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Europe: Sweden's Welfare State Turns Left

By Anthony Georgieff and Don Hill

Copenhagen, 17 September 1997 (RFE/RL) -- Sweden's ruling Social Democrats decided over the weekend to veer the world's most famous welfare state sharply to the left.

At the Social Democrats' party congress that ended Sunday, Prime Minister Goran Persson brought out a package of measures including free medical coverage for children and other child benefits, work-related tax deductions, enhanced sickness payments, and increased pensions.

He announced that the government will give highest priority to reducing unemployment from the present 8.5 percent rate to four percent by the year 2000. Controlling the budget deficit and taxes will be lesser concerns, he said.

The direction and level of the Social Democrats' proposals run counter to the policies of fiscal discipline, benefits and budget cutting, inflation control, and strengthening of the currency that the administration has enunciated in recent years. They are instead reminiscent of the high-flying days of the 1950s and '60s, when Sweden's economy was booming.

Sweden is one year away from a general election. Although the Social Democrats have dominated Swedish politics for 60 years, Persson's standing in the polls is low, with one study -- made public over the weekend -- suggesting that three-fourths of the population wants him out as prime minister.

Sweden's middle-of-the-road economic and social direction began with the conservative government of Carl Bildt in 1991. Analysts widely credited it with helping to reverse a severe recession during which the country's economy came to a near standstill and the crown had to be devaluated by 20 percent. Since then, industry once again has prospered and the budget deficit has shrunk from two-digit levels to a projected 2 percent for 1997.

Analysts and the press greeted the Social Democrats' new program critically. Earlier this year, a number of company directors published on open letter to Persson charging that his policies are ruining the country's business climate. At least two major Swedish firms have threatened to move their headquarters out of the country.

The business daily "Finanstidnignen" quoted Moody's ratings agency Sweden analyst Kristen Lindow as saying that the nation's debt rating is depressed because revenues surpluses are being used to increase exependitures rather than reduce state debt and taxes.

James McKay, economist for stockbrokerage firm Paine Webber, said the leftward policy direction is wrong for the markets. High government spending is high risk, he said, and an unwise tactic for securing election victory.

A newswriter for Reuters, in the news agency's report on the party congress, wrote that Swedish Prime Minister Persson had launched his reelection campaign.