Sigrún Davíðsdóttir's Icelog

Since 2007, the British Government has been trying to coax banks into lending, especially to small and medium enterprises, SMEs. The Funding for Lending Scheme, FLS, set up last summer, is now being ramped up because it is not working. Anecdotal evidence shows a banking sector utterly oblivious to the kind of financial problems SMEs struggle with. Last year, HSBC paid £2.8bn for its anti-social behaviour, i.e. fines for past wrongdoing such as money laundering and its CEO Stuart Gulliver pocketed $14m, up from 10.6m in 2011.

“Connecting Customers to Opportunities” is the title (annual reviews now have titles), nothing less, of HSBC Holding’s 2012 annual review. It boasts of “supporting the growth of small and medium-sized enterprises with international ambitions… We enable businesses to thrive and economies to prosper, helping people fulfil their hopes and dreams and realise their ambitions. This is our role and purpose.” HSBC claims its lending to SMEs is up 3% last year.

The Barclays 2012 annual report, “Building the Go-To bank” tells the reader the bank is changing. “That means we are listening more than ever before, to our customers and clients, our employees and to all of the people our work impacts.”

Last summer, the HM Treasury together with the Bank of England launched its Funding for Lending Scheme, FLS: for every pound a bank lends to SMEs, it gets a pound of cheap money from the Bank of England. Now – because this scheme is not working as it should – the FLS will be extended in time and generosity:

For every £1 of net lending to SMEs in 2014, banks will be able to draw £5 from the scheme in the extension period.  And to encourage banks to lend to SMEs sooner rather than later, every £1 of net lending to SMEs during the remainder of 2013 will be worth £10 of initial borrowing allowance in 2014.

A Bank of England report on the FLS states: “Early signs have been encouraging, as funding costs for UK banks have fallen sharply.” – It so happens that yes, funding costs have fallen. However, this is not of any help to companies the banks totally and completely ignore because servicing SMEs can be labour-intensive and the numbers are not very high. Until some of them do take off, which they do.

It just so happens that I know of companies that exactly fit this description, some of which bank with HSBC. Even companies that have a turnover of several hundred thousand pounds get nothing more than the same overdraft a private individual with average salary can get.

And yet, a UK bank would not even need to take much risk here. The British Government is showering HSBC and other banks with money from the FLS to help and assist small companies. Unfortunately, this help from the Government does not fulfil its purpose if the banks do not pass the funds on.

Although the Government throws money at banks for dirtying their dainty hands on doing business with, in politician-speak, the so-called “real economy” (in contrast to the pure bonus-inducing financial acrobatics) they just cannot be bothered to pick up the pounds from the FLS, which is why the scheme is being extended.

The non-lending is nothing new. Ever since the summer of 2007 – almost six(!) years ago – banks have been reluctant to lend. Now, I’m not suggesting that they should lend as they did – mindlessly into the building sector, into financial acrobatics to pump up profits for bonuses such as Stuart Gulliver collect. No, I am only suggesting lending to companies that are running good businesses – and yes, closest to my heart are small growing companies, hiring people, making clever business and brilliant things.

Yet, from the slickly titled annual review we do learn that HSBC has indeed been offering some special services to SMEs, unfortunately a service that its Group Audit Committee, GAC, finds less than useful: “HSBC’s involvement in the sale of interest rate swaps to small and medium sized businesses in the UK and the potential
 costs of remediation.”

HSBC thought, at some point that SMEs greatest need were some clever interest rate swaps. Can you imagine? Whose interest did HSBC have at heart in offering these swaps? The GAC thinks this was not for the benefit of the clients mis-sold this product. HSBC is clearly ready to put some work into selling unsuitable products to SMEs – but, from anecdotal evidence – and from the fact that FLS is now being ramped up – it is clear that banks are not as ready to put work into understanding what some of their small and ambitious clients need to fulfill their ambition and potential. Not at all.

