Sigrún Davíðsdóttir's Icelog

It took Bjarni Benediktsson leader of the Independence Party 73 days and three attempts to form a government with two small centre-right parties, Bright Future (Björt Framtíð) and the Reform Party (Viðreisn). The majority is the tiniest possible: one seat. And so is the enthusiasm for the new government, really tiny. New opinion poll shows that 25% is content with the government. The left opposition lost an opportunity to form a government, the voters of the two small coalition parties feel they were cheated into securing an Independence Party rule and the latter party is sour because the government seems weak and Southern Iceland that brought the party most votes got no minister(s). – Thus starts the life of a new government, with irritation and anger. Things can only get better or there will be early elections, again.

In the history of Icelandic politics since the founding of the republic in 1944 political instability hasn’t been dominant. Icelanders got through the 2008 banking collapse but shed the collapse government after a winter of protests, which felt more playful than threatening, hence the cute name of the ‘Pots and pans’ revolution. When the left government, voted to power in the spring of 2009, survived a whole parliament term of four years in spite of fierce infighting it seemed that Iceland was back to stability.

Even more so since the new centre right coalition led by the Progressive Party, with the Independence Party had a safe majority, 38 out of 63 seats. The Panama papers shattered that strength April 3 2016. The day after prime minister Sigmundur Davíð Gunnlaugsson stumbled through the now world famous interview and tried to lie his way out of the revealing questions Bjarni Benediktsson signalled the end of Gunnlaugsson’s government by refusing to back Gunnlaugsson. Two days after the interview Gunnlaugsson resigned, ending the politically weirdest 48 hours Icelanders had ever witnessed.

After a political limbo from spring 2016 to autumn came the October 29 election and 73 days later a new government. None of this signals strength. The new government starts its life with bets against it enduring a full term.

EU: both a raison d’etre and a non-issue

The main reason for former Independence Party voters or right-leaning social democrats to vote for Reform (it seems mainly to have taken voters from the latter, many pro-EU voters had already left the IP in the last two elections) was to secure an action regarding an Icelandic EU membership. Reform was founded by angry IP voters who felt the grand old party had been less than grand in going back on its promise of a referendum.

But this raison d’etre for Reform has now turned into a non-issue, both because many Icelanders want to see how Brexit fares and also because EU is not a pressing issue for booming Iceland.

The Reform party: born out of pro-EU sentiments

The broken promise, which spurned some political enthusiasts into action, was a promise that IP leader Bjarni Benediktsson gave before the 2013 elections. In 2009, the social democrats, buoyed by their election victory and the prime minister post, fulfilled their long-standing promise of applying for EU membership. The Left Greens, their coalition partner, was against membership but the social democrats didn’t take no for an answer.

Up to the 2013 elections IP’s Benediktsson, whose party is split on EU, said holding a referendum asking voters if they wanted to continue membership negotiations was the best way to test voters’ EU sentiments. When in government with the Progressives, who had in principle supported such a vote though the party is fiercely anti-EU, Benediktsson suddenly saw nothing but a ‘political impossibility’ in holding such a vote as both coalition parties were against EU membership.

This caused huge outrage and protests for weeks – there has never been a clear majority in opinion polls to join the EU but this time, there was a huge majority for finalising a membership agreement and then vote on it. This anger spurred pro-EU former Independent party-member Benedikt Jóhannesson to form Reform. The Icelandic name, ‘Viðreisn,’ means ‘Revival’ rather than ‘Reform.’ In Icelandic politics the word refers to a period in Icelandic history, end of the 1950s and 1960s, when IP was in government with the social democrats, seen as a time of prosperity and growth in Iceland.

Now: Icelandic EU membership – let’s forget it

After being so wedded to an EU membership many feel that Jóhannesson and BF’s leader Óttarr Proppé have turned very meek in front of the IP’s EU antipathy. All there is left of a promise of a referendum is this: ‘The government parties agree that if the subject of a referendum on accession negotiations with the European Union is raised in the Althingi, the issue will be put to a vote and finalised towards the end of the electoral period. The government parties may have different opinions on this matter and will respect each other’s views.’

This indicates that well, maybe the matter won’t be raised and then there will be no referendum. However, Reform’s MP Jón Steindór Valdimarsson, a prominent advocate for Icelandic EU membership, has stated that people can rest assured: EU membership will be brought up in the Alþingi. And also, that the parties have agreed to disagree when a referendum will be brought to a vote.

EU membership is not a hot topic in Iceland but the anger still simmers against the last government’s blatant change-of-plan. This means that this very feeble promise on the issue is seen as an abject failure by the two small parties to stick to their EU focus; effectively that the IP bulldozed over them.

