In the election of 1970 the Social Democrats lost the absolute majority they had held since 1968. But in spite of this the Social Democratic government of Palme, with the support of the Communists, continued in office until the election of 1976, when the nonsocialist parties won a majority. Palme’s resignation brought an end to 44 years of Social Democratic domination.

Nonsocialists formed governments from 1976 to 1982, the first coalition being led by Thorbjörn Fälldin (Centre Party). His government felt repercussions of the international economic crisis of the 1970s, manifested in unemployment and adverse effects on the standard of living. Political discussion, however, focused above all on the question of nuclear power. Fälldin, who had campaigned for the cessation of building nuclear power plants, was forced to compromise on this issue. As a result, he resigned in October 1978. Ola Ullsten, leader of the People’s Party (widely known as the Liberal Party and officially the Liberal People’s Party from 1990), succeeded him as prime minister, forming a minority government in which one-third of the ministers were women. Following a general election in 1979, the nonsocialist coalition led by Fälldin was returned to office.

The development of nuclear power continued to be a hotly debated issue. A national referendum on the issue was held in 1980, with the government considering gradually discontinuing its nuclear power plants. Since then, public opinion generally has been supportive of the continued use of nuclear power, even though the government has decommissioned some plants.

Throughout the 1980s, political debate focused on economic problems, particularly those related to escalating inflation, an unfavourable international trade balance, and unemployment. These problems grew more severe as a result of worldwide changes in the methods of processing raw materials and in industrial production that developed from the beginning of the 1970s. Changes of this kind created economic difficulties throughout Sweden’s industrial complex, including such major sectors as textile manufacturing, iron- and steelmaking, shipbuilding, and mining. Escalating unemployment generated by the economic downturn was especially significant during 1980–83 and at the beginning of the 1990s.

Unemployment became a central issue of the 1982 parliamentary elections, along with the deficit and a proposal by the Social Democrats to establish a wage-earner investment fund. The Social Democrats won a resounding victory in the elections, and a new government was formed by Palme. The elections signaled a new polarization of Swedish politics, with the Moderate Party (as the Conservative Party had been known since 1969) gaining a significant number of new seats in the Riksdag, while the Liberals lost almost half of their representation.

The new government quickly took strong steps to alleviate the country’s economic stagnation, including an increase in the value-added tax (VAT) and a sharp decrease in the value of the national currency, the krona. Simultaneously, pressures were brought to bear on employers to resist workers’ demands for higher wages to offset the resulting price increases. Signs of recovery began to appear in response to the government’s measures and also as a result of the improving international economic scene in 1983–84. Taxation rose to a very high level, however, as a result of the large budget deficit and rapidly growing employment in the public sector. At the same time, a controversial issue developed over the legislation for the wage-earner investment fund that the Social Democrats and the Communists had managed to push through the Riksdag in late 1983, in spite of unified resistance from the nonsocialist parties and the business community. The opposing groups feared that the legislation would move Sweden too heavily in the direction of socialism. After their implementation the employee funds appeared not to affect the economic system in any appreciable way. Although they suffered some losses, the socialist parties continued to hold a majority of the seats in the Riksdag after the 1985 election. The most significant outcome of the election was a strong advance by the Liberal Party, which had come under new leadership.

On Feb. 28, 1986, Prime Minister Palme was assassinated, shocking a country unused to political violence (this was the first political assassination in modern Swedish history). He was replaced by Ingvar Carlsson, the deputy prime minister, who, although a less-dynamic figure, shared Palme’s political philosophy. Without Palme, however, Sweden’s role in the arena of international politics, where it had championed human rights and promoted peace and disarmament, diminished.

The 1988 election did not change the political picture greatly. Nonetheless, the Green Ecology Party garnered 5.5 percent of the vote, exceeding the 4 percent minimum required to enter the parliament. The domestic policy of the Social Democratic government was characterized by concessions to a more liberal program carried through with the support of the Liberal Party. For example, there was a considerable reduction in direct taxes on income, and a program for an energy policy for the future was developed.

The September 1991 election, on the other hand, resulted in a major change in Swedish politics. With the country mired in a recession, the Social Democrats were swept from office. The main victor in this election was the Moderate Party, under the leadership of Carl Bildt. The Moderates received 22.1 percent of the vote and took 80 seats in the Riksdag, while the Social Democrats lost 18 seats. As a result, the nonsocialist parties controlled 170 seats (not a majority) against only a combined 154 for the Social Democrats and the Left Party (the former Communist Party). Prime Minister Carlsson immediately resigned, and a nonsocialist coalition government was formed by Bildt. He had campaigned on a platform of directing Sweden’s economy away from socialism and toward a free-market system. His centre-right coalition immediately proposed privatizing state-owned companies, cutting taxes and government spending, and lifting restrictions on foreign ownership of Swedish companies.

With the recession continuing, the Social Democrats returned to office in September 1994 again under Carlsson’s leadership. He attempted to reduce both Sweden’s enormous budget deficit—which had reached 13 percent of gross domestic product—and its 13 percent unemployment rate. With the Soviet Union’s collapse having rendered Sweden’s traditional neutrality obsolete, Carlsson also pursued membership in the EU, despite opposition from within his own party and from environmentalists. On Nov. 13, 1994, 52 percent of voters backed EU membership, and Sweden officially joined in 1995. However, notwithstanding the favourable recommendation of a government commission, Prime Minister Göran Persson (who succeeded Carlsson in 1996 after his retirement) cited public opposition and rejected adoption of the euro, Europe’s single currency, when it went into effect in 1999.