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Iceland

Gunnlaugsson now unexpectedly in line to form Icelandic government

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Despite the fact that Iceland’s long-ruling Sjálfstæðisflokkurinn (Independence Party) won about 2% more in voter support in Saturday’s parliamentary elections, it looks like Sigmundur Davíð Gunnlaugsson, the leader of the second-place Framsóknarflokkurinn (Progressive Party), will have the first shot at forming a government.Iceland Flag Icon

That’s because both parties ultimately won 19 seats each in the Alþingi, Iceland’s parliament, and Iceland’s president, Ólafur Ragnar Grímsson, surprisingly decided to give Gunnlaugsson the first shot at forming the next Icelandic government.

The decision shines a spotlight on the fact that in many countries, the head of state has quite an influential role in determining who will be the next head of government — in this case, it seems like Gunnlaugsson will nonetheless be on track to become the next prime minister, not the leader of the Independence Party, Bjarni Benediktsson.

It makes some intuitive sense — the Progressives have by far the most momentum, having garnered nearly an additional 10% of the vote in the 2013 election, and although the Independence Party won the vote in Reykjavík and the small southwestern region of Iceland surrounding Reykjavík, the Progressives won more votes in all of the other regions of the country (though they are more sparsely populated).

Although all signals from both Gunnlaugsson and Benediktsson are that they’ll form a center-right coalition, one possibility that I hadn’t considered is that Gunnlaugsson might join forces with other parties, leaving the Independence Party outside of government.

That seems unlikely, of course, but it’s an avenue that’s more open to the Progressives than the Independence Party, given that the Progressives can make a marginally better argument that they represent a rupture from both the Independence Party that dominated Icelandic government in the decades prior to 2009 and the more recent government led by Jóhanna Sigurðardóttir and the Samfylkingin (Social Democratic Alliance) and their coalition partners, the Vinstrihreyfingin – grænt framboð (Left-Green Movement).

Mathematically, a government needs 32 seats for a majority in the 63-member Alþingi.

Conceivably, and this is now in the realm of pure speculation, that means that Gunnlaugsson could team up with the Social Democratic Alliance and the Left-Green Movement for a 35-seat majority, though that seems nearly suicidal, given that the two parties suffered the heaviest losses in the recent election.  It seems even more unlikely given the Social Democratic Alliance’s support for joining the European Union, a position that both the Independence Party and the Progressives — and even the Left-Green Movement — oppose.

But another path might include a Progressive-led government that draws on support from the anti-EU membership Left-Green Movement and the most successful of the two newest parties in the Alþingi, Björt framtíð (Bright Future) — that would bring exactly 32 seats.  Bright Future was founded both by former Social Democrats and Progressives, which means that, despite its pro-EU membership views, Bright Future could be an easier coalition partner for the Progressives.

What’s clear is that, for now, Gunnlaugsson would appear to have the greatest number of options, including several novel paths to a government that could shake up Icelandic politics more than we thought even over the weekend.

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What Iceland’s election tells us about post-crisis European politics

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Iceland was supposed to be different.Iceland Flag IconEuropean_Union

In allowing its banks to fail, neo-Keynesian economists have argued, Iceland avoided the fate of Ireland, which nationalized its banks and now faces a future with a very large public debt.  By devaluing its currency, the krónur, Iceland avoided the fate of countries like Estonia and others in southern Europe trapped in the eurozone and a one-size-fits all monetary policy, allowing for a rapid return to economic growth and rapidly falling unemployment.  Neoclassical economists counter that Iceland’s currency controls mean that it’s still essentially shut out from foreign investment, and the accompanying inflation has eroded many of the gains of Iceland’s return to GDP growth and, besides, Iceland’s households are still struggling under mortgage and other debt instruments that are linked to inflation or denominated in foreign currencies.

But Iceland’s weekend parliamentary election shows that both schools of economic thought are right.

Elections are rarely won on the slogan, ‘it could have been worse.’ Just ask U.S. president Barack Obama, whose efforts to implement $800 billion in stimulus programs in his first term in office went barely mentioned in his 2012 reelection campaign.

