Sigrún Davíðsdóttir's Icelog

An Icelandic outlook anno 2012

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In Iceland, the economic outlook isn’t too bad: a rising economic growth with unemployment falling. An enviable outlook, compared to many European countries. Yet, Icelanders are still in a bleak crisis mood – many are still struggling with the loans tied to foreign currencies that shot up after the collapse of the krona during and after 2008. The loans have in particular hit those who bought their first property in 2005-2008, in effect the 30-40 year old while other Icelanders are now again spending the Icelandic way: sales of most goods and services, from clothes to travels abroad rose in 2011.

All in all 2012 in Iceland might be even better than 2011 but that depends on the rest of the world. If the crisis and political frost in the eurozone continues, the effect will be felt in Iceland and the outlook might change.

The Government, a coalition of the Left Green led by the People’s Alliance, social democrats, ended the year with a reshuffle. The now ex-minister of fisheries and agriculture Jon Bjarnason (LG) ran a vocal EU opposition to the Icelandic EU membership talks and tensed the atmosphere in the Government. His stance is shared by his party but less vocally expressed by his fellow party-members in Government.

After criticising Bjarnason in harsh words earlier this winter, it was clear that minister of finance Steingrimur J Sigfusson and prime minister Johanna Sigurdardottir were ready to let Bjarnason go. Their strong words but no action made them seem impotent and weak. Sigfusson’s dilemma was that Bjarnason’s anti-EU position, in accordance with the party’s manifesto, made Sigfusson look too pro-EU and thus too close to the social democrats who are in favour.

Finally, between Christmas and New Year, the two party leaders had gathered political force and the time for action was ripe. Earlier election promises to cut down the number of ministries were executed. Apart from Bjarnason, Arni Pall Arnason minister of economy and trade was let go – or sacrificed, depending on the point of view.

Sigfusson was finally able to come to grips with his own party and make the shuffle without a mutiny from Bjarnason’s allies. In her party, Sigurdardottir had problems to the last moment: at the meeting in the parliamentary group where the PM set out her plan she was met with harsh resistance. It wasn’t until Arnason said he backed her, though losing his post as a consequence, that the others accepted the new plan.

In the media Bjarnson didn’t try to hide his anger and made it quite clear that his departure would be celebrated in Brussel. Whether he is seen as such a heavyweight there is uncertain but the ministerial staff might be quite pleased to see him leave. It’s difficult to imagine that Bjarnason will ever return as a minister.

Arnason was more diplomatic though he wasn’t at all happy to leave. He might have only a short break. Sigurdardottir will turn 70 in October and at some point she exits the political scene. Arnason could be a strong contender as a new leader. The Government is weak, with a majority of vote, after defections from LG during the last year and might last only because the other parties aren’t too keen on election before time. Some new parties are in sight, many voters are fed up with the four old parties but it’s still unclear what parties will rise out of the discontent and uncertainty of the voters.

The next election is due in spring 2013 and the political parties will be in election mode from next autumn. This might tempt the Government to unplanned spending, now that the IMF programme in Iceland has come to an end.

By next election it is almost certain that the social democrats will have a new leader. Bjarni Benediktsson leader of the Independence Party might face an uncertain future. He is seen by many to be tainted by investigations into the affairs of Milestone, a major shareholder in Glitnir before selling to Baugur and FL Group in 2007. Benediktsson and his relatives were in business with Milestone owner Karl Wernersson and Milestone is being investigated by Office of the Special Prosecutor.

Interestingly, Ireland voted out it political leadership after the Irish banking crash. This has only partially happened in Iceland. In 2008, the social democrats were in Government led by the conservatives. Some members of Althing, compromised by business connections took time off after the crash but have since returned. Most strikingly, the social democrat Bjorgvin Sigurdsson, minister of trade and banking in 2008, is still in Althing. His excuse at the time was that his fellow ministers had kept him in the dark. His party and his voters seem to have accepted this excuse, not questioning, like the SIC report does, whether he was really doing his job or competent enough.

The reshuffle has changed the governmental power structure. Sigfusson has created a new super-ministry, the most powerful ever seen in Iceland. It comprises fisheries, agriculture, trade, banking, economy but not his old ministry, the ministry of finance. He leaves the ministry of finance to a social democrat, Oddny G Hardardottir, who becomes the first female minister of finance. This move indicates that the stabilising of the economy is done. Sigfusson’s new goal is to strengthen the growth of economy. Hardardottir appears to be only an interim solution – Katrin Juliusdottir, the previous minister of industry, is thought to be destined for the ministry of finance after her maternity leave.

In his New Year address to the nation, president Olafur Ragnar Grimsson indicated he would not run for re-election in August this year, a topic of intense speculation. However, he didn’t say it very clearly. The question is whether he, the master plotter, is holding the door open for those who wish to beg him to stay. He has been in power for 16 years, a long time, but can sit at long as he is elected and wants to sit at Bessastadir.

There is nothing strange about him wanting to step down but the rumour is that he doesn’t want to be president if Iceland loses the Icesave case at the EFTA Court, a case that wouldn’t be there if he hadn’t sent the last agreement to a referendum. He has said it’s not for experts and foreigners to decide on Icesave. He might want to be out of office to lead against following the court decision. So far, no one has declared him/herself a presidential candidate.

At Christmas, many Icelanders living abroad return to the homeland. Since many of those who were earlier prominent bankers or businessmen now live abroad, Reykjavik was full of rumours of who was spotted where. A friend spotted a powerful ex-banker shopping with his coat collar turned up. A famous lawyer celebrated his birthday just before Christmas where many of the once so powerful business elite turned up, as did the president. One of the tabloids wrote of Hannes Smarason, of FL Group fame, and Magnus Armann, a Baugur business partner who still owns a property company in Berlin, working out together at the World Class fitness centre. Some things just don’t seem to change in Iceland – Christmas is celebrated as always.

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Written by Sigrún Davídsdóttir

January 9th, 2012 at 10:12 am

Posted in Iceland

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