Stockholm: Swedes voted on Sunday in an election that the ruling center-right coalition is expected to win narrowly, although an anti-immigrant party trying to enter parliament for the first time may deny it an outright majority.
A hung parliament would unsettle investors, and analysts have predicted a sharp fall in the crown against the euro and rising bond yields should the far right perform strongly enough to hold the balance of power.
Prime Minister Fredrik Reinfeldt, aiming to be the first sitting center-right leader to win re-election, has benefited from one of Europe`s best economic recoveries and sound public finances plus tax cuts carried out over the last four years.
The center-left opposition, led by the formerly long-ruling Social Democrats, has focused its campaign on people who have suffered due to cost-cutting welfare reforms under the Alliance of Reinfeldt`s Moderate Party, the Liberals, Center and Christian Democrats.
"This is a day for a politician to be humble because now we are waiting for the judgment of the people," Reinfeldt told reporters after casting his vote. Voting began at 8 am (2 am EDT) and polling stations close at 8 pm (2 pm EDT).
"I think it`s going to be very close, very exciting. Many people have been incredibly uncertain of how they want to vote," voter Kent Bjorklund told Reuters Television as he left a polling station.
Two opinion polls on the eve of the election confirmed the expectation of a thin majority for Reinfeldt in the 349-seat parliament.
However, a third showed that although the Alliance would beat the Social Democrat-led opposition, it would not gain a majority. The anti-immigrant Sweden Democrats party, which denies it is racist, could win its first parliamentary seats but both main blocs have ruled out cooperating with them.
New Swedish model
The rise in the traditionally tolerant Nordic country of the Sweden Democrats, who must win at least four percent of the national vote to get into parliament, has followed a move away from their skinhead roots.
The party, which wants to curtail immigration and criticizes Muslims and Islam as un-Swedish, already has many seats in local councils. A breakthrough at national level would match a similar rise elsewhere in Europe for anti-immigrant parties.
Sweden has been among the most welcoming of European Union countries to immigrants seeking asylum or refugee status.
It took in people after the Balkan wars of the 1990s and was a favorite destination for Iraqis after the US invasion.
A United Nations report on immigration in 2009 showed immigrants accounted for 14 percent of Sweden`s population, just above the 12.4 percent average for northern Europe.
Apart from the debate over the Sweden Democrats, voters must choose between Reinfeldt`s model of a leaner welfare state with more income tax cuts and privatizations, and an opposition platform that wants the rich to pay more to fund schools, hospitals and care for the elderly.
Social Democrat leader Mona Sahlin, who would become Sweden`s first woman prime minister if the opposition coalition of the Social Democrats, Greens and Left party wins, said it was not too late for the center left to pull off a victory.
"Is politics really about those of us who have it good ... having 100, 200 or 500 crowns more in our wallets at the expense of others?" asked Sahlin at a rally on Saturday .
The Social Democrats were the architects of Sweden`s welfare model and ruled for much of the last century. But if opinion polls are right they face a historically bad election result.