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Iceland - General Elections

General Elections in Iceland, 25th April 2009

General Elections in Iceland, 25th April 2009

23/03/2009 - Analysis

The Icelanders, inhabitants of a bankrupt country, will be going to vote on 25th April next to elect again the 63 members of the Parliament (Althing) two years before the end of its term in office. Indeed the world financial and economic crisis has literally ruined Iceland, a country that until very recently was put forward as an economic model. In January the Icelanders' anger obliged the government to resign and convene new general elections that will take place to the backdrop of a serious economic and political crisis since all of the leaders who supported the policies undertaken over the last few years have been discredited.
The Independence Party, which has dominated Icelandic politics since 1944, may be thrown out. "It is possibly the end of the first Icelandic Republic. Many are calling for a new Constitution," indicated university professor Torfi Tulinius. One thing is certain however, the "new Vikings", as the bankers were nicknamed and who led to Iceland's fortune before leading it to its ruin, have thrust the country into the most serious crisis since independence in 1944.

A bankrupt country

How could a prosperous island (in 2007 Iceland had the highest GDP/per capita in the world) have been ruined within just a few months?
The reasons are deep set and structural: atrophy of the financial sector, a major part of Iceland's revenue came from three banks, uncontrolled debt, investments undertaken in spite of the serious threats they brought to the country's stability, etc ... The crisis started in the summer of 2007 after the collapse of the housing market in the USA followed by that of the credit institutions in the summer of 2008.
The credit crunch became world wide and the Icelandic banks which had attracted numerous foreign clients and committed no less than 10 times the country's GDP, now find themselves with a gun at their heads and can no longer finance either their operations nor reimburse their creditors and their depositors.
The Icelandic krona has been devalued (losing nearly half of its value in just a few months), companies and households (over the last five years household revenues had increased by 45% on average; at the same time their debt levels doubled), whose loans are in foreign currencies, have been ruined and can no longer pay back what they have borrowed. Bankruptcies have multiplied and the number of unemployed has exploded. At the end of 2008 the bankruptcy of the Glitnir Bank led to its nationalisation on 6th October together with that of the Kaupthing and Landsbanki banks. Two women Elin Sigfusdottir and Birna Einarsdottir were then appointed to manage the two nationalised banks.

The International Monetary Fund (IMF) came to Iceland's aid granting it a loan of 1.6 billion €. On 2nd November the government adopted an emergency plan that includes the restructuration of the banking sector, support to create companies and the establishment of a reconstruction fund together with the launch of a major works programme. Although some financial analysts say they are optimistic about the country's resources long term (and about the measures taken at the end of 2008 with regard to the control of capital movements) as well as the population's ability to overcome the most serious of crises, Iceland is about to experience months, if not years, of difficulty.

Although GDP growth lay at a 4% average over the last decade (up to 7.8% in 2004 and still 4.9% in 2007), this is due to drop by -9.6% this year. The unemployment rate that was under 1% in 2007, quadrupled in just a few months (6.6% in January 2009, 8.2% in February, 9.4% is forecast in March) and is due to reach 7.9% in 2009 and 8.6% in 2010. Inflation is due to rise to 13.1% in 2009 (18.5% in January). The country's debts (7.8% of the GDP in 2007) will reach 70% at the end of 2009.
Although foreign trade recently recovered (increase in exports and a decline in imports) Iceland's political leaders do not have much room to manoeuvre. Indeed to take advantage of the IMF loan Iceland promised not to increase its budgetary deficit and not to inject money into the financial machine without the IMF's approval.
Finally the Althing has asked a special investigative Commission to establish the causes of the country's demise and to forecast what the consequences will be. A prosecutor has been given permission to inquire into possible criminal activities and to launch prosecutions if the need arises.

The "Saucepan Revolution"

The country's ruin brought the Icelanders out onto the street in October 2008. On 20th January demonstrations turned into popular riots. Objects were thrown at the Althing which suffered some broken windows. One policeman and 130 people were injured. The riots were a shock to the country which had experienced only one period of violent unrest in the course of its history and that was in 1949 when it joined NATO.
In fine the Saucepan Revolution (because of the noise demonstrators made by banging on saucepans or any other object) led to the fall of the government led by Geir H. Haarde (Independence Party, SJ). The announcement of early general elections did not calm the Icelanders down and they continued to express their anger until the departure of the Prime Minister on 26th January when he had to leave office aboard a limousine that was bombarded with eggs and yoghurt. "It is not healthy for one sector of the economy such as the banking sector to develop in a disproportionate and unbalanced way in comparison with other areas. Economic growth must be built on the creation of real value and we have to think in depth about the model which is based on free enterprise and free trade," said the Head of Government – rather late – during his New Years greetings.

