STOCKHOLM (Reuters) - A former welder is reversing the fortunes of Sweden's beleaguered opposition Social Democrats, as the party that pioneered European cradle-to-grave welfare makes gains from a backlash against years of market reforms and spending cuts.
The appointment of top trade unionist Stefan Lofven in January to head the Social Democrats has helped centre-left opposition parties overtake the centre-right minority government in popularity for the first time in two years, polls say.
That poses a challenge to Prime Minister Fredrik Reinfeldt who won re-election 2010 on cutting taxes and trimming the welfare state - a platform that may have reached limits in a country that cherishes social cohesion.
Ahead of the next election, in 2014, there is an increasing sense that Sweden may enter a period of policy limbo just as what was one of Europe's fastest growing economies last year now shows signs of stagnation.
"You won't see any more reforms to the welfare state," said Carl Melin, head of United Minds pollsters.
Stubborn unemployment, worries that reforms to a welfare state may have gone too far and voter fatigue with Reinfeldt have come just as Lofven has refreshed the party leadership.
More of a backslapping character than the stiffer Reinfeldt, he has benefited from the resignation of the defence minister over a Saudi arms factory plan and gaffes by a prime minister who has said Swedes may need to work to 75.
A YEAR OF SCANDALS
Lofven, 54, succeeded Hakan Juholt who quit less than a year into his post after scandals. The party fell in the polls to nearly 25 percent, its lowest ever, but has since rebounded to around 35 percent.
"The answer is not more inequality," Lofven told Reuters in an interview, regularly thumping the table as he described his political approach. "We believe more equality and growth development go hand in hand."
As a child, Lofven was sent to live with foster parents because his mother could not afford to take care of him. He grew up with memories of the end of the Vietnam War and a fascination with Robert Kennedy.
Lofven is viewed as a centrist whose priority would be to safeguard the welfare state and deal with chronic unemployment.
Sweden, a European Union member but not part of the euro zone, stands out from much of Europe with its resilient economy and strong public finances.
But it has not been fully insulated from EU turmoil, and jobs are becoming the prime voter concern, an area which might be an electoral weak point for Reinfeldt.
Unemployment has stayed stubbornly over 7 percent despite Sweden's strong growth, with youth unemployment at around 25 percent.
"The job issue is number one," Lofven said. "There is a general worry, jobs are going away, what about my job next month? The welfare system is going down, unemployment benefits are very low," he said.
The Social Democrats governed Sweden for much of the 20th century, introducing universal health, pensions and child care that formed the basis of the "Swedish model".
But, riven by internal divisions, they have languished in opposition since 2006, failing to attract a middle class tired of high taxes.
Since 2006 Reinfeldt has accelerated the entry of private sector into health and elderly care, stepped up privatisations of state firms and cut both income taxes and jobless benefits.
Sweden's tax burden may still be among Europe's highest. But it has fallen - to 46 percent of GDP in 2010, a 3 percentage-point drop in five years. Sweden's is now just 2 percentage points higher than Italy and France, OECD data says.
But it came with a price. Sweden now also has the sharpest growing inequality of any OECD nation, where the ubiquitous Volvos and Saabs vie for space on Stockholm's streets with Porsches and high-end Audis. Homeless numbers have grown.
With horror stories in the media of elderly men found tied to beds in private nursery homes and reports of thousands of unemployed people losing out on benefits, polls may show a backlash against years of reforms.
"Polls suggest that Swedes still want equality," said Ulf Bjereld, professor of political science at Gothenburg University and a member of the Social Democrats.
There are signs the government is already wary of more reforms. A proposal by a minority government partner to cut wages for the young was shot down by Reinfeldt last month and plans for more income tax cuts have been postponed.
But there is not likely to be a roll back.
"People are quite satisfied with lower taxes but they are not longing for more tax cuts," said United Minds' Melin. "On the other hand there are worries about youth unemployment and health care."
What may have developed is a more fickle electorate. Gone are the days when Social Democrats could rely on the support of nearly half the voters.
Swedes appear ready to switch quickly between the right and left, both of which have moved to the centre ground so the Social Democrats are not likely to regain such a large chunk of support permanently.
"It's all good so far for them," said Bjereld. "But they still have a long way to go."
(Additional reporting by Johan Ahlander and Johan Sennero; Editing by Robin Pomeroy)
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