In a general election on 27 April, the Icelandic people delivered a decisive rejection of the Social Democratic Alliance/Left Green Movement coalition government, elected in April 2009.
As Proletarian went to press, talks were completed for the formation of a coalition government between the Independence Party and the Progressive Party, which between them have run the country for most of its time as an independent nation. The Independence Party was the main partner in a coalition government when the country sank into economic collapse with the spectacular implosion of its banking sector in 2008.
With 100 percent of the vote counted, the Independence Party had polled 26.7 percent, an increase of 3 percent, while the Progressive Party secured 24.4 percent, an increase of 9.6 percent. Both parties secured 19 seats in the Althing, the country’s parliament. Although the Independence Party polled highest, the country’s president asked Progressive Party leader Sigmundur David Gunnlaugsson to take the lead in coalition negotiations, as his party had registered the sharpest increase in support.
The Social Democrats secured 12.9 percent of the vote, slumping 16.9 percent, leaving them with nine seats, while their Left Green partners scored 10.9 percent, a decrease of 10.8 percent, leaving them with seven seats. Two parties entered parliament for the first time – the Bright Future Party, a split from the Left Greens, secured 8.2 percent, giving them six seats, and the newly formed Pirate Party won 5.1 percent and three seats.
Although the outgoing government reduced unemployment and inflation, and restored economic growth, growth in wages has not kept pace with the cost of living, so that many of the country’s 320,000 people remain saddled with unmanageable debts. In particular, many people are struggling to meet inflation-linked mortgage repayments.
Both the Independence and Progressive parties promised tax cuts, while the Progressive Party wants to force creditors to relax some of their claims on individual borrowers and lower debt costs, such as mortgage obligations. Both parties have also expressed support for harvesting Iceland’s abundant energy supplies for large-scale projects such as aluminium smelters.
Rejecting the EU
However, the biggest factor in the success of the two victorious parties was their avowed opposition to Iceland joining the European Union (EU), which the social democrats and left greens had aggressively championed. Central to the new coalition government’s agreed programme is the indefinite suspension of EU accession talks. Any resumption would require a referendum, according to Bjarni Benediktsson, incoming finance minister and leader of the Independence Party.
Benediktsson further said that the lifting of capital controls would be one of the government’s priorities and would involve big losses for the foreign creditors in Iceland’s failed banks. “This will require a significant haircut on Icelandic assets so that the currency is in balance when the controls are lifted,” he said.
Icelanders particularly resent Britain and the Netherlands for the harsh way they responded to the collapse of the country’s three biggest banks in 2008, when they aggressively sought to place the whole burden on the country’s working people, trampling the country’s sovereignty in the process. The Labour government of Gordon Brown evidently thought Iceland must be a member of the ‘axis of evil’, as it invoked the Prevention of Terrorism Act to freeze the country’s assets in UK banks.
Progressive Party leader Sigmundur David Gunnlaugsson said in an April interview that “economic crisis in Iceland and Europe has taught us the importance of being able to control your own destiny”.
This view has been underlined by recent events in southern Europe, with Icelandic politicians pointing to the way Cyprus has been treated as proof that Icelanders would have little protection in the event of another crisis were they to be part of the EU and the eurozone.
“The reasons for joining the euro didn’t work out in Cyprus,” Gunnlaugsson observed.
Another key factor is that Icelanders fear that EU membership would devastate the country’s fishing industry, which accounts for some 40 percent of exports.
The Wall Street Journal reported: “Out on the fishing grounds, there is little support for joining the EU.
“‘It is a very bad feeling to lose control’, Hjortur Gislason said while standing in the stern of his trawler, Freri, near a hatch where mackerel and herring poured in from nets drawn from the frigid North Atlantic. ‘There would be someone else in the driver’s seat.’” (‘Europe gets cold shoulder in Iceland’, 25 April 2013)
Gunnlaugsson has situated these concerns within a wider global perspective, noting that, “it seems Europe has entered a period of historic decline”, adding that Iceland must build ties with growing countries in Asia and elsewhere.
Looking further afield
Indeed, earlier in April, Iceland became the first European country to sign a free-trade agreement with China, with the outgoing foreign minister signalling deeper cooperation with the People’s Republic both in commerce and resource exploration.
Ossur Skarphedinsson told the Wall Street Journal that the two nations are in advanced talks to cooperate on a study of oil exploration in Iceland’s north-east coastal waters. The region, known as Dreki, potentially holds vast crude oil reserves. (‘Iceland-China ties are seen expanding’, 15 April 2013)
In the free-trade agreement, Iceland secured the removal of all tariffs for China exports of its fishing and related industries, the country’s main exports. Steadily increasing standards of living in China are leading to greater demand for products like Icelandic cod.
Meanwhile, Iceland’s Orka Energy Holding EHF and China’s state-owned Sinopec Group have signed an agreement to expand their cooperation beyond a preliminary agreement signed last year. The new agreement has been co-signed with the China Development Bank, which will finance the expansion of environmentally-friendly geothermal projects in China, using Icelandic skills and technology, thereby increasing China’s capacity at least ten-fold.
With the eurozone crisis devastating yet more national economies, Iceland should remain a country to watch.