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FM AMEMBASSY STOCKHOLM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2929
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 03 STOCKHOLM 001400 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 11/16/2017 
TAGS: PGOV PREL PINR SW
SUBJECT: REINFELDT, BILDT, AND BORG:  MAKING THE COALITION 
GOVERNMENT WORK 
 
REF: A. STOCKHOLM 1354 
     ¶B. STOCKHOLM 1101 
 
Classified By: Ambassador Wood, reason 1.4 (b) and (d). 
 
Summary 
------- 
¶1.  (C) As Foreign Minister Bildt heads to Washington for the 
Annapolis Conference -- his third visit to Washington in two 
months -- we want to provide the domestic context to his new 
activist Swedish foreign policy.  It has been a difficult 
first year for Prime Minister Fredrick Reinfeldt and the 
center-right governing coalition.  While they have 
successfully carried out the tax and labor reforms promised 
voters, they continue to slide in the polls.  Part of this 
drop is attributable to scandals, part to inexperience, and a 
good measure reflects angst among swing voters who feel 
threatened by the reforms.  Nonetheless, the coalition 
appears to be ahead in the war of ideas and expects that 
reforms will yield fruit -- jobs, tax relief, and economic 
growth -- sufficient to carry the day in the 2010 election. 
Managing the coalition, Reinfeldt grants fiefdoms (Education, 
Industry, Health ministries) to coalition partners while 
deferring to Foreign Minister Carl Bildt on international 
relations and Finance Minister Anders Borg on cross-cutting 
domestic programs.  Bildt has demonstrated he sets the 
Swedish agenda on policy issues ranging from Kosovo to Iraq. 
End Summary. 
 
Paying the Price for Keeping Campaign Promises . . . 
--------------------------------------------- ------- 
¶2.  (SBU) Sweden's governing coalition took office on October 
6, 2006, having won the election on the promise to get more 
Swedes working while preserving the cradle-to-grave welfare 
net they hold as a birthright.  The government has been 
largely successful in implementing the adjustments it 
promised.  It has done away with the wealth tax, reduced the 
property tax, and lowered unemployment and sick leave 
benefits, particularly for those on extended unemployment and 
long-term sick leave.  In a country that is among the 
healthiest and most long-lived in the world, it has always 
been an anomaly that Swedes also have exceptionally high 
levels of absence for illness and early retirement for 
medical reasons. 
 
¶3.  (SBU) But to every silver lining there is a cloud:  the 
coalition has a good start on fulfilling its reform platform, 
but reforms have proven more unpopular than expected and 
contributed to a sharp slide in the opinion polls.  The 
coalition has fallen from 48 percent of the votes in the 
September 2006 election to 38-41 percent approval in November 
2007 opinion polls.  According to the polls, the opposition 
Social Democrat party alone has more support, 46 percent, 
than the four parties of the government taken together. 
Finance Minister Borg told the Ambassador November 16 he is 
concerned with the polls.  Calls to reinstate more generous 
sick-leave rules and unemployment benefits have become 
rallying calls for the opposition. 
 
. . . and for Breaking the Rules 
-------------------------------- 
¶4.  (SBU) The government's downward trend in the polls has 
been exacerbated by a series of scandals.  Three ministers 
and three state secretaries have been forced to resign over 
hiring black market (untaxed) workers, failing to pay other 
administrative fees or taxes, public displays of bad judgment 
(ref A), or intra-party strife (ref B).  The press has worked 
over the government with a public inquiry into how many of 
the State Secretaries (deputy ministers) admit to having 
employed workers without paying the employer portion of 
social security taxes (17 of 33, according to news service 
TT). 
 
But Still Winning the War of Ideas 
---------------------------------- 
¶5.  (C) Urban Ahlin, the opposition Social Democrats' foreign 
policy spokesman as well as Deputy Chair of the Parliament's 
Foreign Affairs Committee, told us November 14 that the 
opposition intends to keep beating down the government with 
scandals.  Ahlin was not sanguine about the Social Democrat's 
long-term prospects, despite their history of having governed 
Sweden 65 of the past 75 years and their soaring scores in 
the polls.  "We are up now, but 2010 elections are a long way 
off.  And we are behind in all the major cities:  Stockholm, 
Malmo, Gothenburg."  He also said that the Moderates and 
their coalition partners were winning the war of ideas. 
"There is no debate here," Ahlin said.  "The government -- 
ours, theirs -- just makes decisions and puts them in force. 
The Moderates have a program.  All we (the opposition) are 
doing is saying 'no'.  We have no think tanks generating 
ideas, no alternative program." 
 
 
STOCKHOLM 00001400  002 OF 003 
 
 
¶6.  (C) For its part, the coalition government has seen its 
economic reforms as a kind of stealth revolution.  Moderate 
Party Secretary Per Schlingmann told us the reform program is 
"revolutionary" and will irrevocably change the structure of 
the welfare system.  Schlingmann ("Sweden's Karl Rove"), was 
the ideological architect for the Moderate-led coalition 
victory a year ago.  He dismissed to us the current poll 
results as a side effect of a necessary inoculation.  The 
voters were a little ill-at-ease with their medicine, but the 
long-term effect on the health of the economy and labor 
market would be positive, and the polls would go up. 
Schlingmann said Reinfeldt hoped to push through the package 
of reforms remaining, including decreasing the power of the 
unions and making it easier to start businesses.  He was 
confident that the polls would bottom out soon, as the 
benefits became visible, and the rebound would coincide with 
the run-up to the next elections in 2010. 
 
