FACTBOX-Key political risks to watch in Sweden

STOCKHOLM, Nov 1 (BestGrowthStock) – Since losing its majority in
September elections, Sweden’s centre-right government needs
opposition support to pass bills; but the centre-left opposition
bloc has drifted apart since the vote, making it easier for
Prime Minister Fredrik Reinfeldt to court individual parties.

Reinfeldt’s most likely allies are the Green Party, or even
the largest opposition party, the Social Democrats. Reinfeldt
has ruled out seeking cooperation with the Left Party, the
smallest and most left-leaning of the opposition parties.

While the anti-immigrant Sweden Democrats, whose arrival in
parliament effectively stripped Reinfeldt of his majority, are
something of a wild card, their overall political stance is
probably more in line with that of the centre-right government.

But they could become frustrated if they are unable to use
their parliamentary representation to push through legislation
on the immigration issues close to their heart.

This could lead them to vote with the centre-left on motions
that could threaten the government.

Below are the key political risks for Sweden:

PARLIAMENTARY SITUATION

Sweden had experience of minority governments when the
Social Democrats were in power, so a tradition of consensus
building exists.

What to watch:

— The first sign of how things will work in the new
parliament will be a vote on Sweden’s troops in Afghanistan.

The centre-left ran in the election on a plan to pull troops
out in 2013, but the government has resisted setting a date.
Reinfeldt is expected to set out his compromise on Nov. 4.

— The passing of the 2011 budget. Current parliament rules
make it difficult for the opposition to block a government
finance bill as the opposition has to unite around an
alternative package.

— The government is holding talks with the Green Party on
new immigration legislation. The Green Party wants to make
immigration rules more liberal.

— Any attempts by the opposition to claw back the
parliament mandate which Reinfeldt already has to carry out
further privatisations such as the sale of stakes in TeliaSonera
or Nordea.

— Reinfeldt’s first four years in power were marked by
income tax cuts and cutbacks in benefits for the long-term
unemployed and the sick. His reform agenda for the next four
years was already thinner, but any proposals on sensitive
welfare-related issues will be even more difficult to pass.

ECONOMY

Sweden stands out in Europe thanks mainly to robust public
finances. It expects to have a budget surplus in 2012 after
suffering its worst recession since World War Two in 2009.

But growth-dampening austerity measures in trading partner
European countries could hinder Sweden’s recovery by affecting
its exports. The financial sector is seeing brighter days as the
economies of the Baltic states, where the banks made big loan
losses during deep recessions, have improved.

What to watch:

— Sweden’s jobless rate is falling and housing prices
remain buoyant, but too strong credit growth could lead to
imbalances. At the same time, the central bank has said it will
not raise interest rates as much as planned due to weaker
economic developments abroad.

— Whether growth in the economy begins to weaken more
sharply than expected.

— The Swedish financial sector has coped well with the
global crisis despite loan losses from the Baltic states for
banks Swedbank (SWEDa.ST: ), Nordea and SEB. (SEBa.ST: ) Any
faltering in the Baltic recovery could dim the banks’ prospects.

— Will Estonia’s entry into the euro zone, expected at the
start of 2011, increase investors’ confidence in the region,
boosting the economy and the Swedish banks active there?

For political risks to watch in other countries, please
click on [ID:nEMEARISK]

FACTBOX-Key political risks to watch in Sweden