I am not against banks – not at all – but I am vehemently against companies that behave like banks, look like banks, call themselves banks but ignore small and medium companies doing good business. It is galling to see banks – of all institutions – be so mindless, so senseless, so short-sighted, so socially irresponsible, so downright evil, as to ignore the green shoots in the business community, always sorely needed but especially now at times of high unemployment and low growth. It will take more than annual reviews with schmaltzy titles for banks to gain trust.

I hate to say it – after all, I do believe in private enterprise – but when is the Government going to set up not only a green bank but an SME bank – or support such banks directly – to do the job that the big banks, in their hubristic anti-social behaviour just cannot be bothered to? Let us face it – banking as practiced by the big banks – has abandoned activities useful to the sweaty gritty economy and moved into a realm of its own. In this realm, client-care means fleecing clients big enough to be fleeced (think Goldman and Abacus) but ignoring those small enough to need old-fashioned banking service.

In August 2009, Lord Turner, at the time the chairman of the FSA, aired his misgivings about innovation in banking, saying some of it seemed to be “socially useless activity.” Now we know much more – we know that banks have not only been involved in “socially useless activity” but outright criminal activity, one of them being HSBC. Hence, its fines of £2.8bn and more to come.

This, in addition to rate-rigging and thwarting competition; in short banks are doing their best to kill all that is good about capitalism: the ability to sprout an idea into a company and job-creation. When big banks deny services to companies with the ability to hire more people in the near future, it is both trampling on green shoots and being as anti-capitalistic as the old Soviet regime.

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Speculating what Government will emerge from on-going coalition talks in Iceland is difficult – but guessing that the next four years will be as tough as the last four ones is easy. But first, the country needs a new Government. The election campaign revealed the power-sphere uniting the two parties that are seen as the most likely to form a coalition. But the longer it takes to form a Government, a coalition of three or more seem more likely.

Judging from the big smiles on party leaders’ faces as they left first deliberations with leader of the Progressive Party Sigmundur Davíð Gunnlaugsson, holder of the presidential mandate to form a Government, Gunnlaugsson must be good at telling them they are uniquely placed to be part of a Progressive-led coalition. Interestingly, Gunnlaugsson conducts the coalition talks alone and takes none of his fellow party members, according to Icelandic media. President Ólafur Ragnar Grímsson’s motivation for handing the mandate to Gunnlaugsson was that the several other leaders had pointed at him and that the Progressives had made the greatest election leap from 2009.

The crisp spring air in Reykjavík is thick with speculation as to if Gunnlaugsson will indeed succeed and, if not, who will be able to form a Government. Already before the election, it seemed credible that the two largest parties, Progressives and the Independence Party – the latter with more votes but both with same number of MPs – would form a coalition. The feeling now is that the longer it takes, the less likely the birth of this only option for a two-party coalition.

Apart from Gunnlaugsson and his party the focus is on the fate of the Independence Party. Traditionally the largest party in post-war Iceland, it was seen as the centre of political and financial power.

Although the President gave mandate to Gunnlaugsson, nothing excludes other party leaders to negotiate among themselves. Whoever comes first up with a credible coalition is free to go to the President and announce he/she now has a majority Government. No doubt various discussions are on-going, not only in the parties’ headquarters.

“Throw a dice”

The most remarkable comment so far on who should lead the much expected coalition of the Progressives and conservatives is that it does not really matter. The advice on Monday in an editorial of the daily Morgunblaðið was “Throw a dice.”

This gives an insight into Icelandic power politics. The editor of Morgunblaðið since autumn 2009 is Davíð Oddsson of extensive fame as the conservative leader who in secured the party the Prime Minister post from 1991 to 2004. He served as a Governor of the Central Bank 2005 to 2009 when he was ousted by the minority coalition of the social democrats and the Left Green.

Oddsson seems never to have reconciled himself with being out of power. With old allies in the Independence Party he has exerted – or tried to exert – power over the party, causing great and severe problems for the present leader, Bjarni Benediktsson.

Benediktsson went against Oddsson and his old guard by siding with the Left Government on Icesave two years ago. Only ten days before the election last Saturday a poll, allegedly paid for by a close friend of Oddsson, showed that half of those voting for the Progressives would vote for the IP if its vice-chairman Hanna Birna Kristjánsdóttir were its leader. This move, widely seen to be an attempt to get rid of Benediktsson, backfired and seemed to galvanise Benediktsson.

