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Sweden is navigating an international identity crisis

By many criteria, Sweden is the envy of Europe. It has tremendous soft power to wield as it takes on the rotating presidency of the EU’s ministerial councils. Yet a recent visit to Stockholm left me thinking that Swedes feel as disoriented by a rapidly changing world as everyone else.

One reason is domestic malaise. An epidemic of shootings — 60 gun murders across Sweden last year, against 9 in London — no doubt fuelled the rightwing nationalist Sweden Democrats’ election success last September. Formerly shunned, the party enjoys a formal deal for parliamentary support of the new centre-right coalition government.

But just as momentous is the external identity crisis of a country long committed to neutrality, free trade, market liberalism and multilateralism. Instead war, political fragmentation and a renaissance of state economic activism are the cards Stockholm is dealt as it chairs its EU peers for the next six months.

Some of the changes suit the three-month-old government. As foreign minister Tobias Billström pointed out to me, his Moderate party has long favoured joining Nato, which the Swedes are now doing. The main hurdle is Turkey’s ratification of their accession. “We are fulfilling to the letter” conditions agreed with Turkey last year, Billström says. The message from both Sweden and fellow candidate Finland is clearly that they have done enough, and the bulk of the alliance seems to agree. To this observer, it looks like Ankara has extracted the maximum it can.

Adapting liberal economic traditions to a more hostile world is harder. Stockholm is also traditionally sceptical of more powers or money for Brussels, against current clamours for both. Billström points out it has always been for “a strong EU in certain sectors” such as trade and the rule of law. And if Sweden gets its way, it will lift what many there call the positive trade agenda, and bring the EU’s many pending trade deals closer to their conclusion.

For now, though, the defensive trade agenda gets most EU airtime. It was boosted by the US Inflation Reduction Act, which belatedly aims to kick-start green US industry but discriminates against European exporters. “A giant headache” for Swedish preferences, says one insider. But after the UK left the EU, Stockholm is often forced to nuance its free-trading instincts to remain relevant in the debate.

“Yes to strategic autonomy,” says Billström in reference to French president Emmanuel Macron’s phrase for a more activist economic and foreign policy, “as long as it is not something that limits the possibility of export and import.” Asked about calls for a European countermeasure to America’s IRA, Billström insists on avoiding trade disputes and subsidy races. While it is “crucial” for the US to mitigate negative effects for Europe, he says we should welcome Washington’s commitment to emissions cuts.

Yet the best can become the enemy of the good. Both political and economic logic points to subsidising the technologies that facilitate the carbon transition. If that logic wins, the choice becomes not for or against subsidies, but between common EU subsidies or national ones. And a subsidy race within Europe could do much more harm than a subsidy race between the EU and US.

In this turmoil, corporate and political Sweden looks to the competitiveness agenda as the place to land on their feet. A review is expected from Brussels soon. Given how divided opinions are, it will inevitably bring political battles to a boiling point before any decision by leaders. If Sweden can secure a focus on long-term productivity and not protectionism, it will safeguard Europe’s economic prospects as well as its own free-trading soul.

There is one tradition Sweden is successfully doubling down on. Its commitment to a rules-based order has only been strengthened by Russia’s attack on Ukraine. As the Nato decision shows, in the choice between neutrality and a world run by rules, neutrality had to go.

Accordingly, Billström countenances no other solution than “Ukraine winning the war on the battlefield” — and that means all of Ukraine. “Re-establishing Ukraine’s territorial integrity is what this war is ultimately about.” Ukraine, he says, “has to win for the rest of us to be assured that this is not 1815, the time of the Congress of Vienna”. He vows more support for Ukraine and hopes for a tenth Russian sanctions package on Stockholm’s watch.

The Congress of Vienna, of course, marked the twilight of Sweden as a great European power. The country’s contributions to the standing of fellow small states in a world of rules are a prouder legacy.

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