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  1. 1• Iceland’s recent election is a microcosm of the growth of left-wing and anti-corruption populism worldwide;
  2. 2• Iceland’s politics, once stable and centre-right-leaning for decades, has never returned to its historical patterns following the 2008 financial crash;
  3. 3• The crash was followed by the 2016 publication in the Panama Papers of details of lceland’s Prime Minister’s wife’s interest in an offshore company with ties to the banks whose collapse created the 2008 crisis;
  4. 4• The current election arose when a coalition party pulled out of government following revelation of a scandal involving the current PM’s father;
  5. 5• The results created the most fractured parliament ever, making an unstable, ideologically strained, four-party coalition likely;
  6. 6• Trends such as these are occurring in many developed countries and stem from the same causes: failure to address the causes of the 2008 crash and self-dealing by political and financial elites.
Populism in Iceland: Why we should care what’s happened since the crash
Iceland's small parliament is facing big changes. Credit: DPA/PA Images

When most people think of Iceland, they likely ponder the country’s spectacular scenery or their plucky, overachieving football team. Few pay attention to Icelandic politics, and fewer still think election outcomes in this tiny country matter. Most observers, therefore, will likely miss the import of the recent election. That is a grave error.

Iceland’s politics are, in fact, a microcosm of two of the movements that are shaking the globe: left-wing, anti-capitalist politics and anti-corruption populism. The 2008 collapse of Iceland’s banks, followed by a series of revelations implicating top leaders of centre-right parties in corrupt or self-dealing acts, have altered the island’s once-staid electoral landscape.

Iceland’s Political Tradition: Boring and Conservative

No one would have guessed this would happen ten years ago. The centre-right Independence Party had won every election since its formation in the late 1920s.1 It was in government for 51 of the 62 years between Iceland’s full independence from Denmark in 1946 and the onset of the financial crisis in 2008. Every Independence Party leader has eventually become Prime Minister.

The Icelandic left, moreover, has been historically weak. No left-wing or centre-left party received more than 30 percent of the vote until 2003, and left or centre-left parties only served in government in coalition with the Independence Party or its centrist, agrarian competitor, the Progressive Party. Especially in comparison with its Nordic and Scandinavian cousins, Iceland has been a bastion of the right.

Bjarni Benediktsson is the leader of Iceland's Independence Party, the party that has won every election since the 1920s until recently. Credit: Luiz Rampelotto/EuropaNewswire/DPA/PA Images

The 2008 Banking Collapse Initially Empowered the Left

That all changed after the 2008 collapse. The Independence Party had been in government for twenty-five consecutive years, and its two most recent leaders had been prime minister during the period of privatization and tax-cutting that had fueled the bubble that led to the crash. And what a crash it was! Unemployment went from next to nothing to over 8 % between 2007 and 2009.2 The country’s GDP, which more than doubled between 2001 and 2007, dropped by 40 percent by 2009.3 Iceland’s banks, which had grown so large that their assets were 14 times the nation’s GDP,4 went bust, causing interest rates to rise to 18% and inflation to exceed 12%. Tens of thousands of Icelandic households went bankrupt or lost their savings – a huge number in a country of only 330,000 people.

Icelandic voters reacted by doing what voters worldwide do when they go through economic collapse; they voted in the opposition. The two left-wing parties, the Social Democratic Alliance and the Left-Green Movement, captured over 50% of the vote for the first time in the country’s history.5 The Social Democratic Alliance’s leader, Johanna Sigurdardottir, became the country’s first female leader and the first prime minister to govern solely from the left.

Despite their left-wing heritage, the new government was economically helpless. It instituted a severe program of austerity, raising taxes dramatically while also slashing spending.6 Economic growth slowly returned, but people remained poorer than they had been before they switched governments. So, at the 2013 elections, Icelanders again booted out their government and voted in the opposition, this time restoring the Independence Party to the top position it had held for seven decades before the crash.

Icelandic voters reacted by doing what voters worldwide do when they go through economic collapse; they voted in the opposition.

Hardship and Corruption Create the Demand for Populism

But this time Icelanders did not simply switch horses. The Independence Party had never fallen below 32% of the vote in its history before 2009; it recovered to only 26.7% in 2013. More importantly, a host of new parties that stood outside the traditional left-right axis received a quarter of the vote. Disappointed by all traditional parties, Icelandic voters were beginning to embrace populism.7

Despite regaining first place, Independence’s leader did not become prime minister. The Progressive Party gained nearly 10% of the vote, reaching its highest vote share since 1979. Its leader, Sigmunddur David Gunlaugsson, had risen to notoriety by resisting attempts by foreign creditors to make Iceland pay billions of pounds in compensation for assets foreign investors had lost in the bank collapse.8The people’s hero for this, and untainted by prior involvement in either the crisis or in the policies that had led to it,9Independence decided to back him for the top slot. Its leader took the Finance Ministry instead.