Oddsson’s political antipathy is strongly focused against the social democratic Alliance who many IP members see as being on a mission to destroy the Independence Party (even big parties can be paranoid). Social democrats were seen to be leaders of the pack that ousted Oddsson from the CBI but his grudge against the social democrats was allegedly born in 1994 when those who later founded the Alliance in 2000 gathered the left wing in local council elections and won majority in Reykjavík ending decades of IP rule. Consequently, Oddsson was fiercely against his successor Geir Haarde forming a coalition with the social democrats in 2007.

Morgunblaðið has, since the beginning of time, been closely connected to the conservatives and was for decades seen as a party organ. Hiring Oddsson as an editor came as a great surprise – after all, the paper had slowly developed a more independent stance from the party though its main owners were, as before, closely connected to the party.

Considering the old ties between Morgunblaðið and the IP, the paper’s favourable stance towards the Progressives, most notably to Gunnlaugsson, all through the election campaign has been surprising – unpleasantly so to some. As the Progressive fortune grew in the polls the IP fortune dwindled and Morgunblaðið did not seem at all bothered. Many devoted IP readers were dismayed, sensing that actually their old organ was much more admiring and supportive of Gunnlaugsson and the Progressives than Benediktsson and the editor’s old party.

Now, according to Morgunblaðið it does not matter who leads an IP-Progressive coalition. Just “throw a dice.”

Morgunblaðið and the merging interests

But why is the IP old guard, led by the former IP leader, suddenly so overtly pro-Progressives? Is it because it best safeguards IP interests to hook up with the Progressives – as many think – or is there a genuine Progressive rapprochement in the old guard?

The answer can possibly be found in the strife for power in Iceland. The Independence Party is not as strong as it used to be and the Progressives seem to have lurched into corners the biggest party earlier had to itself.

Here the ownership of Morgunblaðið and – as always in Iceland – personal connections are an intriguing indication of merging interests. Whereas the paper used to be owned by companies and individuals solely connected to the Independence Party it is now co-owned by entities connected to the IP – and to the Progressive Party.

After companies connected to Björgólfur Guðmundsson, the largest shareholder of Landsbanki together with his son Björgólfur Thor Björgólfsson, failed, Guðmundsson lost his ownership of Morgunblaðið. Forth came Guðbjörg Matthíasdóttir, a widow of an owner of one of the main Icelandic fishing companies she now runs together with her sons. She saved the paper and became its largest shareholder.

This was widely seen as a move by the fishing industry to secure a media to propagate its anti-EU stance, she hired Oddsson who with great zest and untiring diligence writes against the EU. Interestingly, the fishing industry makes good use of the EEA agreement to expand abroad but is equally suspicious of any foreign involvement in the fishing industry in Iceland.

Matthíasdóttir’s ownership is well know in Iceland but few have noticed that the group of owners is now more diverse than earlier. Another Morgunblaðið shareholder is Kaupfélag Skagfirðinga (the Skagafjörður Co-op), KS, a remnant of the co-op movement, which until it collapsed in the 1990s was the financial part of the Progressives’ power sphere. KS is a thriving company (I have not studied its ownership) and exerts great power in Northern Iceland and farther afield, both in fishing and agriculture. The man who has turned a small-time co-op into a modern conglomerate is Þórólfur Gíslason, one of the island’s most powerful men, who happens to be related to Oddsson. Another Morgunblaðið shareholder with a Progressive connection is a company owned by the family of Halldór Ásgrímsson leader of the Progressive party during its years of coalition with the Independence Party – and Oddsson.

