Governments teetering

December 3, 2014

Sweden's PM Lofven speaks at a news conference in Stockholm

Sweden’s centre-left administration is on the brink just two months into office after a far-right party announced it would side with the centre-right opposition to vote against the 2015 budget. The anti-immigration Sweden Democrats, who are shunned by all other parties in the Riksdag, holds the balance of power.

Prime Minister Stefan Lofven says he will quit if he does not get his budget through and said his opponents weren’t prepared to negotiate. He could still send the budget back to committee for amendments, though prospects of success are remote. He could also resign and try to put together a new government. But most likely are snap elections early next year.

Whether the centre-right will pay a price for teaming up with the Sweden Democrats remains to be seen.

Israeli Prime Minister Benjamin Netanyahu is also heading for early elections after sacking his finance and justice ministers. His government, which only took office last year, has been fraying over the 2015 budget and a Jewish nation-state bill that critics say discriminates against Arab citizens.

Polls suggest Netanyahu’s right-wing Likud party would emerge once again as the largest group in parliament if elections were held today. A motion to dissolve parliament is expected today and could take effect next week once a date for an election – possibly in March — has been decided.

British finance minister George Osborne delivers his Autumn budget update to parliament today. This most political of Chancellors is playing a high-risk game – promising years of more austerity and few election-winning giveaways, eyeing polls which show his Conservative party is most trusted to run the economy and hinting at future risks which means a vote for the other parties would be too dangerous.

That could be a compelling narrative though Osborne remains vulnerable to opposition Labour’s charge that people are not benefiting from robust economic recovery, with wages and incomes rising more slowly than inflation.

There are signs that Osborne and his boss, David Cameron, are getting nervous about such a stark offering to the electorate. Cameron has promised 7 billion pounds worth of tax cuts if he is re-elected. There is no indication yet of how it will be funded given years more spending cuts are in the offing. Osborne has now promised to spend an extra 2 billion pounds on the National Health Service as well.

Whether that will win more voters or serve to obscure their electoral message remains to be seen.

Osborne will of course trumpet the fastest economic growth rate among the G7 economies. The forecasts put out by the independent Office for Budget Responsibility will be more nuanced. Analysts expect them to show a short-term pickup in projected growth but a less certain outlook over the medium term and a deterioration in the overall fiscal position caused by weak tax receipts that will nudge borrowing higher.

After taking over as finance minister in 2010, Osborne promised to largely eradicate a massive budget deficit by 2015. In fact, he is only about half way there.

After manufacturing PMI surveys showed euro zone factory growth stalled in November, today’s equivalent surveys for the larger service sector will have the power to move markets. Figures released earlier showed China’s services sector grew slightly faster, although the data failed to soothe worries about the softening Chinese economy.

Poland has an interest rate meeting and is expected to hold at 2 percent. After the central bank held in November and said only a deterioration in the growth outlook would prompt more easing, analysts expect no further move until mid-2016.

Brussels hosts a meeting of foreign ministers representing countries in the U.S.-led coalition fighting Islamic State militants. Separately, NATO Secretary-General Jens Stoltenberg holds talks with new European Council President Donald Tusk, the former Polish leader who takes a tough line on Russia.

Ukraine’s parliament voted in a new government on Tuesday, putting foreign technocrats in key financial roles and renewing terms for the foreign and defence ministers in a signal that no major change in policy is likely on the rebellious east.

Russian officials said they expected low oil prices and sanctions imposed over Ukraine to push their economy into recession next year, wiping out previous forecasts for 1.2 percent growth.

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