The Greek ELSTAT saga has taken yet another turn, which should be a cause for grave concern in any European country: a unanimous acquittal by three judges of the Greek Appeals Court in the case of former head of ELSTAT Andreas Georgiou has been annulled. This was announced Sunday December 18 – the case was up in court December 6 – but no documents have been published so far, another worrying aspect.
The acquittal was the fourth attempt to acquit Gergiou – and this is now the fourth attempt to thwart the course of Greek justice and revive the unfounded charges against him. The intriguing thing to note here is that the acquittal was annulled by a prosecutor at the First Instance Court, who in September brought a whole new case regarding the debt and deficit statistics from 2010 and ELSTAT staff role here, this time not only accusing ELSTAT staff of wrongdoing but also staff from Eurostat and the IMF; a case still versing in the Greek justice system.
All of this rotates around the fact that ELSTAT, and now Eurostat and IMF staff, is being prosecuted for producing correct statistics after more than a decade of fraudulent reporting by Greek authorities.
It beggars belief that the justice system in Greece seems to be wholly under the power of political forces who try as best they can to avoid owning up to earlier misdeeds. In spite of acquittals, those who corrected the fraudulent statistics are being prosecuted relentlessly while nothing is done to explain what went on during the time of the fraudulent reporting. It should also be noted that in order to stop the ELSTAT prosecutions completely, four other cases related to this one, need to be stopped.
The ELSTAT staff is here reliving the horrors of the Lernaen Hydra in Greek mythology. Georgiou and his colleagues have had international support but that doesn’t deter Greek authorities from something that certainly looks like a total abuse of justice. How is it possible to time and again take up a case where those charged have already been acquitted?
Icelog has followed the ELSTAT saga, see here for earlier blogs, explaining the facts of this sad saga.
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With its 2600 pages report into the banking collapse no nation has better study material to learn from than Iceland. However, with some recent sales in Landsbankinn and uncertainties regarding the sales of the new banks, Icelanders have good reasons to wonder what lessons have indeed been learnt from the 2008 banking collapse. If little or nothing has been learnt it’s worrying that two or three banks will soon be for sale in Iceland.
“During the election campaign I would have liked to hear the candidates form a clear and concise lessons from the 2008 banking collapse,” said one Icelandic voter to me recently. He’s right – there was little or no reference to the banking collapse during the election campaign in October.
The unwillingness to formulate lessons is worrying. So many who needed to learn lessons: bankers, lawyers, accountants, politicians and the media, in addition to every single Icelander.
Also, some recent events would not have happened had any lessons been learnt from this remarkable short time of fully privatised banking, from the beginning of 2003 to October 6 2008. There is a boom in Iceland, reminding many of the heady year 2007 but this time based inter alia tourism and not on casino banking. However, old lessons need to be remembered in order to navigate the good times.
Landsbankinn: six loss-making sales 2010-2016
Landsbankinn was taken over by the Icelandic state in 2011. The largest creditors, the deposit guarantee schemes in Britain and the Netherlands, were unwilling to be associated with the Landsbankinn estate, contrary to creditors in Kaupthing and Glitnir. Consequently, the Icelandic state came to own the new bank, Landsbankinn.
Over the years certain asset sales by Landsbankinn have attracted some attention but each and every time the bank has defended its action. In certain cases it has admitted mistakes but always with the refrain that now lessons have been learnt, time to move on.
Earlier this year, the Icelandic State Financial Investments (Bankasýsla), ISFI, published a report on one of these sales, the one causing the greatest concern – of Landsbanki’s share in a credit card issuer, Borgun. Landsbankinn had undervalued its Borgun share by billions of króna, creating a huge gain for the buyers.
Landsbankinn chose the buyers, nor bidding process etc., this was not a transparent sale. It so happens that some of the buyers happen to be closely related to Bjarni Benediktsson leader of the Independence party and minister of finance. No one is publicly accusing Benediktsson for having influenced the sale.
ISFI concluded that Landsbankinn should have known about the real value of the company and should only have sold via a transparent process, not by handpicking the buyers, some of whom are managers in Borgun. Part of the hidden value was Borgun’s share in Visa Europe, sold in November 2015 after the bank sold its Borgun share. Landsbankinn managers claim they were unaware of the potential windfall that could arise from such a sale.
Following the ISFI report the majority of the Landsbankinn board resigned but not the bank’s CEO, Steinþór Pálsson.
Landsbankinn’s close connections with the Icelandic Enterprise Investment Fund
Now in November the Icelandic National Audit Office, at the behest of the Parliament, investigated six sales by Landsbankinn, conducted in the years 2010 to 2016. It identified six sales, one of them being the Borgun sale, where it concluded that the state’s rules of ownership and asset sale had been broken as well as the bank’s own rules.
The report also points out that some of Landsbankinn’s own staff would have been aware of the potential windfall in Borgun. In a similar sale in another card issuer, Valitor, the sales agreement included a clause giving the bank share in similar gains after the sale.
Landsbankinn CEO Pálsson said he saw no reason to resign since lessons from these sales had already been learnt. However, nine days after the publication of this report Landsbankinn announced that Pálsson would step down with immediate effect.
Interestingly, four of the less-than-rigorous sales involved the Iceland Enterprise Investment Fund (Framtakssjóður), IEIF, set up in 2010 by several Icelandic pension funds. In the first questionable Landsbankinn sale, in 2011, the bank sold a portfolio of assets directly to the IEIF without seeking other buyers. The portfolio was later shown to have been sold at an unreasonably low price.
In relation to the sale Landsbankinn became the IEIF’s biggest owner. The Financial Surveillance Authority, FME, later stipulated that the bank could not hold a IEIF stake above 20%. In 2014 the bank then sold part of its share in the IEIF to the Fund itself, again at an unreasonably low price. In two sales, 2011 and 2014, Landsbankinn sold shares in Promens, producer of plastic containers for the fishing industry, again to the Fund.
As the Audit Office points out all the questionable sales have had two characteristics: a remarkably low price and Landsbankinn has not searched for the highest bidder but conducted a closed sale to a buyer chosen by the bank.
No one is accused of wrongdoing but it smacks of closed circuits of cosy relationships, a chronic disease in the Icelandic business community.
Landsbankinn and the blemished reputation
Landsbankinn claims it has in total sold around 6.000 assets via a transparent process. That may be true but the Audit Office report indicates that the bank chooses at times to be less than transparent, especially when it’s been dealing with the IEIF.
The bank’s management has time and again stated the importance of improving the bank’s reputation – after all, the 2008 collapse utterly bereft Icelandic banking of its reputation. This strife is the topic of statements and stipulations but so far, deeds have not followed words. The Audit Office concludes that inspite of its attempts the bank’s reputation has been blemished by the questionable sales.
How the banks were owned before the collapse
During the years of privatisation of the Icelandic banks, from 1998 to end of 2002, it quickly became clear that wealthy individuals were vying to be large shareholders in the banks. There was some talk of a spread ownership but in the end the thrust was towards having few individuals as main shareholders in the three banks.
Landsbankinn was bought by father and son, Björgólfur Guðmundsson and Björgólfur Thor Björgólfsson who during the 1990s got wealthy in the Soviet Union. A fact that gave rise to articles in the magazine Euromoney in 2002, before the Landsbankinn deal was concluded.
Kaupthing’s largest owners were, intriguingly, businessmen who got wealthy through deals largely funded by Kaupthing. The largest shareholder, Exista, was owned by two brothers, Ágúst og Lýður Guðmundsson and the second largest was Ólafur Ólafsson. The brothers own one of Britain’s largest producers of chilled ready-made food, Bakkavör. Ágúst got a suspended sentence in a collapsed-related criminal case. Ólafsson, together with Kaupthing managers, was sentenced to 4 ½ years in prison in the so-called al Thani case.
Glitnir had a less clear-cut owner profile to begin with. The family of Bjarni Benediktsson were large shareholders in the bank (then called Íslandsbanki, as the new bank is now called) but as the SIC report recounts the Landsbankinn father and son had built up a large stake in the bank. The FME kept pestering the father and son about these shares, the authority claimed the two were not authorised to own, later sold to the Benediktsson’s family and others.