Iceland, as it turns out, is hardly so different at all — and it’s now virtually a case study in an electoral pattern that’s become increasingly pronounced in Europe that began when the 2008 global financial crisis took hold, through the 2010 sovereign debt crisis in the eurozone and through the current European-wide recession that’s seen unemployment rise to the sharpest levels in decades.

Call it the European three-step.

In the first step, a center-right government, like the one led by Sjálfstæðisflokkurinn (Independence Party) in Iceland in 2008, took the blame for the initial crisis.

In the second step, a center-left government, like the one led by Jóhanna Sigurðardóttir and the Samfylkingin (Social Democratic Alliance) in Iceland, replaced it, only to find that it would be forced to implement harsh austerity measures, including budget cuts, tax increases and, in Iceland’s case, even more extreme measures, such as currency controls and inflation-inducing devaluations.  That leads to further voter disenchantment, now with the center-left.

The third step is the return of the initial center-right party (or parties) to power, as the Independence Party and their traditional allies, the Framsóknarflokkurinn (Progressive Party) will do following Iceland’s latest election, at the expense of the more newly discredited center-left.  In addition, with both the mainstream center-left and center-right now associated with economic pain, there’s increasing support for new parties, some of them merely protest vehicles and others sometimes more radical, on both the left and the right.  In Iceland, that means that two new parties, Björt framtíð (Bright Future) and the Píratar (Pirate Party of Iceland) will now hold one-seventh of the seats in Iceland’s Alþingi.

This is essentially what happened last year in Greece, too.  Greece Flag IconIn the first step, Kostas Karamanlis and the center-right New Democracy (Νέα Δημοκρατία) initially took the blame for the initial financial crisis.  In the second step, George Papandreou and the center-left PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) overwhelming won the October 2009 elections, only to find itself forced to accept a bailout deal with the European Commission, the European Central Bank and the International Monetary Fund.  In the third step, after two grueling rounds of election, Antonis Samaras and New Democracy returned to power in June 2012.

By that time, however, PASOK was so compromised that it was essentially forced into a minor subsidiary role supporting Samaras’s center-right, pro-bailout government.  A more radical leftist force, SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς), led by the young, charismatic Alexis Tsipras, now vies for the lead routinely in polls, and on the far right, the noxious neo-nazi Golden Dawn (Χρυσή Αυγή) now attracts a small, but significant enough portion of the Greek electorate to put it in third place.

The process seems well under way in other countries, too.  In France, for examFrance Flag Iconple, center-right president Nicolas Sarkozy lost reelection in May 2012 amid great hopes for the incoming Parti socialiste (PS, Socialist Party) administration of François Hollande, but his popularity is sinking to ever lower levels as France trudges through its own austerity, and polls show Sarkozy would now lead Hollande if another presidential election were held today.

It’s not just right-left-right, though. The European three-step comes in a different flavor, too: left-right-left, and you can spot the trend in country after country across Europe — richer and poorer, western and eastern, northern and southern. Continue reading What Iceland’s election tells us about post-crisis European politics →

Iceland

Final Icelandic election results

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althingiJust a quick post to note the final results of Saturday’s Icelandic parliamentary elections.Iceland Flag Icon

As expected, the center-right will return to power, with the top two parties, the Framsóknarflokkurinn (Progressive Party) and the Sjálfstæðisflokkurinn (Independence Party) widely expected to form a governing coalition, thereby returning to power in as wide a swing in Saturday’s election as the swing against them in the April 2009 elections.

Although both parties will hold 19 seats each in the 63-member Alþingi, Iceland’s parliament, the Independence Party’s leader Bjarni Benediktsson will likely become prime minister instead of the Progressive Party’s Sigmundur Davíð Gunnlaugsson, though that’s far from clear, even today, with both leaders discussing options to form a government with Iceland’s president.

