THE SWEDISH ELECTION:THE SWEDISH ELECTION:HOW SCARY AN OUTCOME?HOW SCARY AN OUTCOME?

Klas EklundAmerican Chamber of Commerce, Oct 2,

1998

1

A RECORD ELECTIONA RECORD ELECTION

• Worst SDP result since universal suffrage

• Worst ever for liberals• Worst ever for Centre party• Best ever for Christian Democrats• Best ever for Leftists• Lowest turn-out since the 1950s

ELECTION RESULTELECTION RESULT

1998: Per cent and seats

Left 12.0 43SDP 36.6 131Greens 4.4 16Centre 5.2 18Liberals 4.7 17Moderates 22.7 82Christdem 11.8 42

1994: Per cent and seats

Left 6.2 22SDP 45.3 161Greens 5.0 18Centre 7.5 27Liberals 7.2 26Moderates 22.2 80Christdem 4.1 14

A LEFTIST ELECTION?A LEFTIST ELECTION?

• The non-socialists have 11 more seats than before• The left bloc has 9 less• The move from SDP to the Left: Maybe the voters

stood still, while both parties moved to the right?• Easier to jump from SDP to the Left because the

communist stamp is gone• Personality issues: Ms Schyman attracts more

(female) voters than Mr Persson• Conclusion: A protest vote rather than a left vote!

NONETHELESSNONETHELESS

• The Left party is stronger now• As are the non-socialists• Increased polarisation!• SDP + Left: 174 seats, 1 short of a majority• Four non-socialist parties: 157 seats -

stronger than the SDP• Three non-socialist parties: 141 seats - also

stronger• Means the Left has more clout

PARLIAMENTARY SEATSPARLIAMENTARY SEATS

020406080

100120140160180

SDP

MLI

CD

MLI

CD

C

SDPL

E

SDPC

SDPC

D

WHAT NEXT?WHAT NEXT?

• Opening of parliament Oct 5• Government declaration Oct 6• Budget proposal Oct 13• To form a government, Persson must

not face a hostile majority• Support from Left and Greens is

necessary • Also in getting the budget through

parliament• Conclusion: Negotiations necessary!

WHAT THE LEFT WANT - AND WHAT THE LEFT WANT - AND WHAT THEY WILL GETWHAT THEY WILL GET

Close BarsebackMore money/jobs to local

gov:tLaws agains sex

discriminationReduction of work time

Referendum on EMUTax hikes

Easier monetary policySlower amortisation of debt

Referendum on EUFree daycare centres

YesYesYesYes, but…YesNo and yesNoNoNoNo

THE BUDGETTHE BUDGET

• First important test for new budget process

• Time is on Åsbrink’s side: Most is already settled

• Targets will hold• Expenditure ceilings will hold• But reshuffling below ceilings• “No hurry”for the Left since they

have a four-year co-operation

MONETARY POLICYMONETARY POLICY

• Left on Riksbank board• That seat will be used as a platform for

agitation• Still: No change of monetary policy• But not possible to take decisions unanimously

in the future• No Left representation in new policy group• Hypothetical compromise: New (lower)

inflation target and secondary employment ambitions

WHAT WILL NOT COMEWHAT WILL NOT COME

• The MoF ‘s hidden agenda will be postponed

• No structural reform of labour market• No wealth tax cut• No tax cuts on dividends• No reform of social welfare systems• The budget will not be less cyclically

sensitive• Means worsening business climate

STRAINSSTRAINS

• Globalisation will put pressure on taxes• Risks of companies moving out• EMU will make Sweden marginalised• Rigid labour market will make lower

unemployment difficult to achieve• How to close nuclear plants without costs?• Slippages in the budget?• Internal strains inside the SDP• Internal strains inside the Left

CONCLUSION: CHANGE OF HORSESCONCLUSION: CHANGE OF HORSES

• SDP must move to the right• But difficult to change horses - the non-

socialists will grow together• And tactical difficulties when the SDP want to

move - how to avoid losses to the Left?• A dramatic trigger needed?

– EMU referendum?– Crisis?– Snap election?

• It will take some time…

MARKET REACTIONSMARKET REACTIONS

• Political risk has increased• But markets have not reacted too violently

– Some was discounted– Most believe budget targets and monetary policy

hold

• Political uncertainty will prevail at least until Oct 13

• Then maybe some uncertainty will dissipate• But it will return as strains build• Markets may not dislike a snap election….