One of the more peculiar comments to the election was in Morgunblaðið’s weekly Sunday column, traditionally written by its editor. Since the Sunday paper is actually distributed on Saturdays this column was written before the results were clear. In unusually big font and with striking graphs, the centerfold article quoted an old article from a business magazine, extolling the fantastic accomplishment of Governments led by Oddsson until 2004, of which his party was in coalition with the Progressives from 1995. – Whether the article was intended to remind readers of this glorious coalition, the great Prime Minister or both, many a Morgunblaðið reader (said to be much fewer now than when Oddsson became editor) whispered this truly was the strangest of many strange articles penned by the editor.

Only two years ago, it would have been impossible to imagine that the old conservative party organ would one day so openly be supporting the Progressive Party. If Morgunblaðið’s predilection has indeed migrated to the Progressive Party it indicates that power is more important than ideology. Unless the IP’s old guard thinks like Il Gattopardo in Giuseppe di Lampedusa’s novel: it is necessary to change in order to keep things as they are.

The Morgunblaðið power-sphere and the EU

This joint ownership of IP and Progressive interests in Morgunblaðið may explain the paper’s political position and the fact that to its editor is does not really matter who leads a coalition of the two parties. No matter who of the two parties leads, the Morgunblaðið two-party power-base will be close to – even at heart of – the political power in Iceland.  Consequently, both parties do equally well, thank you very much – and, most importantly, seen from the point of view of Morgunblaðið’s power-sphere, both parties should be in Government, not only one of the two parties.

But does the two-party power centre at Morgunblaðið exert any real power or is just a club of old have-beens? Gauging the extent of power is never easy. Considering the web of personal relations emanating out of Morgunblaðið it is safe to say that that this web reaches into many an Icelandic corner of business interests in the fishing sector, which have always been at the centre of politics and power in Iceland, and other companies.

If this is indeed a joint power-base of the IP and the Progressives is there anything to threaten it? Judging from the fervour the Progressives – the party is tied to interests of both fishing and agriculture – put into their anti-EU stance, only equalled by some IP leaders but outdone by the editorials of Morgunblaðið, it seems that these forces see an Icelandic EU-membership as a great threat to their power and interests.

It is however interesting to note that the Independence Party is split on the issue. As with the British Conservatives, to whom its Icelandic sister party has long looked with reverence and awe (especially during the Thatcher-years), its leadership is now thoroughly anti-EU whereas many of its members are in favour of EU-membership. For the moment, being pro-EU is not a great career-move among Icelandic conservatives.

Partly by keeping EU-membership off the political agenda so far, the Independence Party has prevented the issue from splitting the party. A referendum on membership would be a serious test, which is possibly why IP anti-EU members are doing their best to stop the negotiations, thus avoiding this difficult topic. The same avoidance can be seen among many who are opposed to EU membership, no matter from which party. The history of Swedish membership might scare: there was a Swedish majority against membership until the day of the referendum in 1994 when Swedes surprisingly voted for EU membership.

Other alternatives than a two-party coalition

The feeling is that the longer the coalition discussions drag out the less likely a two-party coalition. Although the Progressive parliamentary party is young and unattached to the party’s past, many IP members fear the stench of old corruption emanating from the Progressives. These members might favour some left collaboration rather than a two-party coalition, especially if that is the only way to secure an IP Prime Minister. Such a Government will win no favour with the IP old guard and their followers.

During the election campaign, many in the Independence party, sensing that voters were susceptible to Progressive promises of extensive debt write-down – the main reason for the Progressive’s success – were pointing out that the Progressives had a natural inclination to the left. Consequently, a vote for the Progressives meant a vote to the left, they said. But leading Progressive members took care to keep all options open, never admitting to any preferences of political directions.

With six parties in Government there are various numerical options to choose from. Though an absolute exception in Icelandic politics, some are even talking of a minority Government of Progressives. It seems however far too early to imagine this outcome, also because the problems ahead will demand strong and steady political leadership (more on the future later). Yet, it seems difficult to see who would like to be led by the Progressives with their fantastical promises of debt-relief.

Ultimately, it is the political reality and trust that counts. Although Gunnlaugsson is young in politics there are already those who allegedly whisper, even in his own party, that he is somewhat unreliable. Benediktsson is seen as someone who can easily talk to everyone. Although it now seems that one of those two is the most likely Prime Minister in spe, it is still too early to tell. There are, after all, six leaders to choose from.

