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Sweden Has Bigger Problems Than Nordea

You can’t really blame Nordea Bank AB, Scandinavia’s biggest lender, for wanting to shift its headquarters outside Sweden. Moving to Finland should save it as much as $1.3 billion in regulatory costs and cut its tax burden.

But this piece of regulatory arbitrage goes beyond the banking industry. The bigger question is whether Sweden can match its political and economic objectives with a more business-friendly approach to stop others heading for the exit.

While spats between CEOs and politicians happen all the time, it’s unusual to see a firm actually carry out its threat to move over regulation and taxes. But then, Sweden is an unusual place. The country has one of the world’s highest tax burdens at around 43 percent of GDP, has actually complained that it’s receiving too much tax, and runs a budget surplus.

Yet the center-left government’s push for even more tax receipts to prop up spending has put a lot of corporate noses out of joint. Lenders have been asked to pay an extra $345 million next year toward a resolution fund to rescue failed lenders; private-equity investors are being told to treat income from investments as salary; startups have bristled at tax rates of as much as 67 percent on stock options. Even Spotify threatened to up sticks and leave last year.

To be fair, Stockholm has sometimes proven willing to back down and meet angry CEOs halfway. In June, it proposed cutting its bank resolution fee in 2019 and 2020. From the start of next year, Sweden will also eliminate income tax on stock options at smaller startups.

Still Uncertain

Perhaps the politicians’ view was that this would be enough to get bosses to cool off. After all, the U.K.’s concessions on bank levies stopped HSBC Holdings Plc moving its headquarters to Asia, and San Francisco convinced Twitter to stay with a compromise tax plan.

But Nordea’s move is a sign that halfway just isn’t good enough. That might have something to do with regulators’ treatment of banks more broadly — perhaps if rule-setters had encouraged Nordea’s bid to merge with ABN Amro of the Netherlands, the bank’s move could have been presented as more of a victory for the European banking industry than simple regulatory arbitrage.

Stockholm looks especially out of kilter with the rest of Europe. Even its watered-down resolution fee didn’t produce a level playing field with competitors or predictability on tax.

Nordea’s own history — it was created out of a series of mergers among banks in several Nordic countries — and recent restructuring into mega-branches rather than subsidiaries, meant there was less need to stay Swedish.

Losing Nordea isn’t a good look for a country targeting the lowest unemployment in the EU by 2020. It’s a reminder that capital is mobile and that the post-crisis world has thrown up wide differences between regions like the U.S., U.K. and Europe.

With startup champions like Spotify and Klarna tipped for future IPOs, Nordea’s move should be a good opportunity for the country to re-think the relationship with business.