Geir H. Haarde announced that he is suffering from a cancer of the oesophagus and as a result he was giving up the lead of the SJ which will choose a new leader during its congress on 26th-29th March next and during which it will reveal its legislative programme.

After the Prime Minster's resignation, Olafur Ragnar Grimsson, Iceland's President, who has firmly supported foreign investments over the last few years which have now proven so ruinous for the country, was surprisingly silent during the crisis. He has asked Ingijörg Gisladottir, chairman of the Social Democratic Alliance (SF), Foreign Minister and the outgoing government's second in command to form a government but the latter who is still recovering from an operation for a brain tumour in New York and unable to take on this role asked Johanna Sigurdardottir to take over the lead of the future government coalition.

On 1st February 67 year-old Johanna Sigurdardottir, former air hostess with the airline Loftleidir (that became Icelandair) from 1962 to 1971, former Social Affairs Minister (1987-1994), therefore became the new Prime Minister and the first woman to occupy the post (in 1980, Icelander Vigdis Finnbogadottir became the first democratically elected female President of a European country). Greatly appreciated amongst her countrymen (and women) Ms Sigurdardottir has made the defence of the poorest her sole line of policy declaring: "Our government will be the shield of the poorest families", adding "during the short time that this government will be in office we shall concentrate on aiding companies and families." A member of the Althing since 1978 and elected Deputy Chair of the SF in 1984 Johanna Sigurdardottir failed ten years later to take its lead. The following year she founded Thjodvak (National Movement) before re-joining the SF in 1997.
A divorcee, Johanna Sigurdardottir, is also the first openly homosexual Prime Minister in the world. She lives with Jonina Leosdottir, a journalist and writer. They officialised their relationship in 2002 in the form of a civil union. The homosexuality of their Head of Government interests the Icelanders so little – and they were informed of this before her appointment – that the media did not even bother to mention her marital situation when she took office.

Johanna Sigurdardottir has formed the first government with equal numbers of men and women: five men, five women. Apart from her party, the SF, the coalition she leads includes the Left Movement-the Greens led by Steingrimur Sigfusson – which is taking part in government for the first time. Enjoying only a minority in government she also has the support of the Progress Party. Another novelty is that two of her ministers, Trade and Justice, are not members of Parliament.

During a press conference at her home on 8th March last, Ingijörg Solrun Gisladottir declared that she was giving up her mandate as MP and as chair of the SF. Since her state of health had not improved she said she did not feel able to keep up both mandates. The SF will elect her successor during the party congress at the end of March.

The Icelandic Political System

Iceland has the oldest Parliament in the world. The Althing was founded in 930 forming at that time both a legislative Assembly and a court. At the end of the 12th century the Althing was no more than a simple court of justice that was abolished in 1800 and then re-instated as a consultative Assembly in 1843 by the King of Denmark.
The present Althing, the only Chamber of Parliament since the disappearance of the upper chamber in 1991, has 63 members elected by proportional voting, (the d'Hondt method) for period that exceeds no more than four years. Each political party has to win at least 5% of the vote to be represented in Parliament. During the general election Iceland is divided into six constituencies: North-West, North-East, South, South-West, Reykjavik-South and Reykjavik-North. Each constituency elects nine representatives for the Althing. The nine remaining seats, called "equalisation seats" are distributed according to a method that takes the results of the parties nationally and the spread of their votes within the constituencies into account in order to achieve parliamentary representation that is as close to that expressed by the population as possible.

- the Independence Party (SJ), led for many years by Geir H. Haarde, (the next leader will be appointed at the end of March) has dominated political life for the last fifteen years winning the last five general elections (1991, 1995, 1999 et 2003 and 2007). The SJ has 25 MPs;
- the Social Democrat Alliance (SF), the party of Prime Minister, Johanna Sigurdardottir, and led by Ingijörg Solrun Gisladottir (it will elect a new leader at the end of March) was formed in January 1999 from the merger between the Social Democratic Party and the People's Alliance and the Women's Party. It has 18 seats;
- the Progress Party (SF), a centrist agrarian party, that was the second most important in the country for many years is led by the Sigmundur David Gunnlaugsson who replaced Valgerdur Sverrisdottir. It has 7 MPs;
- the Red-Green Alliance (VG), an extreme leftwing party led by Steingrimur Sigfusson rallying some sympathisers of the People's Alliance who refused to merge with the Social Democratic Party; it has five seats; it is a member of the outgoing government coalition and has 9 seats;
- the Liberal Party (XF), that lies to the right of the political scale is led by Gudjon Kristjansson and has four seats.

