Sweden's four part center-right coalition (called the Alliance for Sweden) appears set to lose power in today's election, suffering defections to both the center-left Social Democrats and to a somewhat racist anti-immigration party called the Sweden Democrats. Most commentary on the election I've seen in English-language media has noted the irony that Frederick Reinfeldt's government was in weak shape despite being widely praised for how it helped Sweden weather the 2008 financial crisis.
It is true that unemployment in Sweden never reached the heights seen in the United States, the United Kingdom, or the Eurozone. But public rejection of the Alliance is easier to understand when you remember that history didn't stop in 2009. Over the past three or four years they simply haven't had any kind of labor market recovery at all.
Both Sweden's early success and its later failure can probably be laid at the feet of monetary policy, rather than anything Reinfeldt did per se.
In the initial phase of the crisis, the Svergis Riksbank did what the Federal Reserve and the European Central Bank have never been willing to do — let inflation rise above 2 percent so that negative shocks can be absorbed in this way rather than delivering a huge blow to the labor market. But from late 2011 onward, the Riksbank insisted on moving toward tighter money despite high unemployment and low inflation. The stated reason for this, which has also had some influence inside the Fed, was that the bank had to act to prevent "instability" in the financial system. As Lars EO Svensson, a Princeton economist who worked at the Riksbank during the crisis years but lost the argument about post-crisis tightening, explains in this great presentation this has proven to be an extraordinarily costly way of obtaining uncertain benefits.
And now it's likely going to cost the governing coalition their jobs.
But will their successors actually change things? Politicians around the world show a remarkable level of indifference to the ways in which central banking decisions can seal their fate.