). All of this has allowed the Alliance to gain the confidence of voters on the economy – for decades, voters tended to trust Social Democrats on economy over the centre-right parties. One of Reinfeldt’s/ Borg’s greatest achievements was to break this trend. But the Alliance was never faced with the kind of difficult position that Cameron and Osbourne currently are in.

The Alliance has injected some common sense into the Swedish welfare model, making it less expensive and more sustainable (but still very expensive). It has pursued some tax reforms, shrunk the public sector in some areas, cut unemployment benefits, and have tried to lower some barriers to labour market entry, including tax breaks for small businesses hiring new staff. Encouragingly, this has resonated with voters, while the Social Democrats have struggled to come up with new, credible ideas.

The Alliance has began tackling Sweden’s huge unemployment levels. In the 2006 elections, the centre right bloc won after making the fight against unemployment a lead theme (as opposed to banging on about lower taxes). It has done a decent job so far compared to its predecessors in my view, unemployment has been lower than in previous economic downturns (not least due to the reforms mentioned above) and is now falling as Sweden recovers. But there’s still a long way to go (see below).

It has stuck together – while the left bloc has given a far less homogenous impression. But unlike the UK Coalition, it also campaigned together and the parties are far closer than the Lib Dems and Tories naturally are - so the situation is quite different from the UK and any lesson from coalition politics in Sweden is bound to have limited applicability for the UK Coalition.

(The Alliance has also been lucky – had the election taken place a year or so ago, during the recession, it may well have lost. It has also been aided by the disastrous performance of the leader of the Social Democrats, Mona Sahlin.)

But what of the election result?

A populist, anti-immigration party, Sweden Democrats, won 5.7% of the votes, effectively creating a sort of hung parliament, and potentially giving SD the role of kingmaker in the Riksdag (Swedish Parliament). This is testament to a clear failure by all political parties to talk about immigration – which is now an important part of Swedish society (with 10-14% of all people living in Sweden being born in a foreign country). It also forms part of a worrying trend sweeping Europe, with more anti-immigration sentiments coming to the fore. (I would say that SD is somewhere in between UKIP and BNP on a UK political scale, but boasts a much younger and better organised outfit  – which in turn makes the party a real threat. ) This is a serious blow to the Swedish self-image as a bastion of liberal values and tolerance.

The Alliance will now have to rely on the green party for support in the Riksdag (refusing to deal with SD) in order to govern, which in turn could draw it further to the left.

The re-election of Reinfeldt (pictured) doesn’t imply ‘the death of social democracy’ as some media has claimed. Despite the re-election, the Social Democrats is still the country’s largest party (30.8% vs 30.0% for Reinfeldt’s Moderaterna). Sweden also remains a Social Democratic country in many ways; The top income tax rate in Sweden is close to 60%, it has the world’s second highest tax rates overall as share of GDP (need to double check that), the public sector is still huge and unions still have a very strong hold over labour market policies.  Reinfeldt couldn’t have been re-elected without a clear and unambiguous promise not to meddle with basics of the Swedish Welfare Model – which remains one of the most generous in Europe.

Despite some positive steps, unemployment remains far too high and the labour market too inflexible – unemployment levels are currently at around 7-8% overall. It was at around 6% when the Alliance came to power in 2006. As mentioned above, some of the unemployment can be blamed on the economic downturn, and encouragingly, it’s now dropping sharply. But we’re still looking at unemployment of around 19% among young people and equally disproportionate unemployment levels among ethnic minorities immigrants. These problems probably link with the rise of the Sweden Democrats, and show the need for still making the Swedish labour market much more flexible, with more ‘real’ jobs and incentives for business to hire/people to work.

Of the four parties in the centre right coalition, only Moderaterna increased its number of seats in the Riksdag, potentially increasing the risks of tensions within the Alliance, as Moderaterna is expected to take on an even more dominant role in the government than during the last mandate period.