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In historical perspective, the left victory in 2009 was truly surprising but the great loss of the left now is much less surprising. Iceland has, since 1944, been a conservative stronghold. The recent results do not necessarily demonstrate any nostalgia but rather the political norm in Iceland. What the left, especially the Alliance (social democrats), lost now was the opportunity to break the norm

The left and its Freudian death wish

Compared to the situation in Ireland, not to mention Greece, the left coalition of the Left Green led by the Alliance, social democrats, did a tremendous job of turning recession to growth – albeit a paltry 1.6%, not much to shout about where 6% and more seemed the law of nature some years ago. And it is no less a tremendous success to get from 10% unemployment down to below 5% at the beginning of the year (end of March 6.8%).

Although Iceland is now in its third year of growth, the Government treated its success as the merest nothing. It sure did not make a song and dance about it. The two parties in power, both ministers and MPs, have been their own worst enemy, belittling its success – a prime example of what Sigmund Freud meant by “death wish.” Either, they did not realise what a feat they carried through or they did not have the political confidence to believe in what they did.

There is though a bit more to this inability to profit from success. Being a left Government they seemed to conclude that with the emphasis on private debt and the unavoidable hit so many families took due to indexed loans and forex loans (both these loan types are a whole saga in itself) they could not really step out and tell the voters, who did not sense a turnaround, that things were actually not that bad, compared to other countries. And the measures taken by the left Government only seemed to increase the discontent.

The Government could not – or did not dare to – tell voters that measures to write-down private debt were actually working. In June last year, the Central Bank of Iceland published a detailed paper, Households’ position in the financial crisis in Iceland, showing that the debt crisis stemmed from imprudent lending in 2007-2008, i.e. before the crisis hit but was alleviated by measures taken by the Government.

Again, the Government made little of this and other research and allowed the opposition to monopolise the debt debate.

There is no doubt more to the left

Compared to the UK Labour party that turned its fortune around after the election in 1997 by turning into an electable party and not just a lightening rod for an antry electorate, the Icelandic social democrats squandered their four years in Government. There is no doubt more to the left loss and others might explain it differently – but whatever the explanation the loss is spectacular and the largest in the history of Iceland: a loss of 27%.

The Progressives and Pascal’s Wager

The Progressive Party, which had for a long time been promising a 20% general write-down of all household debt, went fishing on the wide ocean of discontent. Now, not only promising the 20% – though never writing it down as an election manifesto but only referring to it now and then – it outdid itself by promising to miraculously squeeze ISK300bn (€195m) out of the creditors to Glitnir and Kaupthing and distribute it to indebted households, in no time at all.

No matter if political opponents showed that this would profit non-struggling households with high debt and not those who according the CBI Working Paper were struggling to make ends meet, voters embraced the idea very much like Pascal’s Wager: maybe the Progressives cannot deliver but then they are no worse an option than others; if they per chance could it’s better to vote them in.

End of January, when the EFTA Court ruled in favour of Iceland in the Icesave dispute, the Progressives could say that yes, they had been right on Icesave and so they would be on this. No one mentioned that in autumn 2008 their leader Sigmundur Davíð Gunnlaugsson said he would single-handedly solve the crisis by securing a Norwegian loan. He travelled to Norway but failed to deliver the loan.

The Progressives made no mistake in their election campaign. Being large on promises and silent on solutions served them well. A remarkable success given the fact that only a year ago it seemed the party would silently evaporate. Historically a rural party, always greatly aided by the imbalance between urban and rural votes (in some cases one rural vote equals three in Reykjavík) the party was doing so badly in Reykjavík that Gunnlaugsson, fearing he would not get elected in his constituency, Reykjavík, moved North to take the top seat there.

The Progressive turn-around is a much more remarkable feat than the Independence Party again returning to being the largest party – because that is what the Independence Party has almost always been.

And the next Government – a strong two-party coalition or weaker political patchwork?