In spring of 2007 Jón Ásgeir Jóhannesson, who had insistently but unsuccessfully tried to buy a bank in 1998, gathered a group to buy around 40% in Glitnir. Involved were Baugur and FL Group, both owned or largely owned by Jóhannesson. One of his partners was Pálmi Haraldsson, a long-time co-investor with Jóhannesson. This graph (from the SIC report) shows Glitnir’s lending to Fons and other Haraldsson’s related companies: the cliff of debt rises after these businessmen bought Glitnir. It could also be called Icelandic banking in a nutshell:
Biggest shareholders = biggest borrowers
The graph above is Icelandic banking a nutshell. It characterises what the word “ownership” meant for the largest shareholders: they were also the banks’ largest borrowers, as well as borrowing in the other two banks. The shareholding of the largest groups in each of the banks was around and above 40% during most of the short run – the six years – of privatised banks.
Here some excerpts from the SIC report about the borrowing of the largest shareholders:
The largest owners of all the big banks had abnormally easy access to credit at the banks they owned, apparently in their capacity as owners. The examination conducted by the SIC of the largest exposures at Glitnir, Kaupthing Bank, Landsbankinn and Straumur-Burðarás revealed that in all of the banks, their principal owners were among the largest borrowers.
At Glitnir Bank hf. the largest borrowers were Baugur Group hf. and companies affiliated to Baugur. The accelerated pace of Glitnir’s growth in lending to this group just after mid-year 2007 is of particular interest. At that time, a new Board of Directors had been elected for Glitnir since parties affiliated with Baugur and FL Group had significantly increased their stake in the bank. When the bank collapsed, its outstanding loans to Baugur and affiliated companies amounted to over ISK 250 billion (a little less than EUR 2 billion). This amount was equal to 70% of the bank’s equity base.
The largest shareholder of Kaupthing Bank, Exista hf., was also the bank’s second largest debtor. The largest debtor was Robert Tchenguiz, a shareholder and board member of Exista. When the bank collapsed, Exista’s outstanding debt to Kaupthing Bank amounted to well over ISK 200 billion.
When Landsbankinn collapsed, Björgólfur Thor Björgólfsson and companies affiliated to him were the bank’s largest debtors. Björgólfur Guðmundsson was the bank’s third largest debtor. In total, their obligations to the bank amounted to well over ISK 200 billion. This amount was higher than Landsbankinn Group’s equity.
Mr. Thor Björgólfsson was also the largest shareholder of Straumur-Burðarás and chairman of the Board of Directors of that bank. Mr. Björgólfur Thor Björgólfsson and Mr. Björgólfur Guðmundsson were both, along with affiliated parties, among the largest debtors of the bank and together they constituted the bank’s largest group of borrowers.
The owners of the banks received substantial facilities through the banks’ subsidiaries that operated money market funds. An investigation into the investments of money market funds under the aegis of the management companies of the big banks revealed that the funds invested a great deal in securities connected to the owners of the banks. It is difficult to see how chance alone could have been the reason behind those investment decisions.
During a hearing, an owner of one of the banks (Björgólfur Guðmundsson), who also had been a board member of the bank, said he believed that the bank “had been very happy to have [him] as a borrower”. Generally speaking, bank employees are not in a good position to assess objectively whether the bank’s owner is a good borrower or not.
De facto, the Icelandic banks were “lenders of last resort” for their largest shareholders: when foreign banks called in their loans in 2007 and 2008 the Icelandic banks to a large extent bailed their largest shareholders out with massive loans.
Needless to say, systemically important banks in most European countries are owned by funds and investors, not few large shareholders who are also the banks’ most ardent borrowers. Icelandic banks will hopefully never return to this kind of lending again.
Separating investment banking and retail banking
As very clearly laid out in the SIC report the banks did not only turn their largest shareholders into their largest debtors but the banks’ own investments were usually heavily tied to the interests of their largest shareholders. Therefor, it’s staggering that now eight years after the collapse and three governments later a Bill separating investment banking and retail banking has not yet been passed in the Icelandic Parliament.
This means that most likely the new banks – Landsbankinn, Arion and Íslandsbanki – will be sold without any such limitation on their banking operations.
It is indeed difficult to see that there could be a market in Iceland for three banks. There is speculation that there will be foreign buyers but sadly, the history of foreign investment in Iceland is not a glorious one. Iceland is not an easy country to operate in as heavily biased as it is towards cosy relationships so as not to say cronyism.
Another way to attract foreign buyers is to offer shares for sale at foreign stock exchanges; Norway has been mentioned. Clearly a good option but I’ll believe it when I see it.
Judging from the short span of privatised banks in Iceland it’s also a worrying thought that the banks will again be owned by large shareholders, holding 30-50%.
The fact that state-owned Landsbankinn could over six years conduct six questionable sales with no consequence until much later, raises questions about lessons learnt. And the fact that this potentially simple risk-limiting exercise of splitting up investment and retail banking hasn’t yet been carried out by the Icelandic Parliament makes one again wonder about the lessons learnt. And yet, Iceland has the most thorough report in recent times in the world to learn from.
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Former head of ELSTAT, the Greek statistical authority, Andreas Georgiou has been acquitted in the case where he was charged with misdemeanour. Three foreign statisticians came to Athens to bear witness in the case, testifying to Georgiou’s positive work on rectifying the problems of earlier false statistics.
The irony is that the Greek government is silently accepting that civil servants who fixed the problem of a decade or fraudulent statistics are being prosecuted, not those who committed the fraud for years.
But as lister earlier on Icelog this is only one of four cases Georgiou is fighting in Greece. The other cases against Georgiou are still lingering in Greek courts. In the largest case against himm where he is charged with treason for in fact correctly reporting correct statistics, the examining judge has now proposed that the case be dismissed. Stunningly, this is the fourth time a judge proposes to have the case dropped but so far it’s always risen again in a new guise.
Here is Kathimerini report on the latest trial and its outcome.
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An application with the Reykjavík District Court for independent assessment of the Icelandic economy, launched by two of the funds holding the majority of the Icelandic offshore króna, has been met by the Court. Originally, the funds had eleven requests; the Court granted three of them according the Icelandic daily DV.
The two funds claim the measures taken against the offshore króna holders this summer – effectively forcing them out at a great discount or freezing the funds at below-inflation interest rates – are harmful measures, utterly unnecessary in the booming Icelandic economy. They now want an independent assessment of the economy, in order to show that the Icelandic government could well afford more generous terms.
According to a recent decision by the EFTA Surveillance Authority the offhore króna measures were within the remit of the Icelandic government and did not break any EEA rules.
The measures no doubt had a sobering effect on foreign visitors but it the use of a new tool to temper inflows, announced in June this year that has had an effect: according to new figures released by the Central Bank, inflows into Icelandic sovereign bonds have completely stopped since June when the measures were put in place.
There had been some concern that the large inflows might jeopardise Icelandic financial stability as indeed it did in 2008 when capital controls were put in place exactly because of these inflows. Governor of Central Bank Már Guðmundsson said earlier this year that the renewed inflows, which the Bank would monitor, were a sign of trust in the Icelandic economy. Well, no worries – the measures in June stopped the inflows.
For earlier Icelog on the offshore króna issues please search the website.
Update: this piece has been updated as the earlier report re the effect on inflows was incorrect.
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There is no end in sight of the ELSTAT saga of political vendetta against the ex ELSTAT director Andreas Georgiou who oversaw the correction of Greek statistics 2010 to 2015. Yes, the Prosecutor of the Appeals Court has recommended to throw the case of Georgiou and his colleagues out, not once but three times, only to resurface again. In addition, the case has transformed into several case all migrating through the Greek judicial system. I’ve earlier claimed that the ELSTAT case is a test of Greek political willingness to own up to the past and move on. The steadfast will to prosecute civil servants for doing their job exposes the damaging corrupt political forces still at large in Greece, a very worrying signal for the European Union and the International Monetary Fund – but most of all worrying for Greece.
If anyone thought that the long-running saga of prosecutions against ex head of ELSTAT Andreas Georgiou was over, just because so little is now heard of it, then pay attention: the case is still ongoing, there is an upcoming decision in the Appeals Court that could potentially send Georgiou to trial with the possibility of a life sentence for him. In addition, there are side stories here, other ongoing investigations and prosecutions.
