In the span of four months, Iceland’s financial crisis became an economic meltdown which in turn became a political one. Last week the country’s prime minister, Geir Haarde, called parliamentary elections for May, two years ahead of schedule. Three days later, Haarde resigned, his coalition unable to hold together even as a caretaker government until May. This created a political vacuum with no ruling coalition, no prime minister, and an impending vote that is going to upend Iceland’s political order.
Haarde was a member of the Independence party, which has been the main political party in Iceland for nearly 80 years. Since it was formed in 1929, the Independence party has garnered more than 35 percent of the vote in all but three elections. It has been part of 22 of Iceland’s 31 governments, most often as the senior partner. In recent years, the Independence party was dominated by David Oddsson, the mayor of Reykjavik who became prime minister in 1991. He occupied the seat for 13 years before handing the reins of the party to Haarde and becoming head of the central bank.
Together Haarde and Oddsson presided over the collapse. When the global crisis froze credit markets, Iceland’s three large private banks faltered. As the first one teetered, -Oddsson declined to bail it out, instead pushing for nationalization. This caused a chain reaction, which pushed the second bank into failure. Looking to lay the political blame elsewhere, Haarde began publicly musing that British investors–who were heavily invested in Iceland’s high-yield savings accounts–might not get their money back, which caused Britain to freeze the assets of the last remaining bank, pushing it, too, into failure. By the time Haarde and Oddsson were done, the Icelandic government was holding $61 billion in debt from the failed banks, more than three times the country’s GDP.
But the two weren’t done. As the krona plummeted, they halted trading of the currency, then pegged it at an artificially high rate, and then halted it again after the peg broke. They announced a series of international bailouts which did not materialize. They slashed interest rates, whipping on inflation, which was already at 14 percent.
Four months later, the krona still has not been fully refloated. The OMX 15–Iceland’s version of the Dow–stands at 320, down from 5,000 in July. Unemployment is 5.4 percent and rising, up from 0.8 a year ago. Iceland has already taken $2.1 billion from the IMF and is in the process of finalizing another $8 billion package of loans from the IMF and neighboring countries.
Among voters, dismay turned to fury. Icelandic politics is normally a low-intensity affair, but in November weekly protests began assembling in the square outside the Icelandic parliament. The crowds grew, sometimes topping 7,000 (Iceland’s total population is 320,000) and occasionally became violent. By the time Haarde consented to new elections the weekly protests had turned into daily riots with people banging drums, setting fires, and throwing stones and eggs.
So now, change is coming to Iceland. In the 2007 elections, the Independence party polled 37 percent of the vote, giving it 25 of 63 seats. Haarde formed an alliance with the second largest party, the Social Democrats, and between the two of them they occupied nearly all of the political space. There was no substantial opposition, the third-place party being the radical Left-Green Movement, which polled 14 percent of the vote.
The Left-Green Movement was formed in 1999 and its primary issues are, in descending order of importance, radical environmentalism, feminism, and socialism. When the crisis first manifested itself, however, the Left-Greens became the clearinghouse for anger at the banks and opposition to Haarde and Oddsson. By December their support had risen to 32 percent in the polls, making them the leading party. Geir Matthiasson, a professor of economics at the University of Iceland, says, “A left-green government is more than 95 percent likely.” The only potential spoiler could come from the further left: Protest organizers say they hope to create a new political party from riots.
It’s unclear what a Left-Green administration will mean for Iceland, since it will be the party’s first time in power. Much of its platform is radical boilerplate. The party
The Left-Greens oppose membership for Iceland in the European Union and, of course, support the Palestinian cause against Israel.
The magazine Iceland Review reports that the Left-Greens want an immediate investigation of the banking system and the resignation of the central bank’s leadership. And like many radical groups, the Left-Greens are suspicious of the IMF. The Review notes that the Left-Greens are keen to revisit the terms of the IMF loans. Geir Matthiasson notes, “The Left-Green party leader has been rather outspoken against the IMF plan. But he has not been very specific about what he dislikes so we don’t know if this will have any practical consequences.”
In the meantime, the Social Democrats are attempting to form a bridge government with the Left-Greens to get the country through to the election. This new coalition has put forward the Social Democrats’ Jóhanna Sigurdardóttir for prime minister. Sigurdardóttir is a popular social affairs minister whose primary qualification is that, in addition to being a woman, she will be the world’s first openly gay head of state.
To compound matters, Sigurdardóttir was forced to assent to the Progressive party’s demand for a constitutional parliament to be convened this spring. In Iceland, a special election is held to select representatives to such a body, which will then have the power to amend the country’s constitution. Every citizen is eligible to run for this honor except for MPs, ministers, and the president. The parliament has been called for with no clear plan as to what changes will be considered.
By this point, Iceland constitutes a book’s worth of cautionary tales. The latest being that serious times do not always call forth serious politics.
Jonathan V. Last is a staff writer at THE WEEKLY STANDARD.
