Modern and Nonaligned State

The parliament of Norway broke the personal union with Sweden under the House of Bernadotte on 7 June 1905. After some months of tension and fear of war between the two neighbouring nations, negotiations between the two governments led to Norway's recognition by Sweden as an independent constitutional monarchy on 26 October 1905.

Welfare state

Sweden created a successful model of democratic socialism because of the unique way in which Sweden's labor leaders, politicians, and classes cooperated during the early development period of Swedish social democracy. Because Sweden's socialist leaders chose a moderate, reformist political course with broad-based public support in the early stages of Swedish industrialization and prior to the full-blown development of Swedish interclass politics, Sweden escaped the severe extremist challenges and political and class divisions that plagued many European countries that attempted to develop social democratic systems after 1911. By dealing early, cooperatively, and effectively with the challenges of industrialization and its impact on Swedish social, political, and economic structures, Swedish social democrats were able to create one of the most successful social democratic systems in the world, including both a welfare state and extensive protections of civil liberties.

When the Social Democratic Party came into power in 1932, its leaders introduced a new political decision-making process, which later became known as "the Swedish model." The party took a central role, but tried as far as possible to base its policy on mutual understanding and compromise. Different interest groups were always involved in official committees that preceded government decisions.

Sweden between World War I & II

Sweden was neutral in World War I. During the war and the 1920s its industries expanded to meet the European demand for Swedish steel, ball bearings, wood pulp, and matches. Post-war prosperity provided the foundations for the social welfare policies characteristic of modern Sweden.

Foreign policy concerns in the 1930s centered on Soviet and German expansionism, which stimulated failed efforts at Nordic defense cooperation. Sweden followed a policy of armed neutrality during World War II (although thousands of Swedish volunteers fought in the Winter War against the Soviets); however, it did permit German troops to pass through its territory to and from occupation duties in its neighbour, Norway, and it supplied the Nazi regime with steel and much needed ball-bearings. Sweden remained neutral during World War II, despite the involvement of all its neighbors. Sweden provided assistance to both warring parties.

Post-war Sweden

Sweden was one of the first non-participants of World War II to join the United Nations (in 1946). Apart from this, the country tried to stay out of alliances and remain officially neutral during the entire Cold War; it never joined NATO.

The social democratic party held government for 44 years (1932–1976), they spent much of the 1950s and 1960s building Folkhemmet (The People's Home), the Swedish welfare state. Sweden's industry had not been damaged by the war and it was in a position to help re-build Northern Europe in the decades following 1945. This led to an economic upswing in the post-war era that made the welfare system feasible.

By the 1970s the economies of the rest of Western Europe, particularly that of West Germany were prosperous and growing rapidly, while the Swedish economy stagnated. Many economists blamed its large tax funded public sector. In 1976, the social democrats lost their majority. The 1976 parliamentary elections brought a liberal/right-wing coalition to power. Over the next six years, four governments ruled and fell, composed by all or some of the parties that had won in 1976. The fourth liberal government in these years came under fire by Social Democrats and trade unions and the Moderate Party, culminating in the Social Democrats regaining power in 1982.

During the Cold War Sweden maintained a dual approach, publicly the strict neutrality policy was forcefully maintained, but unofficially strong ties were kept with the U.S., Norway, Denmark, West Germany and other NATO countries. Swedes hoped that the U.S. would use conventional and nuclear weapons in case of a Soviet attack on Sweden. A strong ability to defend against an amphibious invasion was maintained, complete with Swedish-built warplanes, but there was no long-range bombing capability.

In the early 1960s U.S. nuclear submarines armed with mid-range nuclear missiles of type Polaris A-1 were deployed not far from the Swedish west coast. Range and safety considerations made this a good area from which to launch a retaliatory nuclear strike on Moscow. The U.S. secretly provided Sweden with a military security guarantee, promising to provide military force in aid of Sweden in case of Soviet aggression. As part of the military cooperation the U.S. provided much help in the development of the Saab 37 Viggen, as a strong Swedish air force was seen as necessary to keep Soviet anti-submarine aircraft from operating in the missile launch area. In return Swedish scientists at the Royal Institute of Technology made considerable contributions to enhancing the targeting performance of the Polaris missiles.

On February 28, 1986, the Social Democratic leader and Swedish Prime Minister Olof Palme was murdered; shocked Swedes worried whether the nation had "lost its innocence".

In the early 1990s there occurred once again an economic crisis with high unemployment and many banks and companies going bankrupt. A few years after the end of the Cold War Sweden became a member of the European Union in 1995, and the old term "policy of neutrality" fell out of use.

In a referendum held in 2003, voters decided not to adopt the Euro as the country's official currency.