The ELSTAT saga started after Georgiou had only been in office for just over year. It really is a saga (here my earlier reports and detailed account of it) of upside down criminal justice but it’s so much taken for granted in Greece that little or no attention is paid to the fundamental issue:
How is it possible that the man who as Head of ELSTAT from August 2010 until August 2015, putting in place procedures for correct reporting of statistics following the exposure of fraudulent statistics for around a decade, is being prosecuted and not the people who for years provided false and fraudulent statistics to Greece, European authorities and the world?
This case of a Hydra with many heads is rearing one of these heads next on 6 December when Georgiou is to face charges of violation of duty in producing the correct 2009 government deficit statistics. On important aspect is this: the charges imply that the Greek government isn’t accepting the correct figures on which the current bailout program and debt relief is based on.
European and international organisations have supported Georgiou’s point of view, the last being a letter from the International Association for Research in Income and Wealth (IARIW), to prime minister Alexis Tsipras now in November. However, the support from abroad does not seem to have had any effect on the prosecutions against Georgiou in Greece. As can be seen from the overview below of how the cases have sprawled in various directions there really is no end in sight. A worrying trend in a European democracy, the country that calls itself the cradle of Western democracy.
To Icelog, Georgiou says: “The numerous prosecutions and investigations against me and others that have been going on for years – as well as the persistence of political attacks and the absence of support by consecutive governments – have created disincentives for official statisticians in Greece to produce credible statistics. As a result, we cannot rule out the prospect that the problem with Greece’s European statistics will re-emerge. The damage already caused concerns not only official statistics in Greece, but more widely in the EU and around the world, and will take time and effort to reverse.”
Charges three times thrown out resurface in wider charges
The original criminal case concerned criminally inflating the 2009 deficit causing damages to Greece in the order of €171bn or €210bn (depending on how it was calculated on different occasions by his detractors). For three consecutive years – in 2013, 2014 and 2015 – investigating judges and prosecutors proposed to drop the case only to see the charges resurfacing again each and every time. In 2016, the Prosecutor of the Appeals Court assigned to the case yet again proposed that the case be dropped. A decision is pending at the Council of the Appeals Court.
The same issue of the 2009 deficit did indeed resurface in the form a separate, brand new case on 1 September this year, now not only alleging criminal actions by Georgiou and ELSTAT staff but by the EU Commission and the IMF. A separate criminal investigation has begun and is running parallel to the over five year old case above. On the losing end here are not only the individuals hit by these charges but also public statistics, Greece, EU and international partners.
A worrying disincentive to service truthful information
Now, on 6 December, Georgiou is facing a trial for violation of duty, exactly the violations that various prosecutors and investigating judges had, in 2013, 2014 and 2015, proposed to drop. However, the Appeals Court decided in 2015 to refer the case to an open trial. In Greece, this trial is being presented as doing justice for Greece, implying that earlier cases may have been dropped due to European pressure.
Again, this clearly shows that there are political forces in Greece refusing to shoulder any responsibility for fraudulent statistics and a huge cover up of the dismal governance in Greece up to the surfacing crisis in 2009.
If convicted for violation of duty, Georgiou faces a possible conviction of two years in prison. Greek statistics face an uncertain future: a trial against the people who fixed the problem of Greek statistics is hardly a great incentive to Greek civil servants to service truthful information instead of untruthful politicians.
Twelve months for “criminal slander”: told the truth but should have kept quiet
In June, Georgiou was tried for criminal slander for defending the 2009 deficit statistics, the very numbers ELSTAT produced as required by the European Statistics Code of Practice. The Court Prosecutor recommended to the Court that the case be dropped and that Georgiou be acquitted. But the Court ruled in the end that although it believed Georgiou to have told the truth he should still not have said the things he said and sentenced him to twelve months in prison.
The appeal of this conviction was due to be heard in October in the Appeals Court. However, the plaintiff – actually the former director of national accounts at the National Statistics Office (later ELSTAT) in 2006 to 2010, i.e. during the fraudulent reporting – succeeded in having the appeal trial postponed. It’s now due in 16 January 2017, possibly a tactical move to influence two other ongoing cases involving Georgiou, the above-mentioned criminal case and a civil case.
The civil case is related to the criminal slander case. Decision is due in the coming weeks and could land Georgiou with a crippling fine of tens of thousands of euro.
Protecting the perpetrator of a crime, not the victim
As reported last summer in my detailed article of the ELSTAT saga, ELSTAT’s former vice president Nikos Logothetis was found by the police to have repeatedly hacked into Georgiou’s ELSTAT email account. This started already on Georgiou’s first day as president of ELSTAT, in August 2010, before he had even started to look at the thorny issue of the 2009 deficit, and continued until the hacking was exposed late October 2010.
Police investigations showed who was responsible for the criminal action of hacking Georgiou’s account – Logothetis was actually logged into the account as the police came unannounced to his home.
Georgiou was informed that Logothetis would be prosecuted for this and that following the criminal case he could then bring a civil case against Logothetis. However, in early July this year Logothetis was acquitted of violating Georgiou’s email account in a felony case. The Court also decided Logothetis could not be retried for the felony charge due to the time passed since the hacking.
According to the ruling it was not disputed that Logothetis had indeed accessed Georgiou’s account. However, the action was deemed not to have been carried out because of monetary gains or to hurt Georgiou but only because Logothetis “wanted to understand Georgiou’s illegal actions and to legally defend the legitimate interests of ELSTAT and consequently of the Greek state.”
Quite remarkably, the felony case was allowed to wait for five years before it was considered by the Appeals Court, thus triggering the statute of limitations. In addition, somehow Georgiou received no notice of the decision of the Appeals Court on the Logothetis felony case acquittal and thus had no chance to take legal action to potentially reverse the ruling within the allowed one month period.
Furthermore, the Court hadn’t taken any note of the fact that Logothetis actually hacked the account before Georgiou even looked at the 2009 deficit numbers nor did it figure in the case that Logothetis had continuously slandered and attacked Georgiou during his five years in office, even calling for the hanging of Georgiou in a published interview.
Another case against Logothetis, also for the hacking but as a misdemeanor and not a felony, was due to go to trial now in November but has been postponed in accordance with Logothetis’ wishes. It’s now been set for February 2017.
The ELSTAT case in the European Parliament:
On 22 November the ongoing political pressure on Greek statistics and Georgiou and his colleagues was taken up in a hearing at the Committee on Economic and Financial Affairs of the European Parliament. Both Georgiou and Walter Rademacher president of Eurostat participated, presented their views and were questioned by MEPs.
Rademacher gave an overview of the problems with Greek statistics and emphasised the need to close with the past, stop going after ELSTAT staff and to recognise what had been wrong (see video; Rademacher at 2:20-12:15). Rademacher paid tribute to Georgiou and the ELSTAT staff in modernising the organisations, bringing the governance to the proper standard and thus re-establishing trust in Greek statistics, a much needed contribution.
Rademacher pointed out that the serious misreporting didn’t cause the crisis in 2009 but was a “blatant symptom of very serious flaws” within the Greek statistics administration “at that time.” He also underlined the immense effort taken by various organisations to aid and support ELSTAT in improving its work, inter alia hundred Eurostat missions since 2010 to the present day, around one a month, to ELSTAT as well as to Eurostat in-house assistance, to the cost of around €1m in addition to technical assistance from the IMF and other EU National Statistical Institutes – no other country has needed anything like this.
In his presentation, Georgiou (12:26-20:12) emphasised the enormous disincentive for official statistics in Greece his case has been.
“These and other cases and investigations send a strong signal to today’s guardians of honest, transparent statistics in Greece: you do so at your own risk. The point cannot be lost on them that compiling reliable statistics according to EU law and statistical principles can endanger their personal well-being.”
The ELSTAT case: a scary disincentive for Greek civil servants
Georgiou had only been in office for around thirteen months when political forces in Greece openly started questioning in parliament his professional integrity. That was also the time when allegation emerged of him committing treason in reporting the correct figures.
Now, more than five years later, the case is still going on in various ways. Quite remarkably, Georgiou has not had any support from the Tsipras government. Given how the ELSTAT case has progressed, there are clearly forces both in the government and in the main opposition party who have a personal and political interest in hiding the truth on how the fraudulent reporting was kept going for around a decade, until 2009 and who find a convenient scapegoat in Georgiou and his staff.
