Sigrún Davíðsdóttir's Icelog

Still waiting for a new Icelandic Government: the real test of escaping the crisis

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It is interesting to see how intensely relaxed Icelandic media seems to be about the new Government in the making. First, Sigmundur Davíð Gunnlaugsson leader of the Progressive Party summoned Bjarni Benediktsson leader of the Independence Party to coalition talks in unannounced places. They went to the haute-luxe summer house of Benediktsson’s father by Lake Þingvellir, which to Icelanders signals old wealth. Then to the summer house of Gunnlaugsson’s father-in-law, more the nouveau-riche type – his father-in-law got rich from importing Toyota cars and then selling the agency at a good time. Having exhausted good countryside places they started meeting in Reykjavík but they have not much been followed around – the Icelandic media is not chasing them for the latest and tiniest moves, as happens in some other countries.

The latest report, from this weekend’s Morgunblaðið, interestingly close to both parties, says that a new Government is almost there, just few remaining issues to be resolved. According to the paper, Gunnlaugsson will be Prime Minister and Benediktsson will be Minister of Finance. Other Progressive ministries will be foreign affairs, transport and the environment whereas IP will have education, justice and most importantly health, an area the IP has signaled great interest in and, more importantly, politicies.

Though the Government is not in place yet it seems that there is one decision, which will be acted on soon: repealing of a much disputed levy on the fishing industry, the so-called “veiðileyfisgjald.” Ever since transferable quotas were introduced in Iceland in the late 1980s, levy and tax on this natural resource that fish is has been a bone of cronic contention in Icelandic politics. The measures (half-measures according to many on the left; too much for many on the right) introduced by the Left Government, i.a. this levy, did not remove the contention. If the Government starts by repealing this fishing levy, its direction and interests will be very clear to most Icelanders: yet again, there is a Government clearly following the interests of the powerful Icelandic fishing industry.

Another important signal that will be awaited is the abolition of the capital controls. Part of that big bundle is finalising the fate of the estates of Glitnir and Kaupthing, thereby clarifying ownership of the new banks, Íslandsbanki and Arion, respectively owned by the estates. Both the Central Bank of Iceland and the creditors themselves have done all the necessary work over winter. Data has been analysed back and forth and what can and cannot be done is now pretty clear. A new Government cannot truthfully say it has to start gathering information on these issues – it is all there and now needs to be acted on.

If the Government does not make a move before the high-summer and holiday season, it could be seen as if the Government is fearful of tackling this very tricky and most complicated issue or lacks the ideas as to how to proceed – or feels the options are not gainful enough for the interest groups it wants to service. And if that were the case, this Government would be a disaster for Iceland, much in need to escape the fetter of capital control in order to be, again, part of a European area of free flow of capital.

For good reasons, Iceland is seen as a country that, after all, got remarkable easy out of its collapse and crisis. But that saga is not over until the country successfully gets rid of the capital controls.

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Written by Sigrún Davídsdóttir

May 20th, 2013 at 11:22 am

Posted in Iceland

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  1. […] 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 […]

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