Until last week, Gunnlaugsson seemed very likely to become prime minister, riding a wave of popularity over his party’s stance in opposition to reimbursing the British, Dutch and other governments that, in turn, reimbursed non-Icelandic citizens who lost their savings when IceSave collapsed along with Iceland’s entire banking system.  Only a couple of weeks ago, Benediktsson was facing a coup attempt within the Independence Party over his own leadership.  As the campaign closed, however, the Independence Party made up much of its lost ground, though they have finished just 3% higher than their historical low of 23.7% in the 2009 election and the Progressives jumped 9.6% from the previous election:

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The Independence Party, in particular, has long dominated Icelandic politics since independence from Denmark in 1944, and it was in charge of running the country in the decades leading up to the 2008 banking crisis — its leaders at the time, prime minister Geir Haarde and former prime minister and Icelandic central bank president Davíð Oddsson were widely blamed at the time for the collapse and for establishing the conditions that led to the collapse.

The government which followed, led by Jóhanna Sigurðardóttir and the Samfylkingin (Social Democratic Alliance), in alliance with the Vinstrihreyfingin – grænt framboð (Left-Green Movement), represented the first government since the 1950s not dominated by the Independence Party.  While it leaves office with, I think, a fairly strong record of having strengthened women’s right, returned Iceland’s economy to GDP growth and massively lowered unemployment to under 5%, Icelandic voters remain relatively strained, even five years after the crisis.  GDP growth has returned thanks only to capital controls and the massive devaluation of the krónur, inflation has erased much of those gains for typical Icelandic households, many of which struggle under debt loads denominated in foreign currencies.

Sigurðardóttir’s government also probably suffered considerably for spending too much time on a push for a new Icelandic (‘crowd-sourced’) constitution and on bringing Iceland into the European Union, a project that is now likely to fall apart.  On Saturday, the Social Democratic Alliance lost 16.9% and the Left-Green Movement lost 10.8% from their 2009 result — it means that the Left-Green lost 50% of its 2009 support and the Social Democrats lost about 57% of its 2009 support.

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Iceland’s election spells the end for its EU accession hopes

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(110) Tides pushes out at Vik

With capital controls still in place, a massively devalued krónur and galloping inflation, Iceland’s economy is not back to normal.European_Union Iceland Flag Icon

But it’s enough back to normal so that the window for Iceland’s accession to the European Union — or even, as was assumed during the worst days of its 2008 banking crisis, accession to the eurozone — is now very unlikely to happen.

Regardless of whether Sigmundur Davíð Gunnlaugsson and the Framsóknarflokkurinn (Progressive Party) or Bjarni Benediktsson and the Sjálfstæðisflokkurinn (Independence Party) come out on top in Saturday’s election, they are likely to form a center-right coalition that will look to reverse many of the initiatives of the social democratic / leftist government of Jóhanna Sigurðardóttir over the past four years.

Above all, none of the Sigurðardóttir government’s priorities is more endangered than the project of Iceland’s EU accession.  Most news stories note that both a Progressive-led or Independence-led government would slow accession talks, but it seems likelier that Iceland’s next government would essentially end the talks indefinitely — they might not formally withdraw Iceland’s EU application, but they certainly won’t take any action to further discussions.

While Gunnlaugsson has called for a referendum on the eventual result of talks, his party  virtually alone among Iceland’s parties argues that the country should not reimburse the British, Dutch and other governments who reimbursed non-Icelandic depositors who put their savings in Icesave prior to its collapse in 2008.  Benediktsson is hardly any more pro-Europe — he’s argued that Iceland should break off talks altogether and focus on deeper global ties, such as Iceland’s recent free trade agreement with the People’s Republic of China — the first such free trade pact between a Chinese and a European country, likely due to Chinese eagerness to enhance its role in the Arctic north.

If for some reason a Progressive/Independence government does complete the accession talks, the result would be put to a referendum of Icelandic voters who remain highly skeptical of Brussels’s pernicious influence.

Sigurðardóttir’s government formally applied for membership in July 2009 and negotiations began a year later, but with her party likely to return to opposition, the window for Iceland’s EU membership seems likely to end with her government, as Alda Sigmundsdóttir writes today in The Guardian:

So, what makes the Progressive party so popular?

They are vehemently opposed to joining the European Union…. Indeed, many of the Progressives’ policies and declarations lean precipitously towards a new nationalism, with mildly xenophobic stances on issues such as immigration and asylum seekers, and party symbols that are vaguely reminiscent of fascism. The Progressive party was also the party that was most fiercely opposed to Iceland repaying the UK and Holland for the failure of the Icesave online bank.