Given the strong Greek political forces at large here the only way to stop the scapegoating seems to be that the donor countries and institutions show Greece that it can’t be helped until it helps itself. Until it helps itself by putting an end to prosecuting civil servants who fixed a serious problem that severely undermined the trust in the Greek government. As it stands, there is no incentive for Greek civil servants to withstand political pressure for corrupt action.
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The EFTA Surveillance Authority, ESA, has now closed two complaints re treatment of offshore króna assets by Icelandic authority: ESA finds the Icelandic laws in compliance with the EEA Agreement (see ESA press release here, the full decision here). The disputed laws were part of measures taken in order to remove capital controls in Iceland.
I have earlier written extensively about the offshore króna issue, also the rather bizarre action taken by the so-called Iceland Watch against the Central Bank of Iceland, which rubbed Icelanders, even those sympathetic to the point of view taken by the offshore króna holders, completely the wrong way. The sound points, which can be made by the offshore króna holders, were missed or ignored and instead the Iceland Watch action was shrill and shallow, based on spurious facts.
In general EEA states are permitted, under the EEA Agreement, to take protective measures when a states is experiencing difficulties as regards its balance of payments. As spelled out in the press release the states, in such situations, “are allowed to implement a national economic and monetary policy aimed at overcoming economic difficulties, as long as the criteria for these protective measures are met.”
As Frank J. Büchel, the ESA College member responsible for financial markets sums it up: “Iceland’s treatment of offshore króna assets is a protective measure within the meaning of the EEA Agreement. The overall objective of the Icelandic law is to create a foundation for unrestricted cross-border trade with Icelandic krónur, which will eventually allow Iceland to again participate fully in the free movement of capital.”
The funds in question, Eaton Vance and Autonomy, are testing their case in an Icelandic court.
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In spite of exemptions over the years it’s been taken for granted that a politician running for office should be a decent law-abiding human being. Consequently, the media has focused on exposing politicians repeatedly caught lying, womanising, making racist or misogynistic remarks and involved in shady business dealings assuming any or all of this would make politicians unfit for office. Silvio Berlusconi, longest serving Italy’s prime minister, disproved that. Now Donald Trump’s victory has shown that some voters not only don’t mind what some see as repugnant behaviour but do indeed find it appealing. – I first understood this in 2008 when I spoke to an Italian voter rooting for Silvio Berlusconi precisely because Berlusconi was ‘a son of a bitch like the rest of us!’
“Mussolini never killed anyone. Mussolini used to send people on vacation in internal exile,” Silvio Berlusconi then prime minister of Italy said in a newspaper interview in 2003. In a speech that same year at the New York Stock Exchange he encouraged investment in Italy because “we have beautiful secretaries… superb girls.” Another infamous Berlusconi comment was that US president Barack Obama and his wife must have sunbathed together since they were equally tanned. The career of the now 80 years old Berlusconi is littered with racist, misogynistic comments and peculiar understanding of history, as well as serious allegations of relations to organised crime. All of this was well known when he first won elections in Italy in 1994 as a media tycoon and the country’s wealthiest man.
It’s as yet untested if Donald Trump was right in saying he could, literally, get away with murder and still not lose voters but like Berlusconi Trump has been able to get away with roughly everything else: racism, misogyny, not paying tax – he’s too smart to pay tax and might actually never make his tax returns public – mob-relations, shady business dealings and Russian connections.
Being an Italian prime minister is next to nothing compared to being a US president. Berlusconi was in and out of power for almost twenty years, winning elections in 2001 and 2008 and losing only by a whisker in 2013. Trump can at most get eight years in power. But apart from the different standing of the two offices the two men, as a political phenomenon, are strikingly similar. Like Berlusconi, Trump was to begin with treated as a political joke.
The lesson here is that accidental politicians – accidental because they turned to politics as outsiders late in life – like Berlusconi and Trump appeal to voters not necessarily in spite of their remarks but because of them. For some voters they are a type of “loveable rascals” immune to media exposures, their spell-like influence based on their business success as if their personal success could be repeated nationwide. The almost twenty year experiment with Berlusconi did help his own businesses, not the country he was running for almost half of that time.
It’s not that all Italian or all Americans have fallen in love with the “lovable rascals:” during his time in power Berlusconi’s party got up to 30% of votes. Since half of US voters didn’t vote it took only around 25% of the voters to sign Trump’s invitation for the White House and as we know Hillary Clinton did indeed get more votes.
The food for thought for the media is that investigations and exposures only go so far. Higher electoral participation would probably help fight demagogues and racists – a worthy project for the US political parties and civil society in general.
1990s – no end to history but a trend towards merging of left and right
Berlusconi built his empire from scratch, Trump started off with some inherited wealth. Although outsiders in the political system they rose on political ties and entered into politics at times of economic upheaval. In Italy growth fell in the early 1990s, zick-zacked on and has been dismal since 2000. Trump’s victory is underpinned by stagnant wages in US for familiar reasons: globalisation, low union participation and technological changes though the exact weight of the three factors is disputed.
Malaise in the old parties both on the left and the right goes far in explaining the success of the two politicians. In Italy, the parties left right and centre were for years in a kaleidoscopic flux, and still are to a certain degree, following the collapse of the political system based on the Christian Democrats and the Socialists brought down by the end of the Soviet Union in 1991 and the ‘Mani Pulite’ corruption cases.
Berlusconi founded his own party in 1993 and conquered the Italian right-of-centre, orphaned after the demise of the Christian democrats, many of whom found a second home and political career in Berlusconi’s Forza Italia. After his first short stint as prime minister 1994 to 1995 the Italian left kept Berlusconi out of government but he didn’t give up. His time came in the elections in 2001 when he sat as prime minister until 2006, a record in post-war Italy and then again 2008 to 2011.
Trump won a double victory: first by hijacking the Republican candidacy against the party elite, then by winning over the Democratic candidate Hillary Clinton. Contrary to the outsider Barack Obama she belonged to the party elite who since the 1990s, her husband’s time in power, have embraced capitalism, light regulation and big corporation – a course that hasn’t helped to improve the lot of the lower and middle class.
As the Nobel-prize economist Angus Deaton spelled out so brilliantly in his book “The Great Escape”: when banks and private wealth fund campaigns for Republicans and Democrats both ends of the political spectrum root for the same special interest policies and the general public is left behind (the long view on the Democrats is brilliantly told here, by Matt Stoller).
Berlusconi and Trump: the “lovable rascals” framing their own political persona
As politicians have lost trust businessmen have gained greater weight in shaming politicians and public officials claiming that a country should be run like a business. Both Berlusconi and Trump have incessantly touted their business acumen to prove their political astuteness emphasising that being wealthy they can’t be bribed. In addition Berlusconi owns a famous football club in a football-besotted country.
With a party of his own Berlusconi set his own rules. Trump welcomed his loss of support among the Republican elite, claiming it unshackled him. Both were free to create their own political persona, both seem to be consummate actors. Trump changed his rhetoric from the primaries to the campaign and now seems to be interpreting his presidential role in yet another way. The controversial statements were, as Trump said on CBS’s Sixty Minutes, “necessary to win.”
It’s too simple to say that both men have found support among working class angry men. They found support among women (Berlusconi though less than Trump) and both appeal to well-off voters. The anger, now the common explanation for Trump’s success (and the Brexit outcome), hadn’t really been discovered when Berlusconi rose to power. But both men are very good at vilifying their opponents: Berlusconi stoked the fear of communism; Trump claimed Hillary Clinton was the embodiment of all the evil in Washington.
For those who find the behaviour of first Berlusconi and now Trump inexcusable and worry about aspects of their businesses, quite apart from their rambling politics, it’s difficult to understand that media investigations and exposures has little or no effect on their supporters. It’s not necessarily that their followers don’t know about the questionable sides, they often do. Some may identify with them on the premise that no one is perfect. For others, the two are some sort of “loveable rascals.”
It doesn’t mean that any kind of foul-mouthed shady business man can win support and rise to power but foulmouthed and frivolous inexperienced politicians seemed unthinkable before the rise of Berlusconi in 1990s in Italy and of Trump most recently in the US. “Lovable rascal” are exempts from the criteria normally used and critical coverage doesn’t really bite: their voters like them as they are.
