Europe has seen another nationalist, anti-immigrant party surge in a general election — this time in famously liberal Sweden.
But the Nordic country's main political blocs are already pushing back against the Sweden Democrats, and are seeking to prevent it from entering government.
The results of Sweden's election Sunday pointed to a hung parliament and a very close finish between the two main alliances.
After almost all districts had declared their votes Monday morning, the ruling center-left coalition between the Social Democrats, Green Party and Left Party had 40.6 percent of the vote (or 144 seats), while the opposition center-right The Alliance between the Moderate Party, Center Party, Liberals and Christian Democrats stood at 40.3 percent, or 143 seats.© Provided by CNBC Swedish General Election
Both parties saw their share of the vote and the number of seats in the 349-seat parliament, the Riksdag, fall from the last election four years ago.
Meanwhile, the biggest gain seen by any party in Sweden's parliament was that by the controversial, far-right Sweden Democrats, a party with neo-Nazi roots. It won 17.6 percent of the vote and 63 seats in parliament, up from 12.9 percent and 49 seats from the last election.
The gains by the Sweden Democrats mean that both the center-left and center-right blocs do not have enough seats for a majority, so a coalition will be necessary.
The big question now is whether the third largest party in Swedish politics, the Sweden Democrats, will be part of a coalition government and how much of an influence the populist party will have on national politics.
Sweden Democrats leader Jimmie Akesson told a rally that the party was the "real winners" of the election and that it "will gain huge influence over what happens in Sweden during the coming weeks, months and years," Reuters reported.
Akesson said he was willing to talk to and negotiate with all other parties, but made particularly reference to the head of the Moderate Party, the leading party in the center-right Alliance for Sweden group, a more natural bedfellow for the Sweden Democrats.
"I am prepared to talk to the other parties, I am prepared to negotiate with all the other parties, I am prepared to cooperate with all the other parties. In particular, I am inviting (Moderate Party leader) Ulf Kristersson to a conversation about how Sweden can be ruled in the future," Akesson said.
Both the main political alliances have previously said they would not work with the Sweden Democrats. But Sunday night, Prime Minister Stefan Lofven said he would not resign and called for cooperation across the political divide – while excluding the Sweden Democrats.
"We have two weeks left until parliament opens. I will work on calmly, as prime minister, respecting voters and the Swedish electoral system," Lofven told a Social Democrats rally.© Provided by CNBC
Robert Bergqvist, chief economist at Nordic corporate bank SEB, said that Lofven wasn't expected to last long in the post, however.
"The first step (to forming a government) depends on whether or not Prime Minister Stefan Lofven chooses to announce his resignation. If he resigns, the current speaker of parliament may immediately begin exploring the conditions for forming a new government. If Lofven does not resign, we expect the Alliance bloc and the Sweden Democrats to declare their intention to vote his government out of office through a 'no confidence' vote when the new parliament convenes on September 24," Bergqvist said in a note Monday.
He believed a center-right, Moderate Party-led government is the most likely scenario, although whether the Sweden Democrats has a role remains to be seen.
"The Moderates and Christian Democrats have declared they will do all they can to bring about a change of government… This puts the spotlight on how the 'middle parties,' the Center Party and the Liberals, will act and whether they can honor their earlier pledges not to make themselves dependent on the Sweden Democrats under any circumstances."
Many other European countries have seen a rise in populist, anti-immigrant and euroskeptic parties, including France, Germany and Italy, so the latest election result in Sweden follows an established pattern.
Also similar to other European states, the Sweden Democrats' rise in popularity has been attributed to an influx of migrants, to both Sweden and the wider region, in the last few years.
In 2014, almost 127,000 immigrants entered Sweden while in 2016, just over 163,000 migrants arrived, according to government statistics. Sweden has 10 million inhabitants.
The Sweden Democrats' rise to prominence has thus come as some voters had concerns over Sweden's identity and the prospect of integration. Separately, a rise in gang crime has also been seen as a contributing factor to fears over law and order.© Provided by CNBC
The rise of nationalist, anti-immigrant parties usually accompanies periods of economic turbulence but that cannot be said of Sweden. The Nordic country has a low unemployment rate of 6.2 percent as of July, and strident growth of 1 percent in the second quarter when compared with the previous quarter.
Paul Donovan, global chief economist of UBS Global Wealth Management, told CNBC on Monday that there was an economic element to the Swedish election result, and a risk too.
"There is an economic element because we've got a lot of economic change going on. And the groups that tend to support anti-party politics — the parties that are against things, like the Swedish Democrats — tend to be the people that are most vulnerable to change. They tend to be older, less well-skilled and rural, not urban. These are people who don't react well to change," Donovan told "Squawk Box Europe."
"But the risk is then that as we create this hostility, this prejudice in politics, it makes the economy less flexible and makes the labor force less flexible, it makes the economy less able to deal with the change that is coming."
The Sweden Democrats are euroskeptic but SEC Chief Economist Bergqvist said there was only a "very low risk" that Sweden will hold a referendum on continued European Union membership.