Iceland’s economy rocketed back to life under his leadership. But then the Panama Papers revealed that Gunlaugsson’s wife had secretly held shares in an offshore company with links to the failed banks, an interest he had failed to disclose.10 This was particularly galling as he had, according to one Icelandic political scientist, “claimed to speak on behalf of the deprived ordinary man against the wealthy elite” in his rise to power.11 To have been clothed as a populist while benefitting from the crisis was viewed as a betrayal of the highest order. The government promptly collapsed and new elections were called.

Icelandic PM, Sigmunddur David Gunlaugsson was seen to have benefitted from the financial crisis, causing the collapse of his government. Credit: Delmi Alvarez/SIPA USA/PA Images

But all was not rosy even prior to this revelation. For over a year, polls had shown the Pirate Party leading by a wide margin. At one point in early 2016 over 40% of potential voters said they would support a party with no governing experience and a platform that promised little more than internet freedom.12 Something had clearly changed.

The fall election further documented the crumbling foundation of Iceland’s political foundations. Independence increased its vote share slightly to 29 percent, but the Progressives collapsed to an all-time low of 11.5%. The Social Democrats also were punished as leftist voters switched to the Left-Green Movement; the longtime voice of the Icelandic left barely made it into parliament with a mere 5.7%. For the first time in history, a majority of voters supported parties that had never before elected a prime minister.

This did not mean, however, that these parties could agree to form a government together. The Left-Green Movement, with 15.9 percent of the vote, and the Pirates, with 14.5%, agreed to work together.13 But two other new parties, Bright Future and Reform, held the balance of power. Neither was particularly left-wing in their politics; Reform, for example, had been formed as a split from Independence by pro-EU, pro-free trade party members. Thus, despite a clear verdict against politics as usual, Independence formed the new government with a one vote majority provided by Bright Future and Reform.

Voters said they would support a party with no governing experience and a platform that promised little more than internet freedom. Something had clearly changed.

More Corruption = More Populism

Karl Marx once said that “history repeats itself, the first time as tragedy, the second as farce.”14 So it is fitting that his Icelandic heirs, the Left-Green Movement, may benefit from the country’s latest episode in corrupt politics. If the banking collapse and the Panama Papers’ revelation were tragic, the incident that brought down the current government could have been written by the American comedic family, the Marx Brothers.

Iceland has a system that permits people convicted of certain crimes to “restore their honor,” and hence regain some employment opportunities and civil rights, on the receipt of three letters testifying to the person’s character. In mid-September, Bright Future resigned from government after a disclosure that the prime minister’s father had signed such a letter on behalf of a man who had convicted of raping his stepdaughter almost daily for twelve years.15 The Justice Minister, a member of the Independence Party, had told the prime minister in the summer about this, but neither disclosed it until forced to by a parliamentary committee.

After nearly a decade of economic collapse and persistent insider self-dealing, Icelanders may be ready for a radical break with the past. While Independence finished first again, it lost five seats and received only 25% of the vote. The two main left-wing parties, the Left-Green Movement and the Social Alliance, increased their share of the vote to a combined 29% and added five seats. Reform and the Pirates both lost seats and Bright Future was kicked out of parliament entirely. The Progressives kept their 8 seats, but neither a centre-right nor a centre-left government can command a majority. The balance of power will be held by two new parties, both of which are openly populist and eschew traditional left-right classification. For the second election in a row, a majority of voters supported a party that has never before provided a Prime Minister. Iceland’s politics is now much like its weather, mostly cloudy.

Iceland has the weather to match its politics - cloudy. Credit: Paul Mayall/DPA/PA Images

Iceland’s Left-Populist Future?

Four of the eight parties in parliament are clearly on the left or centre-left. Left-Green focuses on reducing income equality, significantly expanding housing and parental leave benefits, is suspicious of free trade agreements, and proposes a carbonless Iceland by 2040.16 It also opposes Iceland’s membership in NATO and increasing the number of refugees that the ethnically homogenous country accepts.17The Pirates want the government to spend more on building houses, increase the disability benefit, and increase the amount exempted from income taxation each month.18The new People’s Party won 4 seats: it wants to make health care free for all, regulate interest rates for housing, and dramatically increase the monthly income exemption to ISK 300,000, or about half of the average monthly wage.19 The Social Democratic Alliance echoes many of the policies, also calling for significant increases in government benefits, and a fourfold increase in the monthly exemption.20 Together, though, these parties command only 28 seats in Iceland’s 63 seat parliament the Althing.