Confirmed Putin-admiring sinners with strong appeal to religious voters
Berlusconi was a prime minister in a country partly ruled by the Vatican and has courted voters who support conservative family values. Also Trump has diligently appealed to devout evangelical Christians. These voters seem to ignore that Berlusconi and Trump have diligently sought media attention surrounded by young girls, Trump as a co-owner of the Miss Universe Organization, Berlusconi via his TV stations, feeding stories of affairs and escapades. Berlusconi has been involved in a string of court cases due to sex with underage prostitutes.
This paradox is part of the “loveable rascal” – the two are exempt from the ethics their Christian followers normally hold in esteem.
Both men have shown great vanity in having gone to some length in fighting receding hairline. As is now so common among the far-right both men openly admire Russia’s president Vladimir Putin. Berlusconi has hosted Putin in style at his luxury villa in Sardinia and visited Putin at his dacha. And both Trump and Berlusconi have spoken out against international sanctions aimed at Putin’s Russia.
The “I-me-mine” self-centred political discourse and mixture of public and private interests
Since their claim to power rests on their business success the political discourse of Berlusconi and Trump is strikingly self-centred: a string of “I-me-mine” utterances with rambling political messages. Both are devoid of any oratory excellence and their vocabulary is mundane.
Berlusconi’s general political direction is centre-right but often unfocused apart from the unscrupulous defence of his own interests. Shortly after he became prime minister for the second time the so-called Gasparri Act on media ownership was introduced, adapted to Berlusconi’s share of Italian media. When Cesare Previti, a close collaborator, ended in prison in 2006 for tax fraud it took only days until the law had been changed enabling white-collar criminals to serve imprisonment at home rather than in prison.
In general, Berlusconi’s almost twenty years in politics, as a senator and prime minister, were spent in the shadow of endless investigations into his businesses and private life, keeping his lawyers busy. An uninterrupted time of personal fights with judges and that part of the media he didn’t own. Journalists at Rai, the public broadcaster, who criticised Berlusconi lost their jobs and Italy fell down the list of free media.
Trump seems to think he doesn’t need to divest from his businesses. For now he is only president-elect but if the similarities with Berlusconi continue once Trump is in the White House he can be expected to bend and flex power for his own interest. Trump’s time is limited but he can take strength from the fact that just as vulgar behaviour and questionable business dealings didn’t hinder Berlusconi’s rise in politics neither did they shake his power base. Berlusconi won three elections and was in power for nine years from 1994 to 2011.
The bitter lessons of Berlusconi’s long reign
In 2011 Berlusconi his time in power was messily and ungraciously curtailed: having failed utterly to fulfil his promises of reviving the economy he was forced to resign. After being convicted of tax fraud in summer 2013 he lost his last big political fight: to remain a senator in spite of his conviction. Thrown out of the senate after almost twenty years he’s still the leader of his much-marginalised party, now polling around 12%, down from 30% in the elections 2013.
Berlusconi’s businesses went from strength to strength but Berlusconi’s Italy suffered low growth and stagnation.
We don’t know what Trump’s time in office will be like. Personally he isn’t half as wealthy and powerful as Berlusconi was – the wealthiest Italian when he first became prime minister in 1994. It’s unclear how Trump’s businesses will be run while he takes a stab at running the country. His businesses might well come under investigation and we might see a similar wrestle between Trump and investigators as the ones Berlusconi fought.
Although Italy didn’t thrive in the first decade of the 21st century, the Berlusconi era, he seemed for years invincible for lack of better options and for his promises and appeal. For the “lovable rascal” politician it doesn’t seem to matter if their promises never come to fruition or if they say one thing and do something else – their policies are not the only root of their popularity.
Democracy, lies and the media
Many Italians worried that Berlusconi undermined democracy both in his overt use of power and his own media to further own interests and the more covert use, such as putting pressure on judges and Rai journalists. Whereas Romans were fed bread and games Berlusconi fed his voters on TV shows with scantily clad girls. Berlusconismo referred to all of this: his centre-right ideas, his use of power to further own interests and the vulgarity of it all.
The palpable sense of political disillusionment in the wake of Berlusconi hobbling off the political scene in a country with depressed economy hasn’t made it any easier to be an Italian politician. The void left space for this strange phenomenon that is Beppe Grillo and his muddled Cinque Stelle movement in addition to the constant flux of parties merging or forming new coalitions.
But the political momentum is neither on the far-right Lega movement and the cleaned-up fascist party, Alleanza Nazionale nor the far-left fringe. Italian democracy after Berlusconi isn’t weaker than earlier in spite of the unashamed demagogy and his self-serving use of power. There is no second Berlusconi in sight in Italy.
Berlusconi seemed to be a singular political event but with the rise of Donald Trump Berlusconi is no longer unique. And there seem to many American voters who think like the Italian one who in 2008 told me he was going to vote for Berlusconi because Berlusconi was ‘a son of a bitch like the rest of us!’ – these voters don’t care what the media reports on their chosen politicians. Consequently, the media needs to figure out how to operate in times of flagrant lies and dirty deals from politicians who can appeal to voters in spite of what was once thought to rule out any possibility of a political career.
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On October 6 the Supreme Court in Iceland ruled in one of the largest collapse cases so car where nine Kaupthing managers were charged for market manipulation (see an earlier Icelog). As in a similar case against Landsbanki managers the Kaupthing bankers were found guilty. The Reykjavík District Court had already ruled in the Kaupthing market manipulation case in June 2015.
This is how Rúv presented the Supreme Court judgement in October. Kaupthing’s CEO Hreiðar Már Sigurðsson was sentenced to six months in prison, in addition to the 5 1/5 years in the so-called al Thani case where the bank’s executive chairman had received a four year sentence. The market manipulation case added a year to that case. Magnús Guðmundsson managing director of Kaupthing Luxembourg was found guilty but did not receive a further sentence, having been sentenced to 4 1/2 years in the al Thani case.
Other sentenced in October were Ingólfur Helgason managing director of Kaupthing Iceland, 4 1/2 years and Bjarki Diego head of lending 2 1/2 years. Four employees were found guilty: three of them got suspended sentences. The fourth, Björk Þórarinsdóttir was found guilty but not sentenced.
The investigations by the Office of the Special Prosecutor, now the District Prosecutor, have so far resulted in finding guilty around thirty bankers and others related to the banks. As I have often pointed out: the penal code in Iceland is mostly similar to the code in other neighbouring European countries but the difference was the will of the Prosecutor to investigate very complex cases, taking on a huge task undaunted. That’s the difference – no case was seen as being too complicated to investigate.
Last week, the following article was in one of the Greek papers. From the photos I can see that this article is about the above case. Something for the Greeks to ponder on: what’s done in Iceland, less in Greece.
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“Epic success! There are a lot of coalition possibilities” tweeted elated newly elected Pirate MP Smári McCarthy the morning after polling day. Quite true, the Pirates did well, though less well than opinion polls had indicated. Two of the four old parties, the Left Greens and the Independence Party could also claim success. The other two oldies, the Progressives and the Social Democrats, suffered losses. Quite true, with Bright Future and the new-comer Viðreisn, Revival, in total seven instead of earlier six parties, there are plenty of theoretical coalition possibilities. But so far, the party leaders have been eliminating them one by one leaving decidedly few tangible ones. Unless the new forces manage to gain seats in a coalition government Iceland might be heading towards a conservative future in line with its political history.
In spite of the unruly Pirates and other new parties the elections October 29 went against the myth of Iceland abroad as a country rebelling against old powers – the myth of a country that lost most of its financial system in a few days in October 2008 instead of a bailout, then set about to crowd-write a new constitution, investigate its banks and bankers and jailing some of them and is now, somehow as a result of all of this, doing extremely well.
True, Iceland is doing well – mostly due to pure luck: low oil prices, high fish prices on international markets and being the darling of discerning well-heeled tourists. No new constitution so far and at a closer scrutiny the elections results show a strong conservative trend, in line with the strong conservative historical trend in Icelandic history: during the 72 years since the founding of the Icelandic republic in 1944 the Independence Party has been in government for 57 years, most often leading a coalition and never more than two to three years in opposition except when the recent left government kept the party out in the cold for four years, 2009 to 2013.
(From Iceland Monitor)
With 63 MPs the minimum majority is 32 MPs.