It is now up to President Ólafur Ragnar Grímsson to choose who first gets the mandate to forming a Government. The procedure follows no rules but the tradition is that the President talks to leaders of all parties presented in the Icelandic Parliament, Alþingi. The President then gives the mandate to the leader he deems most likely to form a Government, based on what he has learnt from the party leaders.

The only two-party option now is a coalition of the two largest parties. Sunday, both leaders spoke favourably in that direction, the IP leader Bjarni Benediktsson perhaps more than Gunnlaugsson. A two-party coalition has very much been taken as given in Iceland for the last few days, also because these two parties have been together in Government for 26 years, out of 69 years since 1944.

However, the promises of the Progressives might render the party toxic to other parties since no one outside of the party can see how this extensive deb-relief can be brought about. Given the promised speed of delivery, the Progressives could lose popularity quicker than Francois Hollande if the party gets to lead the Government and so would its fellow-coalition party.

Furthermore, the other parties have pointed out that if all this money were available, pumping it into the economy would be hellishly unwise. Much better using it to pay off public debt. – On other issues, the two parties seem natural allies, such as job creation, energy, and belief in market solutions, lower taxes and anti-EU stance. Together, the two parties strengthen each other’s tendency to isolationistic views.

It is pretty clear that Grímsson will ask either of the two – Gunnlaugsson or IP’s leader Bjarni Benediktsson – to form a Government. Both parties have 19 seats in Alþingi though the Independence Party got more votes. Grímsson could turn to Gunnlaugsson because his party is the real winner in terms of the leap the party has taken – or he could turn to Benediktsson as the leader of the largest party.

Most Icelanders feel that Grímsson not only wants to act as a midwife, assisting a new Government into the world, but has great desire to play a political role in forming it. However, the President is bound by the political realities – the party leaders will have to live with the Government formed, not the President.

The general sense is that Benediktsson, whose fiercest enemies are found among the old guard in his own party, will not get any political peace unless he secures the Prime Minister post. Gunnlaugsson, being a younger leader of a unified party, is seen as less needy in this respect. And playing the second violin in Government might free the Progressives from the apparently hopeless task of delivering the debt-relief.

There are however all sorts of theoretical possibilities in the present situation.

A Progressive-Left Government has often been mentioned in the last few weeks. Often though it has been as a warning to Independence Party voters not to vote for the Progressives as many of them seemed inclined to do and did.

With six parties, there certainly are many possibilities of a political patchwork Government. But after a weak left Government of warring factions, a two-party coalition of parties that have a long history of being together in Government and which in most respects are politically close to each, so as not to say intimate with each other, does seem the most likely option. Unless it does not work out.

– – –

Some facts: there are 63 seats in Alþingi, hence 32 is the lowest number of seats to secure majority. The two large parties have 19 seats each, the social democrats have 9, Left Green 7 – and the two new parties, Bright Future and the Pirates get respectively 6 and 3. (The final results, with all parties, in Icelandic.)

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According to the numbers I am waking up to, the Independence Party and the Progressive Party have the same number of members of Parliament each, 19 MPs each although the Independence Party has 26.7% and the Progressives 24.4%. The reason is, as I explained last night, different weight of votes between rural areas – where the Progressives get most of their votes – and the urban constituencies in Reykjavík – where the Independence Party has most followers.

The present coalition has lost 27% of its vote, a significant slap – the social democrats, the Alliance, lose 11 seats, have now 9 MPs; the Left Green loses 7 MPs, keeps 7 MPs, with respectively 12.8% and 10.8%.

Bright Future and the Pirates are the only new parties that gain MPs, Bright Future gets 6 MPs, 8.2% and Pirates 3 MPs, 5.1%.

The next step towards a new Government will be taken by the President of Iceland Ólafur Ragnar Grímsson. He now has to choose which of the two leaders of the two biggest parties, Sigmundur Davíð Gunnlaugsson from the Progressives and Bjarni Benediktsson leader of the Independence Party gets the opportunity to form a Government. The Progressives have given the voters generous offers with very little details as to how to fulfill their promises. If the Progressives will be asked first the Independence Party might be worried to join a Progressive-led Government.

