Sweden’s Stand in the Frugal Four as the Club Ends with Europe’s Rearmament

The “Frugal Four,” which included Sweden along with Austria, Denmark, and the Netherlands, formed an informal group of fiscally conservative European countries in response to the 2020 Covid-19 crisis. They opposed any expansion of the EU budget and resisted the introduction of mutualised debt instruments such as Eurobonds and corona bonds, going as far as demanding “rebates”(a term historically associated with the UK, referring to financial discounts or refunds on their contributions to the EU budget). As of June 2025, the Frugal Four no longer exist as Denmark officially left the club. What united them in the past must be reexamined and judged against the imperative of responding to the need to strengthen collective defence capabilities across Europe. 

Standing up against all kinds of debt
Up until five or six years ago, the wind used to blow in a different direction, certainly more favorable to austerity policies. During the 2020 negotiations on the 2021-2027 European budget, the group of the “Frugal Four” ” – partly an evolution of the New Hanseatic League that had emerged in opposition to countries calling for an increased contribution to the EU budget after Brexit – insisted on keeping the European budget as low as possible (just over 1 percent of national GDP). Their main objective? To limit the financial and spending powers of the European Union.

What resulted in the end was a political understanding: it was only the mediation of Germany (at the time at the helm of the European Commission), who never officially joined the club but favoured it, that convinced Sweden and the other “frugal ones” to accept the Recovery Fund and the principle of responding together to a collective emergency. The austerity countries eventually secured the retention of lump-sum corrections to the annual contribution based on the gross national income; although they must contribute according to their national wealth, these states receive a fixed discount to limit the amount they pay. 

Balancing the Books: Sweden’s Shift after 1990

But Sweden hasn’t always been a champion of austerity. For decades, it took pride in an economic model built on generous social welfare, high taxes, and close cooperation with labor unions. That began to change with the high inflation triggered by the financial turmoil following the fall of the Berlin Wall, and later, the eurozone crisis of the 2010s. These shocks pushed Sweden toward a strict policy of fiscal consolidation. That shift wasn’t just internal; it was reinforced by growing pressure from international financial markets and Sweden’s deeper integration into the global economy. Then came the 2015 “migration crisis,” which prompted a dramatic policy: from having one of Europe’s most welcoming immigration systems to adopting some of the continent’s toughest restrictions.

No Place for Frugal Countries
The frugal countries have today changed their minds, not due to a sudden awakening of solidarity, but because of military armaments. We all remember when Danish Prime Minister Mette Frederiksen declared on Tuesday, June 3, 2025, during a conference in Copenhagen attended by the President of the European Parliament, Roberta Metsola: “Being part of the ‘Frugal Four’ is no longer the right place for us.” At the heart of Denmark’s decision, lies a new political and strategic urgency: the rearmament of the continent. 

Denmark is not alone in this strategic repositioning. Finland and Sweden are also adopting a more open approach, driven in part by their recent NATO membership, the growing Russian threat and by the progressive internationalization of the military industry. 

Money or arms – the measure of solidarity
Having a neighbour like Russia close by does not allow for peaceful sleep. So much so that in 2018, after Russia annexed Crimea in 2014, Sweden decided to reintroduce mandatory military conscription. Around 8,000 teenagers were required to perform compulsory military service in 2024. The quota is set to increase every year, with around 10,000 young people expected to be conscripted by 2030. On top of that, in 2022, the Swedish defence sector, which comprises around 200 companies (one of the main ones is Saab) including 60 foreign-owned, and employs 28,000 people, generated a turnover of €48.5 billion, which is booming year after year. Today, Sweden is the world’s 13th largest exporter of arms. Perhaps the benefits of collective security are truly understood only when there is room to raise defence investment towards 5% of GDP?

Climate leadership: Sweden’s compromise

But what happened in between that allowed Sweden to gain and maintain its leadership within the EU? The ambition to become “the world’s first fossil free welfare state”. During the 2020 negotiations, Sweden reached an agreement that primarily called for greater focus on ensuring the EU plan is sustainable over the long term (Sweden aim is to reach net zero climate impact by 2045, five years earlier than the EU target). That resulted in at least 37% of the expenditure having to be dedicated to the climate transition, with a further minimum of 20% allocated to the digital transition. Of the total allocation, 44.4% supported climate objectives. 

The price for being “the stingiest in the EU”
Even though the Swedish economy doesn’t appear to be in a critical stage, experts highlight that Sweden’s past fiscal measures have adversely impacted the redistributive capacity of the social security and tax system: by reducing spending and subsidies, the system has gradually diminished the coverage of social benefits. But weapons come first – it seems. And it is a decision that everyone agrees on. Stefan Löfven, president of the Swedish Party of European Socialists (PES), is among those who think that way, as a strong supporter of the rearmament plan.

Years of austerity have eroded the foundations of the public sector, leading to deteriorating working conditions that have left Sweden’s renowned social model increasingly strained. The ratio of public spending to GDP dropped between the early 1990s and 2010, accompanied by a reduction in the tax burden and substantial cuts to taxes. These reforms, driven by the need to stimulate economic growth and attract investment, have anchored successive governments to a policy of “frugality.” This year marks the 30th anniversary of Sweden’s membership in the European Union. A moment that invites reflection on what the membership has meant for the country. EU membership has brought Sweden access to the single market, influence and relevance over key issues such as climate, trade, and energy, as well as fostering cultural exchanges and cooperation through various EU programmes. However, celebrating it also prompts acknowledgement of the significant challenges the people of Sweden face today.