In his election night speech, Thage G. Peterson confidently spoke of "a popular mandate for social democracy", ignoring the historically weak position within the left of the Social Democratic Party. Some derided him for it while ackowledging that he was likely to remain Prime Minister, but Peterson had realized that his position was strong. Behind the scenes, he had started discussions with Stig Malm about the return of the Labour Union into the Social Democratic fold, although the unionists' leadership mess had delayed the process considerably. He also saw an opportunity in the election result, with the New Left barely being beaten into fourth place by the Centre Party that had made gains especially in urban regions for the first time thanks to defecting, disappointed Liberals. Peterson knew that the Centre frontbench led by Börje Hörnlund was a very pragmatic group and that he might be able to negotiate - Peterson was very familiar with the Social Democratic-Centre coalition of the 50's and while he understood that Hörnlund would be wary to lose soft center-right voters the allure of leaving the New Left behind if needed would be strong.
The first budget vote would be negotiated with the left-wing parties and included plans for a fee ceiling for childcare as a response to the many families who could not afford the expanded childcare access that had been implemented during the past years. In 1996, however, the Social Democrats feared that the economy grew slower than expected partly thanks to the government expenses increasing as a result of the 1995 budget. Afraid of not having enough progress to show in time for the next election and of a New Left that had seen its more radical wing grow louder since the European Parliament elections, the Social Democrats made serious overtures to the Centre Party.
Börje Hörnlund had retired in late 1995 but his successor, the former Minister for Agriculture Per-Ola ("Pekka") Eriksson, was also a pragmatic man who had worked closely with Söder and Hörnlund during most of the early 90's negotiations and while initially giving Peterson the cold shoulder the two eventually reached a mutual understanding when Peterson leaked the New Left's demands. The Labour Union leadership had been promised several cabinet posts under the Social Democratic banner after the budget had been passed and were eager to let it pass with a few adjustments such as a tax subsidy for renting home computers from one's employer. The New Left were privately informed that the Social Democrats had dropped out of the budget talks only an hour before the press conference at which the red-green budget co-operation was held.
The other right-wing parties immediately slammed the Centre and there was huge uproar in the party itself. That changed when the New Left presented its shadow budget only days later. While intended as a stunt to show the voters that there was a more left-wing alternative, the budget was based off the initial negotiation positions that had been made intentionally unreasonable in order to provoke the Social Democrats into moving leftwards. Thus the New Left budget had almost Swiss cheese levels of holes, and the party was pummeled by both the left-wing and the right-wing press. Eriksson and the Centre managed to successfully invent an image of themselves as great negotiators and the champions of anti-radical pragmatism, a much better defense of cross-bloc cooperation than Westerberg's People's Party had ever dreamt of and one that worked surprisingly well.
The New Left also had trouble responding efficiently. Ylva Johansson had left politics in early 1996 in order to resume teaching and not become a career politician - though no one believed that finding herself under pressure from the party's Euroskeptic majority wasn't a factor. Unintentionally she made it impossible for the party's left wing to find a successor as Gudrun Schyman was in Brussels (and had lost intra-party clout after Johansson's allies had played up her connections with Lars Werner, the Left-Communists and her background in a Maoist youth organization in anticipation of a leadership challenge) while no one else was willing to step up to the plate. After several early favourites had passed, the person who was elected leader was Stockholm City Commissioner for the Environment Margareta Olofsson. As Olofsson lacked a Riksdag seat, however, she could not participate in the Riksdag's budget debate and the wonky and uncharismatic party group leader in the Riksdag Karin Svensson Smith, who replaced Olofsson in the debates, had failed to impress. The New Left began slumping in the polls and the Greens broke 5% in a SIFO poll conducted in December 1996.
In the shadows, meanwhile, rose another new movement. Under Ulf Adelsohn, the Moderates had sprinkled just enough of red meat on immigration to populist voters, but Per Westerberg was a fundamentally non-populist old-school industrialist and was clearly more pro-immigration than his predecessor. Disappointed anti-immigration voters, although they were few in numbers, started looking for alternatives and many on the older side found Seniors' Party which had recently elected former judge Brynolf Wendt, known from hosting and co-hosting the TV Sverige crime show
Efterlyst. While mostly focusing on seniors' rights the party also campaigned for less immigration. One man attracted to the party was the businessman, count, satirist and soon-to-be-senior Ian Wachtmeister, who joined the party. Wendt and Wachtmeister would tour the country and campaign vigorously, leading to a poll showing of 2.2% by the summer of 1997 - only 0.3% from the 2.5% threshold for public funding. The party attracted voters from the Social Democrats, Moderates and especially the Christian Democrats, which had a hard time breaking through in the media, amplified by party leader Alf Svensson falling ill during the late summer and early fall preventing him to campaign. Some expected the new Riksdag to contain as many eight parties, although the Seniors' Party was still a very long shot. The race remained close throughout the whole term, with no bloc ever having a poll result that indicated a majority of more than 4 seats.
When the dust settled, that was not to be - in fact, surprisingly little had changed. The "red" parties entered Election Night with 176 seats and left with 176 seats, and the center-right parties remained at 173. Despite a close and exciting race, turnout kept dropping as many voters were dissatisfied by uninspiring alternatives. The possible entry of the Greens was expected to make the budget negotiations even more difficult as the Social Democrats would not be able to rely on either the New Left or the Centre Party, and a few voters committed to a bloc (mostly the left-wing one) who were scared of such a situation moved back to their former parties in the final days, leaving the Greens just outside the Riksdag with 3.8% of the vote. On the right-wing side the main losers were the overshadowed Christian Democrats and the hapless People's Party who would only stay in the Riksdag thanks to right-wing tactical voters. The Seniors' Party did not manage to attain public funding and ended up at 1.9% of the vote. Still, a record 6.5% of the vote had gone to parties outside the Riksdag.
During the 90's, a few constitutional reforms had been enacted - one was the extension of each term from three to four years starting in 2001 and one was the personal vote reform - if a candidate in a constituency received more than 5% of the votes within their party votes in a constituency, they would be "bumped" to the top of the party list. While a few MPs were elected this way, most personal votes would be gained by the number one candidates anyways, rendering the reform partly moot which resulted in calls from especially the People's Party and Moderates for further reform.
After the many debacles, it was clear that there was only one candidate for Prime Minister, Thage G. Peterson. Again, he had the choice of a red-red cooperation or a red-green alternative. This time, however, the New Left stood firm and demanded that Peterson would commit to the former or face a vote of no confidence, while the Centre had indicated that they would require tough compromises this time. Peterson had to choose wisely which path the country would take.