With the economy generally healthy and the budget now in surplus, it is the future of Sweden's relationship with European Monetary Union that is the main issue dividing the parties.

Sweden's Social Democrats, who have been in power since 1994, are expected to return as a minority government. But, bowing to sceptical public opinion, with 51% opposed to a single currency, the government pledged in 1997 not to join the first wave of the euro.

"We want to have a strong debate about this in years to come," said Finance Minister Erik Asbrink. "An election or referendum will be held to decide if or when Sweden will join EMU."

The issue is expected to be re-addressed at the SDP party congress in 2001.

But financial markets may not be able to wait that long.

The main opposition parties, the Moderates led by Carl Bildt and its partner the Liberals, want to announce a decision in principle to join as soon as possible.

Carl Hamilton, a Liberal who might be finance minister in a non-socialist coalition, said, "A right wing government would be much clearer in aiming for EMU."

Financial stability

The SDP government has nevertheless followed a path of fiscal responsibility as laid down by the Maastricht treaty to qualify for future membership in a single currency.

It has cut the country's budget deficit from 12.3% of GDP in 1993 to a projected surplus of 0.8% this year.

And it has changed the system of public spending to ensure surpluses in the future, by mandating a three-year spending programme.

With the economy also growing at 3% per year, the SDP wants to use the surplus to raise spending on welfare and job creation measures. The opposition favours tax cuts instead.

Despite strong growth, unemployment has remained at 8%, and the unions say the real rate is unlikely to fall below 7% next year.

Business wants the euro

Sweden's business community has long been pressing for membership in the single currency, warning that jobs and investment could move south unless there was a clear commitment to join soon.

This summer one of Sweden's largest companies, Stora, Europe's biggest paper company, merged with its Finnish rival and chose to locate its headquarters in Finland in order to list its shares on the Finnish stock market. Finland is joining the first wave of the single currency.

Other Swedish companies have made big investments in Europe and North America in recent years, including telecoms manufacturer Ericsson, pharmaceutical giant Astra, and the household goods maker Electrolux.

And financial markets also may not be able to wait for Sweden to decide.

They are warning that the Swedish krona could again come under pressure once the euro is up and running, despite the strong fundamentals of the economy.

"What we are seeing is a very uncertain foreign exchange environment and if you don't have the safe haven that EMU seems to actually offer then I think it is very likely we could see more pressure on Swedish markets," warned S-E Banken economist Teis Knuthsen.

The Swedish central bank raised overnight interest rates to 500% in l992 in a forlorn attempt to maintain its informal peg to the D-mark.

And Sweden at the moment has no plans to join the revamped ERM (exchange rate mechanism) which will come into place in January, offering the support of the European central bank for currencies which float in a 15% range around the euro.