The Seven Year Itch & The Coalition Of Contrasts

As Iceland prepares to vote on Nov. 30, the dysfunction and ineffectiveness of the outgoing government is laid bare

On November 30, Icelanders will head to the polls 10 months ahead of schedule. The snap election became an inevitability on October 13 when Prime Minister Bjarni Benediktsson announced he was disbanding the coalition government of his Independence Party (Sjálfstæðisflokkurinn), the Left-Green Movement (Vinstri græn) and the Progressive Party (Framsóknarflokkurinn) that had been in power since 2017. While the government’s collapse was sudden, it was hardly surprising.

The coalition parties had been relentlessly hammered in the polls since the summer, with the combined approval ratings of the trio sitting at just 20%. For the Independence Party, such dismal polling data was nightmarish, as the great old party would, in better times, consistently claim 40% of the vote. They were now polling at just under 14%.

The day after Bjarni’s announcement, the public got a glimpse into the dysfunctional marriage that the government had become. In an extraordinary two-hour live debate on national broadcaster RÚV that featured the heads of all the parties represented in parliament, the hatred between Bjarni and Left-Green counterpart Svandís Svavarsdóttir was on full display, while Progressive Party Leader Sigurður Ingi Jónasson seemed determined to show voters that his party’s middling opinionlessness would make them an ideal partner for any takers.

The “stability” government

It had come as a surprise to many when the Left-Greens decided in 2017 to join hands with their arch-enemy the Independence Party. The former’s voters wanted the state to create a more equal society, while the latter’s believed they were voting for private wealth creation and a relatively hands off government. In the end, nobody would be satisfied. But the line that was sold to voters in 2017 was that stability was the most important issue. Having gone through five elections in 10 years — with the latest being held just a year prior — many felt this odd couple pairing had a point. Vindication came when the coalition had their mandate renewed in the 2021 elections.

The day after Bjarni’s announcement, the public got a glimpse into the dysfunctional marriage that the government had become.

“This government is very unusual as it was formed across the left-right spectrum, which is rare both here and abroad,” says political scientist Ólafur Harðarsson. “You can compare that to, say, the current coalition government in Denmark, where you have two moderate right-wing parties along with the social democrats governing across the middle.”

A Professor Emeritus of political science at the University of Iceland, Ólafur has become a fixture of political analysis and election night coverage in Iceland. He’s calm; a straight shooter who wears shorts year round, whether he’s lounging in his garage smoking his pipe, or on live television dissecting the latest political meltdown.

He describes the outgoing government as one that was marked by significant internal disagreements in recent years. “During this latter term, it will be remembered for its disagreements and that it ultimately broke apart,” he says.

Pandemic politics

Despite the ideological differences at play, the coalition functioned well in its early years, partly due to Iceland’s strong economic position, which allowed for investment in public infrastructure. Katrin Jakobsdóttir was selected to lead the government as prime minister. Despite garnering just 17% of the vote, she was the most popular pick across party lines. During the 2021 elections, the government even managed the remarkable feat of bucking a trend that started with the financial crash government of 2007.

“All governments since after 2007 have seen their support collapse during their term and none have managed to renew their majority,” explains Ólafur. “That is, except for the 2017-2021 government.”

According to Ólafur, during its first couple of years the government showed all the hallmark signs of being another victim of a vindictive Icelandic electorate that seeks to punish its leaders at the ballot box, but their salvation came from Wuhan, China.

“When COVID came, it brought about what often happens in wars or pandemics; people can set aside usual politics and ideologies,” says Ólafur. “This completely reversed the government’s fortunes and saw support rise to 60 percent. Katrín’s government was considered to have performed better than our neighbours in how it handled the battle with COVID.”

This boost in support, he suggests, helped mask internal tensions, allowing the coalition to maintain stability despite its ideological diversity. However, tensions resurfaced over time, exacerbating internal frictions to the point of boiling over when, on April 5, 2024, Katrín announced she would step down as prime minister to launch her ultimately failed presidential campaign.