The three centre-right parties – Independence, the Progressives, and Reform – also command only 28 seats. Thus, the new government must either include ideological opposites – a grand coalition involving Independence, the Left-Greens, and one other party has been mentioned – or it must include the largest of the new parties, the Centre Party. And that party is led by none other than former Prime Minister Gunnlaugsson, the man whose resignation triggered the 2016 election to begin with. Icelandic politics is simply a mess.

Conclusion: No Country Is Immune from Populism

Analysts worldwide should look carefully at these developments, as similar trends can be observed elsewhere. Anger and disgust at repeated self-dealing by politicians has helped spawn Czechia’s ANO party, which won that country’s recent election, and Italy’s Five Star Movement, which currently leads in most of the polls. Left-wing populism that preaches Euroscepticism, distrust of private markets, and increased public spending is also on the rise, especially in nations that, like Iceland, have suffered severe financial distress.21 It is tempting to think “it can’t happen here,” but that’s just not so. If populism can rock staid, conservative Iceland, it can gain credence anywhere.

Footnotes
  1.  The Independence party was formed in 1929 by the merger of the Conservative Party and the Liberal Party. It thus combines classical liberalism with cultural conservatism in the manner of conservative parties worldwide. Its MEPs sit with the ECR, the European Alliance of Conservatives and Reformers, rather than the Christian Democratic European People’s Party (EPP). See, e.g., Sjálfstæðisflokkurinn (“The Independence Party”) Interviewed, Grapevine.
  2.  Failing banks, winning economy: the truth about Iceland’s recovery. World finance
  3.  World Bank: Iceland
  4.  Iceland, symbol of financial crisis, finally lifts capitol controls. New York Times
  5.  Statistics Iceland
  6.  The government raised the VAT to 25.5%, hiked the top personal income tax to over 46 percent, and also hiked corporate, capital gains, and a host of other taxes too – all while also cutting expenditures. For a complete explanation, see Is Iceland Krugman’s Inadvertent Case For The Monetary Policy Offset Of Fiscal Policy? 
  7.  Two new parties, Bright Future and the Pirate Party, broke the 5% threshold and entered the Althing. Statistics Iceland
  8.  Iceland is in Crisis Mode. It feels like 2009 all over again. The Guardian
  9.  Gunlaugsson only entered political life in the 2009 election as a Progressive Party parliamentarian.
  10.  Iceland ousted one leader named in the Panama Papers’ but ended up with another on the list.
  11. Iceland is in Crisis Mode. It feels like 2009 all over again. The Guardian
  12.  See Icelandic parliamentary election, 2016 – Wikipedia
  13.  Statistics Iceland
  14.  See “The Eighteenth Brumaire of Louis Napoleon,” Marxists.org
  15.  Row over sexual abuse letter brings down Icelands’ governmentPM’s father endorsed “restored honour for convicted paedophile. Grapevine
  16.  Results of Landsfundar 2017 . This page is in Icelandic. Translation was obtained via Google Translate.
  17.  93 percent of Iceland residents had been born in Iceland as of 2014. Less than 1 percent had been born outside of the European Union. See Demographics of Iceland – Wikipedia.
  18.  The Icelandic Pirate Party . The page is in Icelandic, translated by Google Translate.
  19.  Statistics Iceland . As of 20 October, the exchange rates for the Icelandic kronor were 105–1 for the U.S. dollar, 124-1 for the Euro, and 139-1 for the UK pound. The People’s Party agenda can be found here (in Icelandic).
  20.   Icelandic Soical democratic party The page is in Icelandic, translated by Google Translate.
  21.  Greece’s SYRIZA and Spain’s Podemos are the best known leftist populist parties, and Britain’s Jeremy Corbyn and the USA’s Bernie Sanders are examples of leftist populist influence on traditional centre-left groups. The latest example is Belgium’s Workers’ Party, a traditionally Communist party that has focused its attention on less ideological issues in recent years. It has more than tripled its standing in economically depressed Wallonia since the May 2014 elections. See Opinion polling for the next Belgian federal election – Wikipedia

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