Of the seven parties now in Alþingi four are seen as the old parties – Independence Party, Left Green, Progressives and the social democrats – in Iceland often called the “Four-party.” Their share of the votes was 62%, the lowest ever and down from 75% in the 2013 elections, meaning that the new parties grabbed 38%. A historic shift since the old parties have for decades captured 80-90% of the votes. The Four-party now has 42 seats, the new-comers 21 seats.
The left government 2009 to 2013: an exception rather than a new direction
As strongly as the Nordic countries have been social democratic Iceland has been conservative. And still is. Iceland is not living up to its radical image and the left government of 2009 to 2013 was more the exception than a change of direction. The present outcome shows no left swing but the swing to the new parties may prove to be a game changer in Icelandic politics.
The left parties, Left Green and the social democrats, now have thirteen seats, compared to sixteen in 2013, the centre/neither-left-nor-right Bright Future, the Pirates and the Progressives have 22 seats, 28 in 2013 but the right/conservative parties, the Independence Party and Revival, are the largest faction with 28 seats, up from nineteen in 2013. – As I heard it put recently in Iceland there are Progressive-like conservatives in all parties and the Progressives tend to strengthen the worst sides of the Independence Party, such as illiberal cronyism.
With seven parties in Alþingi, the Icelandic Parliament, up from six during recent parliamentary term, the party game of guessing the possible coalition, both in terms of number of MPs and political synergies, is now on in Iceland.
A right centre outcome seems more likely than a left one
It’s the role of the president to decide which leader gets the mandate to form a government, normally the leader of the largest party but other leaders are however free to try. The task facing the newly elected president Guðni Th. Jóhannesson, a historian with the Icelandic presidency as his field of expertise, seems a tad complicated.
The president followed the traditional approach and gave the mandate to Bjarni Benediktsson leader of the largest party, the Independence Party who first met with the Progressive’s Sigurður Ingi Jóhannsson who lead the Progressive-Independence coalition that has just resigned. The two parties now only have 29 seats between them. – Given the right-leaning/conservative weight in Alþingi a right-centre government might seem more likely than a left government.
The leader of Bright Future Óttar Proppé, seen as a possible coalition partner for the conservatives, seemed surprisingly unenthusiastic: to him a coalition with the Independence Party and Revival “doesn’t seem like an exciting option,” adding that there is a large distance policy-wise between his party and the largest one.
Proppé had earlier suggested to the president that Revival’s leader Benedikt Jóhannesson be given the mandate; Jóhannesson has already suggested he’s better poised to form a government than Benediktsson since Revival can appeal both to left and right.
Katrín Jakobsdóttir leader of the Left Green has stated that her party would be willing to attempt forming a five party centre-left coalition, i.e. all parties except the Independence Party and the Progressives, a rather messy option. The Pirates leader Birgitta Jónsdóttir has said her party could defend a minority left government.
Since the founding of the Republic of Iceland in 1944 the Independence Party has always been the country’s largest party and the one most often in government. Its worst ever result was in the 2009 elections, when it got only 16 seats. Getting 19 in 2013 and 21 seats now may seem good but it’s well below the now unreachable well over 30% in earlier decades. Yet, gaining two seats now makes the party a winner.
Its leader Bjarni Benediktsson sees himself as the obvious choice to form a coalition, given the support of his party but it will strongly test his negotiation skills. In the media he comes across as rather wooden but he’s popular among colleagues, which might make his task easier though he can’t erase policy issues unpopular with the other parties such as the parties anti-EU stance and being the watchdog of the fishing industry.
The Left Green Movement was formed in 1999 when left social democrats split from the old party and joined forces with environmentalists. The Left Green has always been the small left party but is now the largest left party next to the crippled social democrats. The elf-like petite Katrín Jakobsdóttir has imbued the party with fresh energy. Her popularity, far greater than the results of the party, no doubt helped secure a last minute swing against predictions. She has been the obvious candidate to lead a left-leaning government, now an elusive opportunity.
Viðreisn, Revival, is a new centre right party, running for the first time but founded in disgust and anger by liberal conservatives from the business community. In general they felt the Independence Party was turning too illiberal, too close to the fishing industry so as to lose sight of other businesses.
But most of all the Revivalists were angered by the broken promises of the Independence Party in 2013 regarding EU membership. During the 2013 campaign the party tried to ease out of taking a stance on EU by promising to hold a referendum asking if EU membership negotiations should be continued. Once in government the Independence Party broke this promise causing weeks of protests and widespread anger some of which Revival captured.
Revival’s founder Benedikt Jóhannesson was seen as an unlikely leader and admitted as much to begin with but has proved an adept leader, also by attracting some strong and well-known candidates from the Icelandic business community. Getting seven MPs in its first run spells good for the party but history has shown that getting elected is the easy part compared to keeping a new party functioning in harmony. However, the Revival’s energetic start has for the first time in decades given the Independence Party a credible competition on the right wing.
The outcome has made Jóhannesson flush with success and he was quick to put his name forward as the right person to form and lead a centre right government. Revival did no doubt capture some Independence party voters but many of them had already defected to the social democrats now leaving that party for Revival.
The Pirate Party is the winner who lost the great support shown earlier in opinion polls, probably never a likely outcome; growing from three MPs to ten is the success McCarthy tweeted about. The party rose out of protests and demonstrations after the 2008 calamities and ran for the first time in 2013, winning three seats.
Their feisty leader Birgitta Jónsdóttir, with 32.000 Twitter followers and foreign fame for her involvement with Wikileaks and Iceland as a data protection haven, is unlikely to be the first Pirate prime minister in the world. Given that the party has had some in-house friction to deal with – they had to call in an occupational psychologist to restore working relations – the unity of the parliamentary group might be in question, making the party less appealing for others as a coalition partner.
Two losers and one survivor
The Social Democrats suffered a crushing defeat, even worse than the opinion polls had predicted and worse than the dismal outcome in 2013. As parties consumed with infighting – the UK Labour Party springs to mind – the energy of the Social Democrats has been wasted on infighting at the cost of a constructive election campaign. Common to other sister parties in Europe the Icelandic Social Democrats have not been able to come up with a convincing policy and its standing with young people is low.
Party leader Oddný Harðardóttir struggled with her speech on election night when all she seemed to be able to think of was that the party once had a good cause; the long list of helping hands she named sounded like each and every of the few voters left. Harðardóttir has now inevitably resigned, giving space for more destructive infighting. Some wonder if the party will survive, others speculate its remains will unite with the Left Green and restore unity and strength on the left wing. Historically seen, the Icelandic left has always split when it grew, adding strength to the right wing and the indomitable Independence Party.
The Progressive Party has lost its incredible upswing of nineteen MPs in 2013 to a much more plausible eight MPs. Plausible, because its upswing to 24% in 2013 was built on cheap promises made by its leader Sigmundur Davíð Gunnlaugsson that brought him all the way into the Prime Minster’s office. But the votes had hardly been counted in 2013 when voters started to lose faith in the party: it has been on a downward slide towards a more natural, in a historical perspective, just over 10% shares of votes.
This old agrarian centre party, sister party of other old Nordic centre parties of similar origin, has traditionally been related to the Icelandic now mostly defunct cooperative movement and still close to certain special interests in agriculture and fishing. Its strength was to appeal to both the left and the right but under Gunnlaugsson it turned more nationalistic/right-leaning, trying to appeal equally to urbanistas and racists and not only old farmers. His successor, representing more traditional Progressive policies might revert to the old party roots, yet needing to find a modern twist for an old party slowly losing ground.
The Panama Papers exposed Gunnlaugsson as a cheat – he had kept quiet about the infamous Wintris, the offshore company he owned with his wife, meaning the couple had huge assets abroad as Icelanders were locked inside capital controls – and a liar as he tried to ease out of the story. He lost his office and then lost his leadership of the party only shortly before the elections. After the elections he claimed to have had a campaign plan, which would have taken the party to 19%. “A bad loser” commented one Progressive ex-MP. Gunnlaugsson’s successor Sigurður Ingi Jóhansson dryly said Gunnlaugsson had not shared this plan with the party leadership.
Bright Future is one of several parties that rose out of protests following the 2008 banking collapse, partially an offspring of the group close to Jón Gnarr the comedian-turned-mayor of Reykjavík 2010 to 2014. It was the new political darling in 2013, securing six MPs. Seen as a centre left liberal party its leader Óttar Proppé is a soft-spoken intelligent politician. The party has recently been hovering around the 5% limit needed to secure a seat in Alþingi but did in the end better than forecasted, losing only two of six seats. Consequently, the party still has a future in Icelandic politics and possibly even a bright one as it might be essential whatever part of the political spectre a coalition will cover.
