Riots Erupt in Sweden: The Nordic Welfare Myth?

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With growth rates above the European average and unemployment below EU levels, Sweden's economy is often regarded as something of a beacon. Although the export-oriented country has been hit by the slowdown in the euro zone, domestic demand has remained healthy and strong fiscal discipline has helped it to avoid the fate of some of its southern European partners.

News that the country's capital has been hit by three nights of rioting similar to the public disorder seen in Paris and London in recent years has therefore come as a surprise.

The Scandinavian model is more commonly associated with progressive policies such as promoting stay-at-home dads; much less with cars set ablaze and schools trashed.

But Sweden has a higher unemployment rate than you might expect, David Lea, analyst for Western Europe at Control Risks, told CNBC. The country has seen a huge influx of immigrants, with many asylum seekers drawn to its reputation for openness and tolerance.

"There are areas of low income and poor housing in Malmo and Stockholm where this kind of thing has the potential to happen," he said.

The country's unemployment rate stood at 8.4 percent in March, compared to 10.9 percent in the EU as a whole, and 12.1 percent for the euro zone.

But unemployment was 27 percent in the first quarter of 2013 in the 15-24-year age group, Nordea Markets Research said in a recent report.

"Excluding full-time students, youth unemployment came out at 14 percent of the labor force and 6 percent of the population in that age group. The latter is quite low in an international context, but higher than the Swedish labor market average, analysts at Nordea said.

Lea stressed that while unemployment and marginalization were always a factor, it was important to note that the riots in Sweden, like those in other countries, were triggered by a specific event – in this case a shooting. It was a result of basic demographics, he said.

Under Prime Minister Fredrik Reinfeld, Sweden has started to move away from the traditional strong social welfare state. Reinfeld came to power in 2006, ending the long-standing rule of social democrats and vowing to fix the welfare system. He has since cut income taxes and reined in benefits.

"Sweden's economy and society has been normalizing with the rest of Europe," Lea said, adding that there had been a "mutual love-in"between Reinfeld and other center right governments.

Andreas Jonsson, economist at Nordea, agreed that the perception of Sweden as a hybrid between capitalism and socialism was perhaps somewhat outdated, and that this view added to surprise over the recent events.

"One shouldn't be too quick to draw conclusions from what is happening," he told CNBC, but "the welfare system is clearly less generous."

This gradual change poses challenges, he said, adding that the country has "clearly not been successful" in integrating immigrants into the workforce.

He pointed to a high minimum wage as one of the reasons for high youth unemployment and added that the country suffered from a mismatch between skills and vacancies. Manufacturing jobs, typically associated with lower-skilled immigrant workers, have been declining for decades.

The jobs cut by manufacturers in 2009, when Sweden suffered a serious downturn, will not return, Jonsson said.