By Alistair Scrutton and Sakari Suoninen
STOCKHOLM/HELSINKI (Reuters) - When Russian warplanes staged a mock bombing run on Sweden last year, air defences were caught napping. It was the middle of the night and no Swedish planes were scrambled.
Instead, Danish jets belonging to NATO's Baltic mission based in Lithuania, took to the air to shadow the Russians.
The discussion that incident triggered over Sweden's ability to defend itself has grown with Russia's seizure of Crimea from Ukraine. As in neighbour and fellow EU member Finland, Swedes wonder whether to seek shelter in the U.S.-led NATO alliance, abandoning Stockholm's two centuries of formal neutrality.
Sweden has talked of a "doctrinal shift" in defence policy. In Helsinki, where "Finlandisation" became a Cold War byword for self-imposed neutrality driven by fear of a powerful neighbour, the government has talked of an "open debate" on joining NATO.
Talk of NATO underscores anxieties that feed calls for more defence cooperation and spending. But membership seems distant, with voters in both countries sceptical of the benefits, and wary of the costs of taking on new international commitments.
Both nations have a history of dealing with Moscow in their own particular ways. Sweden's loss of Finland to Russia in the time of Napoleon prompted it to give up on war and armed pacts.
Finland, which won independence during Russia's revolution of 1917 but nearly lost it fighting the Soviet Union in World War Two, kept close to the West economically and politically during the Cold War but avoided confrontation with Moscow.
Like Sweden, it joined the European Union only in 1995.
For all the scepticism about NATO, however, worries have been growing in Scandinavia since Russia's action in Crimea.
Russian troops held exercises on the Finnish border this week. A former aide to Vladimir Putin made waves by saying that, after ex-Soviet Ukraine, the president might eye Finland next.
Both Nordic nations may bolster defence spending and forge a closer military partnership between themselves as they face Russia across the Baltic and along Finland's long land border.
So far neither has risked finding out what Prime Minister Dmitry Medvedev meant when he said last year that Finnish or Swedish NATO membership would force Moscow to "respond".
TIME FOR SECURITY BLANKET?
As the Russian bombing practice showed when NATO jets scrambled into action over Sweden, both nations could hope for some protection from EU allies and the United States even without joining the defence alliance.
Both Swedish and Finnish armed forces cooperate with the other three Nordic states which are in NATO - Denmark, Norway and Iceland - and both have cooperated with NATO in Afghanistan.
Swedish jets helped Libyan rebels in 2011 and in March joined a NATO exercise in Norway, near the Russian border.
Still, some politicians are already making noises they may one day have to go further.
"I think it would be good to have an open debate about NATO already now and I hope that everyone would participate in it, even those who oppose the membership," Finnish Prime Minister Jyrki Katainen told online newspaper Verkkouutiset last week.
In a sign of the times, while Finland cut unemployment and child benefits in a March budget, defence got off lightly.
Swedish Deputy Prime Minister Jan Bjorklund called last month for a "doctrinal shift" in defence policy after the Crimea crisis. Calling Russia "a bit more erratic and unpredictable", Finance Minister Anders Borg called for "a substantial scaling up" of defence spending.
Borg's statement came after Sweden moved two fighter jets to Gotland, a strategically important Baltic island where spending cuts in recent years had all but eliminated defences.
Sweden's defence spending fell to 1.2 percent of GDP in 2012, according to the Stockholm-based SIPRI think tank, compared with 2 percent at the turn of the century.
Rather than join NATO, the Ukraine crisis may see Sweden and Finland more active in the Nordic Defence Cooperation - NORDEFCO - with the three Nordic states which are in the alliance.
GETTING MORE INVOLVED
Even as some analysts see the "Finlandisation" of Ukraine - former U.S. secretary of state Henry Kissinger has suggested Kiev follow Cold War-era Helsinki in cooperating with the West while avoiding "institutional hostility" toward Moscow - 21st-century Finland has shed some inhibitions about Russia.
It has joined in EU sanctions against Moscow and politicians have criticised the annexation of Crimea.
Katainen told a German newspaper last month that the term Finlandisation - coined by West German critics of their own government's perceived passivity toward Soviet threats - was a misleading one. Finland was "not neutral" as it was an EU member, he said - while adding that this did not stop his government from maintaining excellent relations with Russia.
Finland been cautious about imposing sanctions on Moscow over Ukraine. But that may be more due to worries about the effect on its own economy rather than fear of upsetting its massive neighbour.
Many Finns view Russia with suspicion and battles against Stalin's Red Army form a key part of their national identity. But there is also a sense among voters that Finland would be left to fight alone, whether in a defence alliance or not.
Sweden, too, has long taken a standoffish position in international affairs, avoiding even the world wars of the last century. After the Russian bombing rehearsal, Prime Minister Fredrik Reinfeldt played down its importance, saying Russia had "neither the will nor the capacity to attack Swedish territory".
But tensions over Ukraine have come as Sweden and Finland have grown more critical of Putin. Swedish Foreign Minister Carl Bildt, who first became prominent in the 1980s probing Soviet submarine incursions in Swedish waters, is one of the most vocal figures in the EU against what he calls Russian expansionism.
Polls show a clear majority oppose NATO membership in Sweden and Finland. About a third of Swedes favour joining the alliance and only around a fifth of Finns.
"There is no public support for NATO membership and Sweden has greater freedom to act if we're not part of NATO," said Peter Hultqvist, who chairs the parliamentary defence committee.
"There is a belief that our tradition of staying outside military alliances is the best way to preserve peace," he said, before adding a note of caution: "We must strive for an improvement of our military strength."
When the ex-Soviet Baltic states joined NATO in 2004 - part of an expansion that saw the alliance take in most of Moscow's Cold War satellites in the Warsaw Pact - they did so without provoking more than a rhetorical reaction from Russia. Some thought it would encourage the two Nordic states to follow suit.
Though they did not take that chance, some security analysts argue that NATO membership could now benefit the Nordic states in ways that go beyond the threat of military aggression. They point to a cyber attack, or a risk of gas supplies being cut.
However, few see an immediate prospect of NATO accession.
"Crimea has at least furthered the argument that there should not be any further reductions in military expenditure," said Ian Anthony of the Stockholm International Peace Research Programme (SIPRI). "But in terms of NATO, the balance sheet is in the direction of keeping things as they are."
Even Finland's European affairs minister Alexander Stubb, one of the few high-profile politicians in Helsinki who favours NATO membership, said now, at a time of particularly fraught relations with Moscow, was not the right time.
"One should not enter when the weather is bad, but when the sun is shining," he said. "And that is not the case now."
(Added reporting by Johan Sennero in Stockholm and Andrius Sytas in Vilnius; Editing by Alastair Macdonald)
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