Swedish shift

September 15, 2014

Opposition leader Stefan Lofven speaks at the election night party of the Social Democrats in Stockholm

Sweden’s centre-left Social Democrats topped the poll in Sunday’s election but fell well short of an overall majority to the extent that it will struggle to form a strong coalition.

The Social Democrats and the Greens and hard Left, who would be natural coalition allies, garnered 43.7 percent of the vote. The anti-immigrant far right emerged as the third biggest party to hold the balance of power with nearly 13 percent.

It looks like there will be plenty of time for market jitters before a government is formed.
What looks more certain is the ousting of the centre-right means years of falling taxes and liberal economic reforms may come to a juddering halt.

A flurry of polls over the weekend didn’t materially change the Scotland independence story.
The poll of polls – which because it collates a far higher number of votes than an individual survey should have a smaller margin for error than the 2 or 3 percentage points in any single survey – puts the pro-union vote on 51 percent, the independents on 49, still too close to call.

The independence campaign continues to press for explanations about the UK government orchestrating dire warnings from the business community and, in particular, what the Treasury’s involvement was in Royal Bank of Scotland’s announcement that it would relocate south of the border in the event of a “Yes” vote.

Alex Salmond says Scots won’t be bullied so we’re left with the same tussle between hope and fear.
Prime Minister David Cameron makes his last major speech of the campaign in Aberdeen and will doubtless reprise his yearning for Scotland to stay in the UK and his warning that this is a “forever” vote. Salmond will try to make the pro-business case for independence.

Germany’s eurosceptic Alternative for Germany (AfD) party captured more than 10 percent of the vote in two regional state elections on Sunday and will now have seats in three eastern German state assemblies.

The party, which was founded in early 2013 to oppose euro zone bailouts is ratcheting up pressure on Chancellor Angela Merkel who faces a threat on her right flank for the first time since taking power nine years ago. With popularity ratings at around 70 percent, she won’t be losing too much sleep yet.

France will host an international conference on Iraq’s security crisis after Islamic State militants beheaded another British hostage and said they were holding one more. U.S. Secretary of State John Kerry, British Foreign Secretary Philip Hammond and Iraqi President Fuad Masum will attend the Paris conference as will representatives of several other Arab countries. But Iran will not be there.

The United States is trying to build an international coalition to take on the IS insurgents and Kerry said countries in the Middle East had offered to join air strikes and send troops to fight the militants. The White House said it was making progress in obtaining authority from the U.S. Congress to train and equip the Syrian opposition to combat IS militants.

But Britain, which has in the past often been the first country to join U.S. military action overseas, said it would not, for now, launch air strikes. War-weary public opinion, parliament’s rejection last year of air strikes on Syria, and sensitivities surrounding Scotland’s independence referendum on Thursday mean Cameron is reticent this time round.

The Ukraine ceasefire is teetering again. Fighting flared near an airport in eastern Ukraine on Saturday and the Ukrainian prime minister accused Russian President Vladimir Putin of planning to destroy his country.

It’s been a busy weekend. EU finance ministers met in Milan and asked the European Commission and the European Investment Bank  to draw up a list of projects that would create growth and decide how to finance them. That is emblematic of the shift in debate – sparked by European Central Bank chief Mario Draghi – to allowing fiscal policy to foster growth rather than cut debt but there could well be less than meets the eye.

The EIB doesn’t have the sort of funds to make a big difference to struggling EU economies and Germany – the country with the means to indulge in fiscal stimulus — has rebuffed calls for any more public spending and focused on private investment, so-called “user-finance projects”.
Four ideas have been tabled; an Italian paper on new financing tools for companies, a Franco-German proposal on how to boost private investments, a Polish proposal on creating a joint EU fund worth 700 billion euros and a call from incoming European Commission President Jean-Claude Juncker for a 300-billion euro investment programme.

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