‘System change’

One of the most prominent words before the election last October was ‘system change’ – in short, the new parties – i.e. Reform, Bright Future and the Pirates – advocated ‘system change’ whereas the ‘four-party’ as the old parties are called in Icelandic – IP, the Progressives, the social democrats and Left Green – sounded less enthusiastic.

The word mostly referred to fundamental changes in how to allot fishery quotas and farming subsidies, i.e. policies concerning the two old sectors in the Icelandic economy. Two sectors still shaped by the political climate of earlier decades though their part of the economy has dwindled – now, tourism is both the largest sector and the growth sector.

Reform advocated what it called ‘the market approach’ to both these old sectors. Fishing quotas should to a certain degree be auctioned off in order to increase the national profit of fisheries, i.e. levies and taxes, akin how the Faroese have done.

This ambition has been whittled down in the new government’s ‘Platform:’ “The government considers that the benefits of the catch quota system are important for continuing creation of value in the fishing industry. Attention will be given to the benefits of basing the system on long-term agreements rather than allocations without time limits; at the same time, other possible choices will be examined, such as market-linking, a special profit-based fee or other methods to better ensure that payment for access to this common resource will be proportional to the gains derived from it. The long-term security of operations in the sector and economic stability in the rural areas must be ensured.”

Those who advocate changed agricultural policy, away from subsidies to a more consumer-friendly, less protective agriculture, with more import of foreign agricultural produce find this statement very weak: “The allocation of import quotas must be revised and the premise for the dairy industry’s derogations from competition law must be analysed and suitable amendments made.”

The government may surely surprise Icelanders but so far, there is little to indicate that the new parties will be allowed to make a strong departure to the way the IP has run the basic industries for decades.

Feeble vision on tourism

The previous Progressive-led government lost three precious years where the fastest growing most cash-giving industry, tourism, blossomed but without any policy guidelines as to what sort of tourism Iceland wants to pursue. The previous government seemed to be beholden to the interests of certain companies: it couldn’t solve the problem of identifying the most pressing infrastructure projects nor was it able to decide on a levy-structure in tourism. Truly a phenomenal omission.

The new government is worryingly vague on its aims for tourism in Iceland, only two sentences on it in its ‘Platform:’ The importance of tourism as an occupational sector is to be  reflected in the administration’s tasks and long-term policy-making. In the years to come, emphasis will be placed on projects that will be conducive to harmonised management of tourism, research and reliable gathering of data, increased profitability of the sector, the spread of tourists to all parts of the country, and rationalised levying of fees, e.g. in the form of parking fees.

Is parking fees the only grand idea of funding? Then that’s worryingly limited and unambitious.

At the same time Iceland is clearly becoming immensely dependent on tourism. With hotels sprouting everywhere there are whispers in the banking sector that further lending to tourism-related projects should be severely conservative.

The truly revolutionary turn: no more polluting heavy industries

Many Icelanders are worried that the aspect of clean and pure nature is hugely compromised by several recent heavy-polluting industries around Iceland in addition to the old ones. Hidden in the three-paragraphs on ‘Environment and Natural Resources’ there is this sentence: ‘There will be no new concessionary investment agreements for the building of polluting heavy industry.’

This may not seem much but in the Icelandic context this is truly revolutionary: a sharp turn from decades of striving to attract heavy polluting industries to Iceland, often with investment agreement granting some form of governmental favours. It can’t be emphasised too much what a turnaround this is – yes, truly revolutionary.

Clear right-leaning policy with a social slant

Although the government advocates responsible housekeeping and financial stability there is also some focus on social matters. Benedikt Jóhannesson has mentioned that Iceland is competing with its Nordic neighbours in holding on to young Icelanders, of getting them to return home from studying abroad or keeping them at home instead of moving abroad.

Jóhannesson has very correctly identified this problem: Icelanders do indeed compare their standard of living to their Nordic neighbours – and Iceland falls short in many aspects.

One policy advocated by the new government is to adapt Icelandic study loans to the system in the other Nordic countries: ‘A scholarship system based on the Nordic model will be adopted and lending from the Student Loan Fund will be based on full cost of living support and incentives for academic progress. Consideration will be given to the social role of the Fund. – This seems a more costly option then the present student loan system and the extra funds needed haven’t been specified as far as I know.

Immigrants are less skilled than Icelanders who emigrate

One potential danger is the above: the mismatch in outflow and inflow of people. The booming tourism needs a lot of low-skilled work, now largely provided by foreign workers whereas educated or highly skilled Icelanders have been tempted to emigrate or don’t return after studying abroad but choose to find work after finishing their studies.