Scrabbling with numbers – the eliminated options
Juggling parties and numbers of MPs – the minimum majority is 32 MPs – there are in total seventeen possible combinations for a coalition. Although the Progressives have traditionally been a true centre party appealing to left and right, the first elimination seems to be the Progressive Party, unless a path is found around one specific hindrance: the former party leader.
Were the Progressives offered to be in a coalition and given that Gunnlaugsson is an MP it’s almost unthinkable to form a government without him as a minister; but it seems equally unthinkable that the other parties would want to be in government with him. His career as a prime minster has given all but his ardent admirers the feeling that he is shifty and untrustworthy. His admirers will say that opponents fear his toughness.
In spite of losses the Progressive leadership is eager to get into government but Progressive leader Jóhannsson has so far evaded answering if the party could join a coalition without Gunnlaugsson as a minister. There are speculations that the parliamentary group is split: some support Gunnlaugsson, others his successor but some are now speculating that the party would indeed willingly sacrifice Gunnlaugsson in order to get into government again.
Both Left Green Katrín Jakobsdóttir and the Pirates’ Birgitta Jónsdóttir have excluded joining a government with or lead by the Independence Party. When Jónsdóttir went to meet Benediktsson, holding court to hear views of all the parties, she said she doubted that his party was interested in fighting corruption, a key Pirate issue.
Revival’s Benedikt Jóhannesson excluded reviving the present government of Progressives and the Independence Party by joining them. – Thus, the realistic possibilities seem quite fewer than the theoretical ones.
Scrabbling with numbers – the realistic options
Out of the flurry of the first days and considering parties and policies the most realistic combination seemed to be a government with the Independence Party, Bright Future and Revival. That poses an existential dilemma for Revival: though ideologically close to the Independence Party there is this one marked exception – the EU stance.
In the same vein as the British conservatives, to whom the Independence Party is much more similar than to its Nordic sister parties, the anti-EU sentiments have over the years gradually grown stronger. Bjarni Benediksson was on the pro-EU line around ten years ago but not any longer. The lack of EU option on the right was indeed the single most important reason why Revival was founded as mentioned above.
Jóhannesson is a former fairly influential member of the Independence Party – and a close relative of Benediktsson in a country where blood is always much thicker than water and family-relations matter. One of the party’s MPs, Þorgerður Katrín Gunnarsdóttir, was a minister for the Independence Party in 2003 to 2009 but left politics after the banking collapse, tainted by her husband’s high position with Kaupthing, at the time the largest bank in Iceland.
The question most often put to Revival candidates during the election campaign was if the party wasn’t just the Independence Party under another name. Going into government simply to help the Independence Party stay in power would be unwise as Revival would risk to be seen as exactly that what it’s claimed to be: the Independence Party under another name.
Fishing quota – and EU: a lukewarm topic but possibly a political dividing line
Revival will have to take up the EU matter, i.e. in a coalition with the Independence Party it would have to get that party to fulfil its 2013 promise to hold a referendum on the EU negotiations started under the Left government in summer of 2009. At the time EU membership was driven by the social democrats in spite of the Left Green anti-EU stance: the social democrats had for years campaigned for EU membership, also in the 2009 spring election, and once in government felt they had the mandate to open membership negotiations. The plan was to put a finalised membership agreement to a referendum on membership. Ever since the negotiations started anti-EU forces have claimed it was without a mandate.
The attempts of the Progressive-Independence coalition after it came to power in 2013 to end the negotiation turned into a farce: the two parties didn’t want to bring it up in Alþingi where it risked being voted down and the EU didn’t want to accept a termination unless supported by a parliamentary vote.
Forcing a referendum on the membership negotiation would fulfil Revival’s EU promises and it could most likely count on the support of Bright Future. For the Independence Party it would be a very bitter pill to swallow. Opinion polls have always shown a majority for negotiating though there rarely has been a majority for joining the EU. Event though EU membership isn’t an issue in Icelandic politics it could well draw certain insuperable lines in the coalition talks.
If Revival’s Jóhannesson should be given the mandate to form a government as Bright Future’s Proppé has suggested it would certainly strengthen Jóhannesson’s agenda.
Apart from EU policy Revival has fought for a new agriculture policy, away from the old Progressive emphasis on state aid and most of all for a new way to allocate fishing quota, a hugely contentious issue in Icelandic policies. The two old former coalition partners are dead against any changes whereas all the other parties have presented more or less radical policies to change the present fishery system.
Left government in a conservative country
Ever since the 2013 elections, which ended the left government in power since 2009, the opposition parties have aired the idea of joining political forces against the Progressive-Independence coalition.
Few days before the elections the Pirate leader Birgitta Jónsdóttir called the opposition to a meeting to prepare some sort of a pre-elections alliance or as she stated to clarify the options for a coalition. Revival didn’t accept the invitation and Bright Future wasn’t keen. The Independence Party claimed this was a first step towards a left government and by stoking left fears this Pirate initiative might indeed have driven voters to the conservatives.
Jónsdóttir is now peddling a more simple solution: a minority government of Revival, Bright Future and Left Greens that the Pirates, together with the remains of the Social Democrats, would support. Five parties in a government sounds chaotic – coalitions of three parties have never sat a full term in Iceland. And given the alleged tension in the Pirate Party the other parties might be wary of fastening their colours to the Pirate mast, inside or outside a government.
Minority governments have been rare in Iceland contrary to the other Nordic countries and suggesting this solution as politicians are only starting to explore coalition options will hardly tempt anyone until possibilities of a majority government have been exhausted.
Supporting a government but not being in it would be a plum position for the Pirates. The party has pledged to finish the new constitution, in making since 2008. A new constitution needs to be ratified by a new parliament and the Pirates had called for the coming parliament to sit only for s short period, pass a new constitution and then call elections again. No other party is keen on this and there has been only a limp political drive to finalise a radical rewrite of the constitution.
There are those who dream of a government spanning the Independence Party and the Left Green; this government would however need the third party to have majority. For anti-EU forces this is the ideal government since it would most likely prevent any EU move. But as stated: Left Green Jakobsdóttir has so far claimed the distance between the parties is too great, leaving no basis for such a coalition.
Discontent in a boom without xenophobia and racism
In a certain sense all the new parties are protest parties but not with the sheen of demagogy seen in many other recent European protest parties. The response to the banking crisis and the ensuing massive fall in living standards was certainly a protest against the four old parties giving rise to various new parties of which Bright Future and the Pirates are the only ones now in Alþingi.
The only real touch of demagogy with a tone of xenophobia didn’t come from any of these parties but from the Progressive Party under the leadership of Gunnlaugsson in the 2013 elections and the 2014 local council elections. However, there has so far never been any real appetite in Iceland for this agenda. The Icelandic Popular Front, lingering on the fringe of Icelandic politics for years and the only party offering a pure xenophobic racist agenda, this time got the grand sum of 303 votes or 0.16%.
Compared to the political environment in Europe the real political sensation in Iceland, so far, is that there is no sign of the xenophobia and outright racism in the main parties. Yes, people lost jobs following the 2008 collapse but there wasn’t the sense that foreigners were taking jobs or that foreigners were to blame. As so clear from the debate on foreigners, inter alia in Britain, sentiments normally override facts and figures. These sentiments can be heard rumbling in Iceland but have so far not flourished.
Although the economy has been growing since 2011 following the sharp downturn the previous years and is now booming the discontent is still palpable. Very much directed towards politicians based on a sense of cronyism and the sense that politicians, especially from the old parties, are there to guard and aid special interests such as the fishing industry and wealthy individuals with political ties.
Gunnlaugsson with his Panama connections was ousted. But both Bjarni Benediktsson and Ólöf Nordal his deputy chairman, named in the Panama Papers, have brushed it off easily. Nordal was linked to Panama through her husband, working for Alcoa, but claimed the company was just an old story. Benediktsson owned an offshore company related to failed investments in Dubai and also claimed it was an old story, causing remarkably little curiosity and coverage in Iceland.