“While Katrín was in government, she managed to hold them together and resolve many very difficult disputes, but many supporters and MPs from both the Left-Green Movement and the Independence Party became increasingly irritated by the coalition and by the need to make all sorts of compromises,” says Ólafur. “After Bjarni became prime minister, he seemed much less committed to keeping the government together. The party plummeted in the polls and his main solution was to call for elections.”

Icelanders have become accustomed to their governments not lasting a full four-year term and as we head to the polls once again, society seems to be dealing with a backlog of major issues that the outgoing coalition government, riddled as it was with internal disharmony, failed to tackle.

No vision, mo money

If you want to become fluent in Icelandic water cooler talk, you need to familiarise yourself with a couple key topics: the weather, Strákarnir okkar, Tenerife and inflation. Since 2000, the country has seen a cumulative inflation rate of approximately 219%. Compare that to Denmark’s 53% and the issue becomes even more apparent. Much of the West saw a post-pandemic surge in inflation, but while other nations have taken steps to rein theirs in, Iceland’s government has been unable to tame the beast. Inflation currently sits at 5.4%, compared to the U.S.’ 2.4%. In addition to soaring cost of goods and services, rampant inflation has resulted in the central bank keeping its key interest rate at 9%, making borrowing prohibitively expensive.

Halldór Baldursson for The Reykjavík Grapevine

“Certain things during the past seven years have been to our benefit,” says Íslandsbanki chief economist Jón Bjarki Bentsson. “Productivity has increased, with regards to purchasing power, so households have higher income and unemployment is low — things like that are good. But we remain mired in the all too familiar environment of high inflation and high interest rates.”

Jón Bjarki claims that in 2017, the government came into power in a period that was marked by relative stability with low inflation and moderate interest rates. However, the ideological divide that the government trumpeted as a great approach to stability meant that when it came to key decisions, it was hard to form a coherent strategy that the parties could agree on, which ironically caused issues with maintaining economic stability.
“We see differing policies on, for instance, energy issues and the resulting consequences, with a lack of clear strategic direction, which is also true for this inflationary period,” Jón Bjarki explains. “On the one hand, there are those against raising taxes, who advocate for keeping taxes low, and on the other, there are those strongly opposed to cutting public services, which forms the basis of the political debate. As a result, neither increasing tax revenues nor better controlling expenses to cool the economy was feasible. Because of these disagreements, the government’s capacity to take decisive action on either front was limited.”

That lack of a clear direction has seeped into all aspects of Icelandic life in recent years, presenting not insignificant challenges to the business community.

“During this last term, it has been hard to figure out whether this government is coming or going and that is very bad for companies and the public,” says Iceland Chamber of Commerce General Counsel María Guðjónsdóttir. “You’d sometimes see two ministers talking about an issue from two completely different angles. One would be arguing for opening up for foreign investments, while the other would be talking about limiting them. So there was a definite lack of vision, which is vital for businesses.”

She points out that this lack of vision has created harmful uncertainty, negatively impacting wealth creation and business operations across the country.

“To some extent, the government needs to have the courage to make decisions that can be relied on for the long term. It is incredibly difficult when they are introducing bills in the fall that involve perhaps significant tax increases — major changes to the business environment — which are then supposed to take effect on January 1,” María says. “All companies have long since planned ahead. You can see this now with the tourism industry — suddenly they are changing the accommodation tax on trips that have already been sold for next year.”

​​We need to talk about foreigners

One of the more interesting aspects of Icelandic politics compared to neighbouring states has been the absence of large populist, anti-immigration parties. A contributing factor to this has been the relatively low number of foreigners living in Iceland (or the lack of attention paid to the number of immigrants living here) — but this has rapidly changed in recent years.

“The Centre Party has been very vocal about the need to reduce the number of asylum seekers and tighten regulations — and sometimes members of the Centre Party talk as though they aren’t only referring to asylum seekers but to foreigners in general.”