In the 2015 OECD Economic Survey of Iceland this problem is spelled out: ‘The current boom is based to some extent on the rapid development of the tourism sector. With one million visitors in 2014, this is welcome, but it tends to create relatively low-skilled low-wage jobs and comes with limited opportunities for productivity growth. Against the draw of migrants to the booming low-skill jobs, the Icelandic economy is experiencing outmigration of high-skilled people. Furthermore, unemployment amongst university graduates is rising, suggesting mismatch. As such, and despite the economic recovery, Iceland remains in transition away from a largely resource-dependent development model, but a new growth model that also draws on the strong human capital stock in Iceland has yet to emerge.’

This wasn’t at all welcome news in Iceland and it was clear that some politicians are in denial about this mismatch. Icelanders, especially politicians, like to portray Iceland as a country with highly skilled workforce. At a closer look, comparing higher education in Iceland to the neighbouring countries, this isn’t really true. And the above paragraph proved an unpalatable course (as I sensed when reporting for Rúv I brought this up: there was some attempt from political quarters to rubbish the OECD data.)

Therefore it’s particularly refreshing to hear Jóhannesson mention this fact – that Iceland is indeed in many ways struggling to maintain skilled people and people with higher education. Whether something sensible comes out of it remains to be seen but acknowledging the problem is a promising first step.

Will the government last the full parliamentary term?

It’s too early to tell, so far so eventless. Or well, not quite. As a minister of finance Bjarni Benediktsson reacted to the Panama leak – which cost Sigmundur Davíð Gunnlaugsson both his prime minister post and leadership of his party, the Progressives and showed that also Benediktsson had offshore connections – by setting up a taskforce in mid June to estimate Icelandic assets offshore and the loss to the Treasury caused by the Icelandic offshorisation.

The taskforce handed in its report on September 13 and gave a presentation to Benediktsson on October 5. On October 10 Benediktsson said in Alþingi the report would be published in the next few days but nothing happened. It wasn’t until January 6 that the report was unceremoniously published on the ministry’s website and sent to the Alþingi economy and trade committee – after some journalists and politicians had said they would demand access by using the Icelandic Freedom of Information act.

When questioned Benediktsson brusquely denied there had been any cover-up, the report had simply come too late to be discussed in the outgoing parliament. A day later, Benediktsson was forced to retract his words and apologise: there had indeed be enough time to present it before the elections. Notably, elections called because of offshorisation. – Benediktson, now prime minister, has recently refused to discuss the report with the Alþingi economy and trade committee but says he will discuss its finding when the report will be debated in Alþingi.

This wasn’t a glorious end to Benediktsson’s time as minister of finance and the beginning of his reign as prime ministers. His opponents talk of his attempted cover-up, others that this is his typical lack of attention to details, a certain carelessness and sloppiness.

Governing in good times – not as easy as it seems

Politicians in power in times of crisis and hardship may at times dream of the sweetness of power in good times. In Icelandic we say that it takes strong bones to survive prosperity. That’s exactly the challenges facing Iceland for the time being.

The GDP growth last year was around 4%, unemployment is 4%, building cranes crowed the Reykjavík city scape, the Central Bank is facing losses because of the foreign currency it’s hording to keep the króna, now record strong, from being even stronger – all of this both signs of prosperity and challenges. Right now, fishermen have been striking since mid December, no end in sight. They are both demanding substantial wage increases, which the fishing industries refuse to meet and that the government reinstalls earlier tax deductions, flatly denied by minister of finance Jóhannesson.

In spite of good times in Iceland there is a permanent political chill over the island for the time being. It remains to be seen if the new government finds the way to melt the chill without ending up with an overheated and out-of-control economy – a far too familiar phenomenon in the prone-to-bumpy-ride Icelandic economy.

There are eleven ministers and eight ministries in the new Icelandic government – from the Independence Party (6): party leader and prime minister Bjarni Benediktsson, Kristján Þór Júlíusson minister of Education, Science and Culture, Þórdís Kolbrún Reykfjörð Gylfadóttir minister of Tourism, Industries and Innovation (Ministry of Industries and Innovation), Guðlaugur Þór Þórðarson minister of foreign affairs, Sigríður Ásthildur Andersen minister of Justice (Ministry of the Interior), Jón Gunnarsson minister of Transport and Local Government (Ministry of the Interior); Reform Party (3): party leader and minister of Finance Benedikt Jóhannsson, Þorsteinn Víglundsson minister of Social Affairs and Gender Equality (Ministry of Welfare), Þorgerður Katrín Gunnarsdóttir minister of Fisheries and Agriculture (Ministry of Industries and Innovation); Bright Future (2): party leader Óttarr Proppé minister of Health (Ministry of Welfare), Björt Ólafsdóttir minister for the Environment and Natural Resources. – Only ministries with two ministers are mentioned above. The government has announced that it plans to split the Ministry of the Interior into Ministry of Justice and Ministry of Transport and Local Government, which means there will soon be nine ministries. – I have earlier used the name “Revival” for Viðreisn without noticing that on its English website “The Reform Party” is the name used. 

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