The only chance of a two-party coalition with a strong majority is a Government with the two largest parties. It is still too early to see if other routes will be taken but it now seems likely that two anti-EU parties will be in coalition. The Progressives have used bold words about squeezing money out of foreign creditors of the two collapsed banks, Glitnir and  Kaupthing. Both the sovereign itself and some major Icelandic companies will need loans to refinance debt in the coming years. These will have to be foreign loans in foreign currency. Any move that closes international capital markets to Iceland will endanger the economic progress so far. The last four years have been tough – and so will the coming years be.

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So far, Independence Party is the biggest party in the two Reykjavík constituencies. The Progressives have always been a rural party and that is where the party finds its major support. Luckily for them, there is an unbalance in the weight of votes in rural vs urban, i.e. Reykjavík meaning that one vote in some of the rural constituencies equals three in Reykjavík. This means that even though the IP might get more or less the same percentage of votes as the Progressives or even slightly more, the Progressives might get more MP. However, it now seems that the IP will clearly be the largest party, decidedly bigger than the Progressives and also with more MPs.

At this point, the status is the following:

IP 24% – 19 MPs

Progressives 22.6% – 17 MPs

Soc dem 13.1% – 9 MPs

Left Green 12.2% – 9 MPs

Bright Future 7.9% 5 MPs

Pirates 5.7% – 4 MPs

The other nine parties that ran in this elections do not seem to be getting any MP elected.

There are 63 seats in Alþingi, the Icelandic Parliament, meaning that 32 are the minimal number of seats for a Government. IP and the Progressives could comfortably form a two party coalition.

– – – –

Nope, some changes:

IP 27.6% – 21 MPs

Progressives 23.6% – 18 MPs

Soc dem 13.2% – 10 MPs

Left Green 11.3% – 8 MPs

Bright Future 7.9% 6 MPs

Pirates 4.6% – 0 MPs

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So far, Progressives are gaining 8% – but social democrats are losing 17%, more than any party ever in the history of Iceland.

For comparison, the results in 2009:

IP 16 MPs – 23.7%

Progressives 9 MPs – 14.8%

Soc democrats (the Alliance) 20 MPs – 29.7%

Left Green 14 MPs – 21.68%

The Citizen Movement 4 MPs – 7.2% (a new party in 2009, not running now but some of the Pirates were in Parliament for the Movement)

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This time there were 237.957 voters registered. The participation is 83%, 85.1% in 2009.

This is the result from the constituency around Reykjavík:

IP 25.0%

Progressives 17.6%

Social democrats 13.9%

Left Green 5.8%

Bright Future 8.3%

Pirates 8.3%

Two of the new parties above 5%:

Dawn 5.6%

Other parties get less than this.

Nothing will be clear until quite late, it seems.

– – – –

North West:

IP 33.1%

Progressives 28.2%

Social democrats 11.2%

Left Green 10.9%

Here, the IP is doing better than expected. Left Green not losing as much as expected.

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Although the swing in the elections seems to be remarkably large compared to 2009 it is a swing back to the past. The 2009 results were an exception in the sense that left governments have only ruled Iceland twice and only for one year at a time before the coalition of social democrats and Left Green, in office since spring 2009.

There are six constituencies. First results from Southern Iceland:

IP 28.4%

Progressives 33.5%

Social democrats 10.6%

Left Green 2.4%

Bright Future 4.8%

Pirates 3.9%

Other parties get less than this. The above parties are those expected to get MPs.

The Progressives normally get majority of their votes in rural areas such as this part of the country.

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“In spite of all Gudbjartur Jonsson’s faith, it had come to this, that the merchant no longer existed. Finished, gone up in smoke, the shop empty, the account-books lost, the Tower House sold for the benefit of the creditors. In such a fashion, one fine day, were the foundations upon which the crofter had built his life swept aside; those almighty giants of commerce who stood with one foot in Iceland and the other on the continent itself – one fine day saw them wiped away like so much spit.”

