Sigrún Davíðsdóttir's Icelog

There is no news that Már Guðmundsson governor at the Central Bank of Iceland is not getting his contract renewed for the coming five years, counting from August 20. This must mean that he is indeed getting another term as a governor. All uncertainty erased? Or not?

Well, I would have thought this meant the CBI could concentrate on its non too trivial tasks. But prime minister Sigmundur Davíð Gunnlaugsson and minister of finance Bjarni Benediktsson keep talking East and West when it comes to important issues. The prime minister is now saying that laws on the bank are being revised. Benediktsson has said there will be no changes. This week, Viðskiptablaðið published an article saying that yes, changes were being worked on, the law on the CBI would be changed and both Guðmundsson and his deputy Arnór Sighvatsson would both be ousted by this new law.

While I had understood that if Guðmundsson would keep his job no changes would be expected it now seems there is the third option: Guðmundsson could keep his job… until something else is decided, such as a totally new plan for the bank, with new people.

Some people within the Independence Party have not forgotten that the left government ousted the party’s former leader, Davið Oddsson. His successor was a Norwegian, only an interim solution until Guðmundsson was appointed in August 2009. This might explain why the party might be willing to oust Guðmundsson – it would be an act of revenge for the ignominy of seeing its leader hounded out.

However, such drastic changes at the CBI and having the bank as a lame duck now that many in Iceland would like to see decisive action regarding the capital controls would probably not look good seen from abroad; there will certainly be people at the ministry of finance who are acutely aware of this. After all, Guðmundsson is well respected and can hardly be seen as a problem, except to those who are upset with Guðmundsson and the bank for not agreeing with their policies.

Therefore, I still find it hard to believe – from the point of view of Icelandic real Politik – that there will be major changes at the CBI and Guðmundsson driven out. There is a clear political tension in the government and it seems the Independence party is proving quite strong in government. By strong, I mean that although the party is towing the Progressive party line, helping its coalition partner to at least make it look as if it’s keeping its promises it still has bent and formed these promises in such a way that it can live with them.

One thing that does strengthen the Independence party is that it feels at home in government. After all, the party feels it is born to rule Iceland; ruling is its raison d’être. Its ministers mostly relate to civil servants with ease whereas the Progressives have the same tendency as the UK Labour party had when it came to power: it assumed the civil servants were wedded to the previous government, felt quite paranoid and were certain that every single civil servant was trying its best to undermine the new ruling party. This also meant that Labour found it difficult to work with civil servants and make use of the great tool that a good ministry is.

From all of this I deduce that so long as the Independence party – which after all is in charge of the CBI – does not deem it necessary to throw the CBI into disarray, basically putting it out of function for half a year or more while new people were found etc, things will remain as they are.

There is now though a new variable of possible change. The quite remarkably strange performance of prime minister Gunnlaugsson in a TV interview last Sunday has again rekindled doubts from last autumn of the strength of the coalition government. These doubts died down after the plan for debt write-down was introduced in November – by both coalition party leaders. But with the chronic tension between the coalition parties and the rather erratic performance of the prime minister the doubts about the government’s life have surfaced again.

All of this might be wishful thinking by the Independence party. The opposition is weak. The social democrats are still shattered by its loss of power and the Left Green are not big enough to matter. Governing with one difficult party might be easier than leading a government with three parties. Even if the Independence party might want to get out of a government where it is not properly in charge it has no real alternatives. If it wants to stay in government it seems it has only one bet: to stay on good terms with the Progressives. So far, the junior government partner has been able to shape the main economic policies to its liking. But if the Progressives feel frustrated – which they might well feel, also because the party seems to find it difficult to come to grips with power-wielding – it might feel it needs to put it clear mark somewhere. And this somewhere might turn out to be the CBI.

Instead of seeing an end to uncertainty, as Guðmundsson is still at the helm of the CBI, the uncertainty is as great as ever and will be as long as the two coalition leaders keep on “speaking in two tongues.”*

* An Icelandic expression: to put forth conflicting views/statements.

Follow me on Twitter for running updates.