Published August 26, 2011


The political debate in Iceland has gotten horribly stale and repetitive. In some places Iceland is held up as being a model of how to survive an economic crises and rebuild society. For most Icelanders this seems totally wrong. Some politicians, including our President, like to flaunt this view when they go abroad, but this is definitely not the feeling in Iceland.
The situation almost three years after the crash of 2008 is thus: Much of the debts of the Icelandic banks were written off, there was no other choice, as the total debt was ten times the GDP. There was no other way out—this was not due to any wisdom on part of the nation’s leaders. The bank system has been resurrected, mainly on the back of the population—it is the common people who carry the load. There has been a huge transfer of wealth from the general public to the banks, the pension funds and the owners of capital. According to the latest figures, lending institutions used to own a stake in 30 percent of the private housing in the early 2000s—now they own more than 50 percent.
Thus, the people of Iceland are heavily indebted—they keep paying off their mortgages, but they own less and less. Inflation has also been rampant and real wages have collapsed. Iceland is now lagging far behind its Scandinavian neighbours. There is a steady stream of emigrants, especially to oil rich Norway—which nobody can compete with. Icelanders who go to school abroad do not return home after their studies.
The reckoning after the collapse still goes on, but it is slow and muddled, creating more frustration than relief. A thorough study by a special committee that was published in April 2010, calling for openness and reckoning, seems almost forgotten. A special prosecutor who was nominated after the collapse is researching many cases, but almost none of them have gone to court, except one, where a judge ruled that the culprits had admittedly swindled their banking institution, but that their criminal intent could not be proven.
In two rather famous instances, Iceland has shown the finger to the world of finance and many feel proud of this. This is possibly the reason the Icelandic flag is flown in demonstrations in the Puerta del Sol in Madrid. These are the two referendums on the so-called Icesave repayments, purportedly owed to the British and the Dutch. But ultimately this might turn out to be more symbolic than real, there is still a possibility that Iceland might lose an international court case over this, but it seems that the assets of the fallen Landsbanki might cover most of the Icesave claims. Perhaps the threat of Icesave to the economy was overstated.
But there is still the myth that Iceland did not bail out its banks. This is not entirely true. According to an OECD report Iceland has put more money into its failed financial institutions than any other country except Ireland. So in this way Iceland is not a model—the people in Spain need not wave Icelandic flags.
We now have a left wing government—elected in the wake of great protests in early 2009—which muddles on, largely following the agenda of the International Monetary Fund. But its situation is rather confusing. At the outset it claimed that it would protect our ‘Nordic’ welfare system, but it has had to make big cuts in health care. The plan had called for a balanced budget this year, but this will not be the case, so further cuts are needed and there will also be tax increases.
Investment has been almost non-existent since the collapse. The Icelandic króna, which plummeted to half of its previous value, is still very weak—it is now kept afloat by stringent currency restrictions. This of course means that Iceland gets more revenue from its fish exports and the burgeoning tourist industry—in order to pay its debts—but here again the people are paying through lower wages, as well as food and consumer goods that keep getting more expensive. Because of the inherent instability of the króna, interest rates are very high, they were recently raised to 4,5 percent—in an economic system where GDP has fallen considerably and where only 1,6 percent growth is predicted. No wonder many feel that the króna is a doomed currency.
The parties in government are wedded to stick together. This is nominally the most left wing government in the country’s history, and if the government falls there probably won’t be another chance for the Social Democrats and the Left Greens to rule together. But the parties are in disagreement on many matters. Three members of parliament from the Left Greens have actually deserted—leaving the government with the narrowest of majorities. This means that individual MPs, such as Jón Bjarnason, Minister of Fisheries and Agriculture, can take the government and its agenda hostage. Jón has actively undermined Iceland’s negotiations with the EU, much to the dismay of the Social Democrats. Many think that this cannot continue through the winter, that the government has little hope of surviving. But then again it has suffered so many blows and beatings that some say it cannot die; that it is trudging onwards like some sort of Zombie Government.
When the government was formed two and an half years ago, the Social Democrats—the party of Prime Minister Jóhanna Sigurðardóttir—managed to convince the Left Greens to send an application to join the European Union. Most of the leaders of the Left Greens are against joining the EU, but they agreed on the premise that the case would be settled once and for all in a democratic manner. There would be an agreement that would be put before the nation in a referendum.
Since then matters have become more confusing. The negotiations with the EU might be finished late next year. But support for joining the EU has been waning. Of course the EU is in trouble with the Euro, the future of the union is quite unsure, and those who simply wish to terminate the negotiations are getting more and more vocal.
 There has been strong opposition from a group around former PM Davíð Oddsson, which basically detests the EU and all it stands for. They have managed to form an alliance with people from the left, many of them members or former members of the Left Greens. Up to now, the leaders of the main opposition parties have been rather reticent, but recently Bjarni Benediktsson, leader of the large Independence Party, called for the negotiations to be stopped. Soon after Sigmundur Davíð Gunnlaugsson, leader of the Progressive Party, followed suit. It seems clear that if the government were to fall, the application would be withdrawn.
Politics in Iceland are in disarray. Jóhanna Sigurðardóttir, the Prime Minister, has completely lost her popularity. The strong man of the government, finance minister Steingrímur J. Sigfússon, seems tired and unconvincing. He is having great problems keeping his party together. Both face electoral defeat. But they have one consolation: The opposition is just as unpopular as the government. According to a new poll, only 33 percent of the voters trust the leaders of the opposition.
Actually only twelve percent believe that parliament is working for the common good. Politicians are detested. This general lack of trust is of course worrying—it is not an overstatement to talk about a crisis of politics.
Changes might be in the air. The two opposition parties are both moving towards nationalism. With this they cover their bases on the right, probably insuring that Davíð Oddsson and his ant-EU followers do not form a nationalist party to the right of them. But at the same time they abandon their positions in the more internationalist centre.  This is a place the Social Democrats would like to fill, but many of the centre right cannot imagine voting for them. So there is a void. One person who would like to fill it is Guðmundur Steingrímsson, a young politician from an illustrious family, the son and grandson of former prime ministers of Iceland. He has just resigned from the Progressive Party and plans to found a new party—pro-EU, business friendly, pragmatic, without being in thrall to the interest groups that are so strong in Iceland.
Politics is perceived as lacking in convictions, integrity, talent and ideas. Being a politician in this country is an ungrateful task—the pay is also very bad. But it has to be said that politicians have disgraced themselves through endless bickering. Many thought the collapse would be a wakeup call, but in fact the political discourse has been getting more insufferable. Another challenge to this system comes from a constitutional committee of twenty-five people, elected to present ideas for a new constitution. It finished its task in July, and now parliament has to decide what to do with them. Iceland still has an archaic constitution, originating from the time of the Danish monarchy. Prime Minister Jóhanna Sigurðardóttir is keen on rewriting the constitution, but the leaders of the opposition are not. If the government falls, this process will likely come to a halt.
Some of the members of the constitutional committee have said that they would run for parliament if this happens. This might actually be what is called for in Icelandic politics, candidates who are totally untarnished by the old and discredited party system. 

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