“What do all the Nordics have in common? It’s visual. All our flags have crosses,” outgoing PM Bjarni Benediktsson said in a recent podcast, where he discussed, among other things, the problems that come with mixing “different cultures.” With his Independence Party staring down the barrel of its worst election result in party history while facing attacks from the left and right, Bjarni has been flirting with a more nationalistic approach and advocating for curtailing the number of asylum seekers permitted to seek international protection here.

Emerging as one of the frontrunners for the upcoming elections is the Centre Party (Miðflokkurinn). It was founded in 2017 by former prime minister Sigmundur Davíð Gunnlaugsson after his scandalous departure as leader of the Progressive Party. Sigmundur’s government famously crumbled in 2016 after his business dealings were laid bare in the Panama Papers. The leak exposed offshore accounts tied to his family, which he allegedly did not disclose, stirring public outrage and mass protest, and forcing him to step down. His Centre Party party holds conservative, nationalistic values, particularly around issues of immigration and national sovereignty.

“The Centre Party has been very vocal about the need to reduce the number of asylum seekers and tighten regulations — and sometimes members of the Centre Party talk as though they aren’t only referring to asylum seekers but to foreigners in general,” says Ólafur. “And then, if you start talking about protecting the Icelandic language and culture, framing a multicultural society as a threat to our culture, then you’re essentially on the same ground as nationalist-populist parties we’ve seen come to prominence in the Nordic countries.”

Despite this being arguably the first election in Icelandic history in which immigration has featured close to the top of the agenda, Ólafur claims that the research increasingly shows that the Icelandic electorate has become less worried about foreigners over the past decades. It may be that post-election analysis will paint a different picture, but there is no denying the massive economic contribution of that demographic.

“Despite decreasing birth rates, we have a growing population, which is vital for us as a society because we can’t sustain ourselves otherwise,” says María. “We want to attract people who want to come and live here. We need this. But the discussion is unfortunately very shallow instead of addressing how we accommodate people. For instance, immigrants are much more likely to work in jobs that don’t match their education and skills.”

In just over a decade, Iceland’s immigrant population has doubled, growing from about 8% in 2012 to nearly 20% in 2023. This influx has been vital for sustaining Iceland’s labour force, contributing significantly to wealth creation.

However, the rapid pace of immigration has come with challenges in integration. Many immigrants face barriers in the labour market, such as underemployment or working in jobs that are not reflective of their education and experience. Iceland’s high cost of living and the language barrier add to these challenges, particularly for those in lower-income roles or those not conversant in Icelandic. Forming a coherent policy that balances social cohesion, freedom and economic prosperity will be paramount for the next government.

“From an economic point of view, the fast population increase is the flip side of the growth we’ve experienced. Without immigration, we couldn’t keep up the wealth creation we’ve become accustomed to, or bring in the foreign currency that pays for our holidays abroad and consumer imports,” says Jón Bjarki. “But in a limited sense you can say that this development has started to work against itself because the population increase has been so rapid. In a simplistic way you could say that some people coming here to work in construction are just building roofs over their own heads.”
No room at the inn

Bolstered by high inflation, a booming tourism industry and demand vastly outstripping supply, housing prices in Iceland have risen sharply over the past decade. Increases have exceeded 140% since 2013, making Iceland one of the most expensive housing markets in Europe. Consequently, the issue of housing affordability is expected to be a central topic on Nov. 30, with various parties proposing policies to increase housing supply, stabilise rental prices and address inflation.

“The problem doesn’t just lie with the national government, we also need to look at the municipalities,” says Jón Bjarki. “But what is interesting is that while everyone acknowledges we have a serious problem for which there aren’t any simple solutions, nobody seems to be willing to step up and take ownership. This is such a massive issue that we need to give it priority so we don’t end up with housing shortages becoming a permanent problem.”