Laxness, H. (1934-35), Independent People, p. 389.*

Guðbjartur or “Bjartur í Sumarhúsum,” Bjartur in Summerhouse, is the protagonist of the novel Independent People by Halldór Laxness, who won the Nobel Prize in literature in 1955. His novel is the best description there is of the Icelandic mentality: Bjartur is the peasant who in his endeavour to survive on his own, independent of others, sows for his enemy to reap, according to Laxness.

It may be an over-simplification to attribute the conservative streak in Icelanders to this mentality. But contrary to the other Nordic countries the Independence Party, the conservatives, have shaped the politics of post-war Iceland together with the Progressive Party, a centre party originating in the co-op movement and the rural communities.

The Progressives have for a long time, successfully, resisted a shake-up of the electoral system towards re-balancing the weight of rural versus urban votes. In some of the smaller rural constituencies one vote has three times the weight of a vote in Reykjavík. This explains why the party most likely stands to gain more members of Parliament although the two parties – the Progressives and the Independence Party – will get similar results measured in percentage of votes.

According to the latest Rúv-poll, the result is the following:

IP 27.9%

Progressives 24.7%

Social democrats (the Alliance) 14.6%

Left Green 10%

Bright Future 6.6%

Pirates 6.1%

Other parties get less than 5%

Based on this result, the IP  would get 18 members of Parliament but the Progressives 20. The magical number of majority in Alþingi – the Icelandic Parliament – is 32 seats. If the two parties get the abovementioned seats they will hold a comfortable majority.

The question is then: who will be asked first to form a Government – the party with the largest percentage of votes or the party with most elected Parliamentarians?

Much might depend on the answer to this question. There are varying opinions as to the answer but also to the significance. Some claim that no one will actually want to form Government with the Progressives who might stumble in fulfilling their promises of extensive distribution of funds, squeezed out of foreign creditors to the two collapsed banks – Glitnir and Kaupthing – to indebted voters. By breaking campaign promises soon the Progressives would lose popularity even faster than Francois Hollande. Joining another party, as a second violin might make the situation easier for the Progressives.

There are various number games in the situation. The IP might surprise and turn to the social democrats and Bright Future, two very similar parties (BF is partly an offspring of discontent Alliance people) but again, because they are similar the two parties might not be a reliable ally. Or, if asked first, the Progressives might turn to the left parties to form a left Government or to Alliance and Bright Future to form the first Icelandic centre Government.

And so forth – various possibilities.

However, given the number of votes to the two parties that have been together for 26 years in Government after 1944 – and out of the 69 years since the foundation of the Icelandic republic, the Independence Party or the Progressives or both have been in Government for 63 years.

The joint story and rule of the two parties has lead to the concept of the “half-and-half rule” of the two parties, meaning that they have for decades divided Iceland and its resources between the two parties. Nowhere was this as clear as when it came to the privatisation of the two big banks – Búnaðarbanki and Landsbanki – where people connected to the Progressives happened to buy Búnaðarbanki and people connected to the IP bought Landsbanki.

If the two parties form a Government following the elections tomorrow it will be a return to the tried and tested “half-and-half rule.” Some see this rule as a major factor in the collapse in October 2008 though this is clearly not how ca. half of the voters gauge the situation. Support for the two old parties can also indicate certain nostalgia towards earlier times of perceived stability. But most likely, it indicates that the present coalition parties – social democrats and Left Green – which in Government managed to turn recession to growth and turn the unemployment curve, have been exceedingly bad at taking credit for this achievement. As politicians so often experience success is seldom rewarded.

Campaigning atmosphere in Reykjavík today – great weather, music and sunshine. This brings out the Mediterranean streak in Icelanders, always ready to use a good opportunity to “lick the sun” as Icelanders say

*Update: I forgot to mention that the Laxness quote is taken from a CBI’s working paper: Households’ Position in the Financial Crisis in Iceland – an informative report on household debt in Iceland. As the political parties, especially the Progressive Party, have focused so heavily on household debt one might easily be led to think the situation is particularly bad in Iceland. This paper shows that is not the case, seen in historical perspective.

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