The left government, in power 2009 to 2013, did in many ways tackle the ever-present cronyism in Iceland by using stringent criteria and gender balance for hiring people on boards, leading jobs in the public sector etc. Yet, it earned little gratitude for this. One of the most noticeable changes when the Progressive-Independence coalition came to power in 2013 was its reverting back to the bad habits of former times. Over the last few years sales of certain state assets have also raised some questions. Sales of the two now state-owned banks and other state assets on the agenda these will again test the Icelandic hang to cronyism and corruption.
The underlying discontent in booming Iceland possibly shows that it’s not only the economy that matters. But it also shows that after a severe shock it takes time for the political powers to gain trust. The coming four years will be a further test. As one voter said: “I would have liked to see all parties acknowledge the events in 2008 and come forth with a plan as to how to how to avoid the kind of political behaviour that led to the 2008 demise – but there was no such comprehensive plan.”
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The new Alþingi: The new gathering of MPs has a greater number of women than ever before: 30 MPs of 63 are women. The tree youngest MPs are born in 1990, the oldest, and newly elected, is born in 1948. Katrín Jakobsdóttir, born in 1976, is one of seven MPs voted into Alþingi before 2008. Following the three last elections a large number of MPs have left and new ones coming in. As prime minister Sigurður Ingi Jóhannsson said it’s good to get new energy into the austere halls of Alþingi but it’s equally worrying to lose competence, knowledge and experience: 22 have never sat in Parliament before, ten are new but with some parliamentary experience, in total 32 out of 63 MPs.
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After remarkably large swings in opinion polls it seems that the old and largest party, Independence Party, is picking up support from voters, shown in one poll to pick up 27% of votes. The Pirate Party, which has at times touched 40% in polls is now settling at just above 20%. With nine parties running country-wide and twelve parties in total offering their ideas to the voters Icelanders have enough to choose from in the elections October 29. The big news is that the four old parties, or the “four-party” as Icelanders call them are now only polling at fifty or sixty per cent, the lowest in the roughly one century old history of the old parties, meaning that the new parties are taking forty to fifty per cent.
Iceland provides a clear argument that the economy isn’t everything in elections; Icelandic voters seem to choose leaders they find trustworthy, regardless of policies. In spite of strong economy a new party untested in government like the Pirate party has held a strong appeal, robbing some of the old parties of support. The old parties are the Independence Party, the Progressives, the SD Alliance and the Left Green but the new ones are the Pirates, Bright Future Viðreisn and some smaller parties unlikely to get into parliament.
Now, as the day of reckoning October 29 looms opinion polls indicate that the tried and tested are attracting voters again. That helps the Independence party and to some degree the Progressive party that after the hapless Winstris affair of its leader chose a new leader, Sigurður Ingi Jóhannsson, who has been serving as a prime minister since Sigmundur Davíð Gunnlaugsson resigned in April due to the Panama Papers. Yet, nothing is like it once was – the old parties are appealing to fewer voters than ever.
The latest figures
The latest figures out Friday October 28 vary quite a bit but still show a jump for the Independence party. The Independence Party has the greatest success in a Gallup poll, at 27% with Pirates at 17.9%, Left Green 16.5%, the other government coalition party the Progressives at 9.3%, Viðreisn (“Restoration,” a new liberal centre-right party) 8.8%, the Social Democratic Alliance 7.4% and Bright Future 6.8%. Other parties are below the 5% threshold needed to get into parliament. All these parties except Viðreisn are already in parliament.
MMR poll shows the Independence party at 24.75%, Pirates 20.5%, Left Green 16%, Progressives 11.4%, Viðreisn 8.9%, Bright Future at 6.7% and the Social Democratic Alliance 6.1%.
Morgunblaðið, the daily, also published today its last poll before the election, putting the Independence party at 22.5%, Pirates 21.2%, Left Green 16.8%, Viðreisn 11.4%, Progressives 10.2%, Bright Future 6.7% and the SD Alliance 5.7%.
On the whole the Pirates have lost their incredible popularity a year ago but are still competing with the Independence party for the highest amount of votes – a remarkable success for a young party, only running for the second time.
The outcome 2013
The 2013 elections resulted in the largest losses ever for any parties when the two left parties in government, the Left Green (V above) and the SD Alliance (S) went from being two big parties to two small parties, from jointly having 34 members to 16. The Left Greens have, according to the recent polls, been gaining strength under their young energetic leader, Katrín Jakobsdóttir, minister of education and culture in the 2009-2013 left government. The SD Alliance seems to be stuck in spite of a new leader recently elected, Oddný Harðardóttir, who has only made things worse for the party according to the polls.
In the 2013 elections Bright Future (A) literally lived up to its name, as the new darling in the hood and got 6 members, a phenomenal success for a new party. Now it’s hovering just above the 5% limit. The Pirates (Þ), another new party, got 3 members. The present coalition partners, the Independence Party (D) and the progressives (B) got the same amount of MPs; the Independence Party got a greater numbers of votes but the Progressives made a larger jump and against the tradition of giving the largest party the mandate to form a government the then president Ólafur Ragnar Grímsson gave the Progressives the mandate for form a government.
The Pirate party: not as wild as the name suggests
Since early this year I’ve heard foreign analysts and other pundits worry that the rise and rise of the Pirate party bode ill for political and financial stability in Iceland. That is however not the perception in Iceland. The main reason for their popularity is their measured and reasonable performance in Alþingi, the Icelandic parliament. Making big and broad promises is for example not their way of doing politics.
Their main focus has been on the new constitution, on finishing the work in progress, and they are very much wedded to the idea of the Alþingi sitting for only enough time to pass a new constitution and then vote again as is needed; a new constitution needs to be agreed on by two parliaments. This might very well drive other parties away from a Pirate-led coalition, even if they might otherwise be positioned to lead a new government. Other parties just want to get things done and not be tied up by a short-term constitution-only Alþingi.
Apart from the constitution the Pirates reject the left right dualism but support left-wing welfare issues like free health-care, not the case in Iceland, public ownership of natural resources, direct democracy and fight against corruption – all issues that have loomed large in the election debate.
What colour of coalition?
If the Independence Party turns out to be the biggest party come Sunday morning its leader will start to ask around for support among other parties. Nothing indicates that the Progressives will be strong enough for a two-party coalition. In addition, it would be difficult to sideline Sigmundur Davíð Gunnlaugsson who will almost certainly be elected to Alþingi in spite of having resigned as a party leader and prime minister.
The feeling is however that none of the other parties are keen to be with him in government, which means that the Progressives are unlikely to be in government however things go. In politics “never say never” but suffice it to say that a government including the Progressives seems unlikely.
The new liberal conservative party Viðreisn doesn’t seem to be much of a help. Incidentally, its leader Benedikt Jóhannesson was earlier active in the Independence Party and is, as most well-informed Icelanders know, closely related to Benediktsson in a family where blood certainly is thicker than water, as the saying goes in Iceland.
Viðreisn portrays itself as more liberal, less wedded to old power and old money and is EU-friendly, hardly relevant in Iceland these days. Many voters see Viðreisn as all too ready to jump into bed with the Independence Party but it seems to have attracted many SD Alliance members on the party’s right side. SD Alliance, earlier often in coalition with the Independence party, has hardly any political strength to be in government and would in any case provide too few if any MPs.
It has happened in Icelandic politics that the Independence Party, in most governments in Iceland since the founding of the republic in 1944, has cooperated with the far left. Jakobsdóttir has not been flirting with that idea at all, underlining that there is little if any political harmony between the two parties. Bar something unexpected it’s difficult to imagine that any of the four old parties could form a coalition lead by or together with the Independence Party.
All of this, in addition to the polls, many think that a left government is more likely than a centre-right government. That again would probably require at least three parties to form a government, even four. Needless to say the greater the number the more potential for splits and a politically lame government. The next PM could be a lady, most likely Jakobsdóttir. The Pirate Birgitta Jónsdóttir has indicated that she would be more interested in being president of the Alþingi, rather than a prime minister but there are some popular Pirates around her.
Strong economy isn’t enough
The turmoil in Icelandic politics since the winter of 2008 to 2009 is over in the sense that the pots and pans stay in the kitchens. Yet, the political distrust is still palpable and strong economy and what’s best described as boom doesn’t change the fact that voters seem more ready than ever to embrace new parties and, except for the Left Green, keep the old “fourparty” at bay.
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