If [Gunnlaugsson] wins, it will be because Icelanders fear abuse and exploitation by outside forces more than they do a return to the corrupt days of old.

Those are some fairly strong accusations, but I have to wonder if Icelandic voters aren’t simply being rational with respect to EU accession — they already have the benefits of free movement of goods and free borders with Europe, as well as much of the legal harmonization that typically comes with membership and a robust economic relationship with Europe that developed without Icelandic membership.  Why formalize the deal when they already have so many of the benefits of membership without any potential for considerable drawbacks that could harm Iceland’s cherished (and highly protected) fishing industry or the fierce national pride of a uniquely compelling nation that won its own independence from Denmark in 1944? Continue reading Iceland’s election spells the end for its EU accession hopes →

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Center-right parties poised to return to power in Iceland

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Kim Jong-un, at age 30, is the world’s youngest leader, and there are only a handful of thirtysomething world leaders.Iceland Flag Icon

But if polls are correct, Sigmundur Davíð Gunnlaugsson (pictured above) may lead Iceland’s Framsóknarflokkurinn (Progressive Party) to victory in April 27’s parliamentary elections, giving the Progressives their best victory since 1931 and, perhaps, in its history.  That would make Gunnlaugsson, at age 37, the country’s youngest prime minister since its 1944 independence.

Icelandic voters go to the polls Saturday after a fairly tumultuous time over the past five years following the 2008 collapse of its banking sector, a massive depreciation and the introduction of capital controls on Iceland’s currency, the krónur, despite a return to tepid GDP growth after a 6.5% contraction in 2009 and an unemployment rate that’s now below 5%.

I’ll sideswipe the long debate among American economists over whether Iceland’s economic policy was smarter than that in Ireland or the Baltic states.  If you want an in-depth take from an Icelandic observer, read this instead.  I’ll add that Iceland’s ability to set its own monetary policy certainly helped it bounce back in terms of GDP growth, but it also glided the path for a massive krónur depreciation and inflation that’s eroded those gains that Iceland has made in the past five years.  Much of Iceland’s household debt, before 2008, was denominated in non-krónur currencies, and debt today is otherwise linked to currency or inflation indices.  That has made debt repayment, especially for home mortgages, a grueling nightmare in post-boom Iceland.

So the economic situation is Iceland is complicated, and though there’s a lot of evidence to suggest that Iceland’s economy might even be worse if it were part of the eurozone, that doesn’t mean that the everyday Icelandic voter feels like things are quite back to normal.

But politics, however, do seem set to return to the pre-boom ‘normal,’ given that the Progressives were a longtime ally of the dominant party in Iceland’s history since independence, the Sjálfstæðisflokkurinn (Independence Party), which was formed precisely — as you may have guessed — to enact Icelandic independence from Denmark.

The two parties are now fighting for first place in the April 27 parliamentary elections, and it’s virtually certain that they’ll form the coalition that constitutes Iceland’s next government.  No party in Iceland’s post-independence history has even won an absolute majority in the 63-member Alþingi, Iceland’s parliament.

Polls have shown the Progressive Party with a growing lead throughout 2013, stemming largely from their insistence that Iceland should not reimburse the U.K. and other governments for the Icesave debacle — non-Icelandic savers who had deposited their money in Icesave were wiped out in late 2008, and though their own government have largely made them whole, they have turned to Iceland for repayment with interest.  Although most Icelandic parties agree that Iceland should make the payment, the matter’s been tangled up in both domestic and international litigation, and the repayments are very, very unpopular among the Icelandic electorate.

But the Independence Party seems to be catching up once again, and the two parties are now essentially tied for the lead, meaning that either party could win the greatest number of seats in the Alþingi.  If the Independence Party does edge out the Progressives, Iceland’s new prime minister could be the Independence Party leader, Bjarni Benediktsson (pictured below), who only narrowly survived a leadership challenge a couple of weeks ago, when the party’s polling numbers were more depressed.

bjarni Continue reading Center-right parties poised to return to power in Iceland →