Leading Article: Old party in need of a new model

SWEDEN'S Social Democrats are celebrating their return to office in a coalition or minority government after Sunday's general election. They are soon likely to discover the limits to their triumph. The electorate signalled its weariness with right-wing free- market policies. But if voters thought that by returning the Social Democrats they might somehow turn back the clock to a halcyon era of state-subsidised universal prosperity, they may well be mistaken.

The Social Democrats were long presumed to be Sweden's natural party of government. To some observers, Carl Bildt's outgoing conservative coalition thus represented an aberration as it cut taxes, reduced welfare benefits and privatised state ventures. So the victory of Prime Minister-elect Ingvar Carlsson, who was ousted in 1991, could be seen as vindication for the traditional Swedish consensus, favouring high taxation, generous welfare payments and an emphasis on social cohesion.

These are tempting themes for British politicians to toy with as they watch the apparent rolling back of conservative policies in a nation renowned for its stability and tolerance. Such impressions would, alas, be illusory.

It was, in fact, Mr Carlsson and the Social Democrats who altered Sweden's political culture in 1990 by reforming the tax structure, putting some public services out to tender and applying to join the European Union. Mr Bildt then chose a more radical path of privatisation, devaluing the krona and cutting corporate taxes. Both were essentially different degrees of response to overwhelming financial pressures on an open economy.

Mr Bildt inherited a recession. But his methods of countering it generated high unemployment, which in turn consumed state funds through increased claims on the welfare system. The government now runs a budget deficit of 11 per cent of gross domestic product while total public debt almost equals 100 per cent of GDP. The Social Democrats hope to raise taxes gently and ease back on welfare benefits to try to balance the books. This looks like wishful thinking designed to avoid a fundamental shift in the country's economic structure.

The Social Democrat victory makes it more likely that Swedes may vote in favour of joining the EU in a referendum on 13 November, a vote falling between similar polls in Finland and Norway. The adhesion of the Scandinavians would be good news for the EU. Whether or not Swedes vote to end their traditional isolation, they have no choice but to re-shape their cherished model.