Ahead of the Swedish general elections over the weekend, mainstream media was sensationalizing the chances of the far-right gaining control. In the wake of Brexit and the Trump election, it seems that the media is using the same template for each political event now and hyping up the chances of the far right gaining power which is precisely the model we saw around the French, German and Italian elections.
However, the Far Right did not gain power in Sweden this week, although, according to the preliminary election results, no one did. The outcome was rather muted and paints a very missed picture with the Sweden Democracy Party gaining 17.6% of the vote and the Social Democracy Party gaining 28.4% of the vote. While the final results are not due until Wednesday there is unlikely to be much change.
On September 24th, the new Swedish parliament will gather to elect the Speaker of the Riksdag who will take a key role in studying the options available for a new PM and a new government. The speaker will also propose a new PM and the parties which should form the government. If these proposals are voted against by more than half the Riksdag, they will not pass. The speaker will have four opportunities to successfully pass a proposed PM and government and if all four fail then a new election will be called within three months.
The task of forming a government will not be an easy one given that neither the left or the right gained a majority. Furthermore, as all key parties have vowed not to form a government with Sweden Democrats the chances of a grand coalition are incredibly slim.
Budget Proposals In Focus
The key issue for forming a government will be the passing of the budget proposal in the Riksdag whereby the budget with the most support will be passed. This might suggest that the biggest party will be the one to get the bill passed. However, this is not the case as other parties can choose to gang up and vote in favor of another party to stop this from happening which unfortunately is where the Sweden Democrats yield power and can influence policy. With this In mind, one possibility is that Moderaterna builds a minority government, drawing support from other center-right parties and or the Sweden Democracy party.
In any case, given the fractured nature of the parties involved, it could take anywhere from weeks to a month to settle a new government. During this time, the old government will remain in place as an interim solution. If no new government in place by the latest date for the Budget Bill 2019 (1th November this year) then the proposed budget will be “clean” meaning it will not encompass any reforms.
How will This Election Affect Economics in Sweden?
Given that all parties support for the strict fiscal framework we are unlikely to see any change in fiscal stance. And should consequently expect a continuation of budget surpluses and lower public debt. In consideration of this, the elections are unlikely to have any impact on monetary policy though we could see some lower income taxes over the coming term (2018 -2022) In line with the promises made by the center/right parties and Sweden Democrats.
The key issue will be that of the strength of the government as a weak government will struggle to pass any reforms in the Riksdag. However, this does also mean that the potential for any negative policy agendas is limited too. While the economy and labor market continue to perform well, however, there is little need for any reforms and focus is likely to be elsewhere. For now, the market awaits the final results on Wednesday though already focus is turning to the process ahead and what a new Swedish government might look like given the fractured parties involved.