How the Coalition Works 
----------------------- 
¶7.  (C) Moderates accounted for over half of the total votes 
received by the four coalition partners.  They control the 
power ministries of Foreign Affairs, Defense, Justice, and 
Finance.  The other three coalition party heads have 
Education, Industry, and Health.  Prime Minister Reinfeldt 
has been criticized for his invisibility.  In significant 
contrast with his predecessor, Goran Persson, he lets his 
ministers do the talking.  In large measure, this amounts to 
ceding fiefdoms to the other coalition partners, and helps 
keeps the coalition together.  But pundits note that 
Reinfeldt also seems to defer to fellow Moderates Foreign 
Minister Carl Bildt on international relations and Finance 
Minister Anders Borg on domestic and defense programs.  For 
example, when the Ambassador asked Reinfeldt's foreign policy 
adviser Nicola Clase the government's position on Kosovo, she 
said she would have to check with Carl Bildt.  For his part, 
Borg fought and won a budget battle with the Ministry of 
Defense dealing with defense procurement; this precipitated 
the resignation of the Defense Minister (ref B). 
 
¶8.  (C) According to those closest to him, Reinfeldt 
delegates effectively and has strategic vision.  Critics 
complain that his lack of assertiveness means no one is in 
charge.  They also note that he has surrounded himself with 
aides who lack experience and make novice mistakes, citing 
the incidents that forced resignations of several close 
associates, including his 35-year-old Chief of Staff (ref A). 
 Reinfeldt's staffing challenges arise in part from a split 
within the Moderate party, with Reinfeldt and the less 
dogmatic and youngish "New Moderates" having won the election 
and the turf battle within the party, but lacking experience 
in bare-knuckled battles with the opposition.  In our 
dealings with Reinfeldt, we find him engaging, exceptionally 
well informed, and strategically inclined, if a little stiff. 
 
¶9.  (C)  On foreign policy, Bildt (with the departure of 
former Minister of Defense Odenberg, the last of the Moderate 
old guard still in office) is personally engaged on every 
issue of Euro-Atlantic interest.  He seeks to have his own 
and Sweden's roles given due weight.  Kosovo is an example. 
Bildt proposed cuts in 2008 of Sweden's troops in Kosovo from 
385 to 250 because Sweden, a major donor and troop provider, 
is not on the steering board.  He has also argued for the 
need to go slower in order to ensure EU unity.  At the same 
time, he has placed himself squarely in the U.S.-EU nexus, 
including through his travel to Iraq and his pressure for the 
EU to do more there.  He is widely seen as aspiring to the 
new position of new foreign policy head under the EU's 
proposed reform treaty. 
 
Getting to 2010 and Beyond 
-------------------------- 
¶10.  (SBU) Reinfeldt brought the coalition to power by 
convincing the electorate that he was not calling for radical 
change, just fine-tuning the welfare state.  Yet his closest 
advisers call his changes revolutionary.  Early indications 
are that his labor and tax reforms are working: unemployment 
is down, and the economy is booming.  The economic growth 
rate for 2007 is estimated to be 3.4 percent, above the 
EU-wide figure of 2.9 percent. 
 
¶11.  (C) But the voters are nonetheless wary, concerned that 
with tightening of sick leave standards and decreases in 
unemployment benefits, the welfare safety net has been 
lowered closer to the ground.  At the same time, reforms such 
as changes in the property tax -- billed as a benefit to all 
-- are coming under fire.  Home owners -- and that includes 
most Swedes -- are increasingly suspicious that the tax 
reform is indeed revolutionary, and provisions such as a cap 
on property tax will largely benefit the well-to-do 
supporters of the Moderate and other "bourgeois" parties. 
Even these parties are finding their constituents restive 
 
STOCKHOLM 00001400  003 OF 003 
 
 
with divestiture of partially state-owned companies 
(including the largest bank, the Swedish stock exchange, and 
the distributor of Absolute Vodka).  Polls show 28 percent 
"for" and 49 percent "against" selling the government's 
interests in state-owned companies. 
 
¶12.  (C) For their part, business leaders are also not 
completely satisfied.  They tell us the government has done a 
good job of improving the supply side of the labor market by 
increasing incentives to work, but not enough has been done 
to promote job growth through tax reductions and 
deregulation.  They also say that government policies favor 
established large businesses but do not encourage 
entrepreneurship.  For the time being, the economy's overall 
health and steady growth are keeping the job market growing. 
 
¶13.  (C) The government is banking on its early investment in 
reform to pay dividends in the midterm, with the good news 
peaking and reaching the pocketbook of the electorate as the 
2010 election approaches.  This would enable the center/right 
to achieve a second term -- a rarity for non-Social Democrat 
governments -- and give the Moderates and their allies an 
opportunity to seek more radical reforms, including in 
foreign policy.  NATO membership is among the issues that the 
coalition has said publicly it will not take up in a first 
term -- but Schlingmann, among others, has told us privately 
could be on the agenda for a second term. 
WOOD