Two new parties have now emerged: the Civic Movement led by Herbert Sveinbjornsson and the Anti-European Union List which is opposing Iceland joining the EU.

The Electoral Campaign

Ingijörg Solrun Gisladottir set her support of the outgoing coalition on the condition that the Finance Minister, Arni Mathiesen would leave office together with the departure of central bank governor and former Prime Minister (1991-2004), David Oddsson. Although the Finance Minister resigned in January, the former Prime Minister categorically refused to leave office. On 2nd February last, Johanna Sigurdardottir asked him to leave.
David Oddsson left office on 26th February after the government approved a law abolishing the present board of central bank governors replacing this with a single governor at the head of the banking institution who must absolutely have a masters in economy, a diploma which David Oddsson does not have. The law also establishes a monetary policy committee.
Svein Harald Oyygard, former director of the company McKinsey and who worked for the Central Bank of Norway and for his country's Finance Minster was appointed interim governor of the Iceland Central Bank. His Norwegian nationality is the focus of some questions notably amongst the members of the Independence Party who believe that this appointment is contrary to the Constitution. For his part, David Oddsson said that he would remain in the political arena and indicated that the quest for those responsible for the present economic crisis was "far-fetched".

The economic crisis has raised the European issue which is now the central focus of the electoral campaign. Joining the EU and adopting the single currency would be "the best option" according to Johanna Sigurdardottir when speaking in January. The Social Democratic Alliance has always supported the opening of negotiations by Reykjavik with Brussels. The Independence Party, which totally supports the fishing industry, is theoretically against the idea even though recently there have been other developments. It would like Iceland to maintain the control of its natural resources; obtaining dispensation on the part of the EU in terms of fishing may be the means to lifting one of the major barriers to the country's accession. The Left Movement-Greens is firmly against Iceland joining the EU even though its leader, Finance Minister Steingrimur Sigfusson, who privileges Iceland's monetary co-operation with Norway rather than its membership of the EU, declared at the beginning of December that he might hold a referendum on the issue before the opening of negotiations with Brussels. The Left Movement-Greens reproaches the EU for its economic liberalism. Finally the Progress Party, previously against membership, is now mostly in favour.
At the start of its mandate Johanna Sigurdardottir's government said that it was planning to modify the Constitution to make membership possible after the general elections. Iceland is a member of the European Economic Area and most of its legislation is now in line with that of the EU but the country would have to repair its financial system and stabilise its currency to fulfil euro adoption criteria. "If Iceland delivers its request and negotiations take place rapidly then Croatia and Iceland may very well join the EU together," declared Olli Rehn, European Commissioner for Enlargement who added, "thanks to its economic and strategic importance, Iceland, which is a strong democracy and one of the oldest in Europe would certainly be an advantage for the Union."
A European Affairs Committee that was appointed in February 2008 has been given the task of looking into the issue. It will deliver its report on 15th April next.

Membership cannot be decided on by referendum alone. A poll by Capcent Gallup at the beginning of March showed that 2/3 of Icelanders wanted their country to start membership negotiations with the EU (64.2% in favour, 28.2% said they were against). However a minority (39.7%) say they support Iceland joining the EU (the number was nearly 70% in October last) in comparison with 45.5% who say they are against it. 80.6% who support the Social Democratic Alliance also support membership, 38.2% of Left Movement-Greens sympathisers also support it, as do 31.6% of Progress Party sympathisers and 26.5% from the Independence Party.
At just one month before the election the European issue has vanished from all public debate, and has been replaced by economic and institutional problems.

According to the most recent poll published in the press most Icelanders want the general elections to lead to a government that includes the Social Democratic Alliance and the Left Movement-Greens so that it can continue its work (54,2%). 12.6% say they support an Independence Party-Progress Party coalition, 9.6% would prefer an alliance between the Independence Party and the Social Democratic Alliance and 6.7% would like to see an improbable government: Independence Party-Left Movement-Greens.
Another poll undertaken by the same institute gave 31.2% of the vote to the Social Democratic Alliance (21 seats), 26.5% to the Independence Party (18 seats), 24.6% to the Left Movement-Greens (17 seats) and 12% to the Progress Party (7 MPs).

Publishing Director: Pascale JOANNIN
The authors
Corinne Deloy
Author of the European Elections Monitor (EEM) for the Robert Schuman Foundation and project manager at the Institute for Political Studies (Sciences Po).
Fondation Robert Schuman
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