Crime and welfare

The most horrifying change to Icelandic society we’ve seen during the tenure of the coalition government is the increase in murder and violent crimes. Already this year, Iceland has experienced eight murders — the highest ever occurrence in the nation’s history. From 2002 to 2022 the rate per 100,000 people averaged to 0.68 annually, but as of 2024 it’s up to 2.1.

“Typically when people start to experience that crime is increasing it isn’t reflected in the data, but that doesn’t seem to be the case now,” explains University of Iceland criminologist Margrét Valdimarsdóttir. “It is clear that there has been an increase in violent crimes in the past seven years.”

Bolstered by high inflation, a booming tourism industry and demand vastly outstripping supply, housing prices in Iceland have risen sharply over the past decade. Increases have exceeded 140% since 2013, making Iceland one of the most expensive housing markets in Europe.

Margrét claims that Iceland, despite having relatively low income inequality compared to global standards, is experiencing an increase in social divisions. She mentions that disparities are emerging in access to critical services like healthcare and education. These inequalities can lead to social tension and ultimately contribute to a higher prevalence of violence, as economic and social division tends to foster resentment and reduce empathy among people.

“It’s been shown that social and economic inequality is the factor most strongly linked to serious violent crimes,” says Margrét. “I think Iceland has seen these inequalities increase, but you won’t notice them by just looking at income inequality. There is an increase in social inequality, with different social classes, for example, having different access to the healthcare and education systems.”
It would be unfair to place the blame for the rise in violent crimes solely on the outgoing government, but it can be argued that its inner strife has, as with so many other key issues, prevented it from forming an effective strategy to tackle the problem.

“What I would counsel the next government is if they want to prevent this development, then they need to take better care of our healthcare system, especially when it comes to mental healthcare, and our education system”, says Margrét. “I’d also encourage them to take a nuanced, evidence-based approach to tackling crime.”

Mark your calendar

At the time of publication, polls are indicating that the Left-Greens, who just last spring occupied the prime minister’s seat, will vanish entirely from parliament while the Independence Party’s once dominating force will dwindle to a fourth-place showing.

Currently, the Social Democratic Alliance (Samfylkingin), under the leadership of their new leader Kristrún Frostadóttir, is poised to emerge as the big winners, with 22% of the vote going their way were elections to be held today. They’re followed by Liberal Reform Party (Viðreisn) and the Centre Party with 15% each, and the Independence Party with 14%. Given their well-funded and highly organised campaign machines, it is likely that the Independence and Progressive parties will finish the race stronger than current polls are indicating.

What comes out of the ballot box will decide how society approaches the future of the housing market, the welfare system, energy production and immigration.

One of the more notable things to watch as the elections play out will be the situation on the left. As things currently stand, neither the Left-Greens, the Socialist Party (Sósíalistaflokkurinn) nor the Pirate Party (Píratar) would pass the 5% threshold to be allocated a seat in parliament. This would effectively render 15% of votes dead on arrival, which could — or should — prompt a fresh debate about overhauling the electoral system. This would also mean that, for the first time in history, there wouldn’t be a “socialist” party in parliament.

There are big issues and bigger challenges facing Iceland in a year that has been marked by high tensions. What comes out of the ballot box will decide how society approaches the future of the housing market, the welfare system, energy production and immigration. Teachers across the nation are currently on strike and doctors are debating whether they should follow their lead. Whoever emerges victorious on November 30 will have to act fast in a difficult climate to tackle large issues and find the right partners to work with.

Ólafur believes that the most likely outcome, based on current polls, will be a centre left government featuring the Social Democrats and the Liberal Reform Party, with at least a third smaller partner rounding things out. No matter how the votes land, there is a general sense on both the left and the right that whatever comes next needs to be a government that can agree on key issues other than that COVID-19 is a real bummer.

“It would probably be good for the next government to be made up of parties that generally agree on major issues,” Ólafur concludes with a smile.

Follow along with the Grapevine’s 2024 election coverage.