Sigrún Davíðsdóttir's Icelog

New Government – what is known so far (updated)

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At 11.15 Icelandic time, the two parties, the Progressive Party and the Independence Party will hold a press conference to announce new ministers and their coalition agreement. What is known so far is that the Independence Party will get five ministries: finance, home office, trade and industry, education and health. The Progressive Party will lead the Government, i.e. Sigmundur Davíð Gunnlaugsson will be Prime Minister. In addition, his party will get social affairs, agriculture and fisheries, environment and foreign affairs.

The ministries are fewer than the ministerial posts because there will be more than one minister in some of the ministries. The Left Government had merged ministries. In the Welfare Ministry there is health and social affairs. In the Ministry of Industries and Innovation there is trade and industry.

And what about the membership negotiations with the European Union? According to Morgunblaðið, whose editorial stance is against Icelandic membership of the EU, the negotiations will be called off immediately. This is an indirect quote (in Icelandic) from leader of the Independence Party, Bjarni Benediktsson.

New Government, new style: the two leaders will sign the coalition agreement at some sort of a ceremony, apparently in the presence of the media, ca 100 km from Reykjavík, at Laugarvatn, a small village on the lake, Laugarvatn, which has grown around a few schools there.

In addition:

There are two things that I will be paying most attention to: EU membership and negotiations with creditors of the estates of Glitnir and Kaupthing that respectively own the two new banks, Íslandsbanki and Arion. As I have blogged on earlier, the development of these negotiations determine if and how the capital controls will be abolished.

In his recent piece on Vox EU, the Icelandic economist Jón Daníelsson writes about the Icelandic recovery, “myth or a miracle?” – Just briefly, I rather believe it is neither of these two. Further, he states: “The main reason why the Icelanders voted out their government was its deference towards foreign creditors. Iceland came under significant pressure from the IMF to accommodate foreign creditors, and the government gave in.” – I also disagree on this. The unanimous understanding in Iceland is that the Progressive Party did well because it made the simple promise of returning money to voters. As irresistible to Icelandic voters as a similar promise by Silvio Berlusconi to Italian voters recently.

Daníelsson seems to ignore that Iceland cannot both fleece foreign creditors and expect foreigners to be willing to invest in Iceland. In a global world isolationism and nationalism have its limits if a country wants to be connected to foreign trade and investments. And, by the way, attracting foreign investments has always been a problem in Iceland, incidentally as it has been in Italy.

Daníelsson seems to indicate that the drop in inflation is just a temporary one and the króna, having been stronger recently, will fall again. It remains to be seen but so far, the indication is that inflation is falling, partly due to a stronger króna, that might be fairly steady in the coming months. The Central Bank has indicated it will aim for the present króna level. More on the here, in analysis from Íslandsbanki.

According to polls, major part of Icelanders is against membership – but the majority wants to end the negotiations, get an agreement and vote on it.

PS I will be following the press conference, tweeting from it – and will blog on it later today.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

May 22nd, 2013 at 9:12 am

Posted in Iceland

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