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Iceland’s Future Depends on the Contours of the Coalition

The parties most responsible for Iceland’s economic collapse won a majority of seats in parliamentary elections.

As Reykjavik residents awoke to their regular Sunday hangover last weekend, the memory of Iceland’s recent credit-binge blackout seemed far more painful to some. The two parties most responsible for the country’s 2008 financial collapse – the right wing Independence Party and the center-right Progressive Party – collectively won a majority of seats in parliament after votes cast during Saturday’s election were counted.

But because there was no outright winner – each party won 19 seats – coalition politics might diminish the power of a reinvigorated right when the dust settles. Iceland’s President Ólafur Ragnar Grímsson asked Progressive leader Sigmundur Davíð Gunnlaugsson to form the next government, despite the fact that the Independence Party won a marginally higher percentage of the popular vote. According to the Icelandic media, Grimsson asked Gunnlaugsson to take charge of coalition sausage-making because of the left-wing parties’ preference for the 38-year-old Progressive Party leader – and because the party doubled its share of the popular vote since the last election. An insider also told Truthout that Gunnlaugsson would first ask the smaller parties to form a coalition, but the presumed next prime minister has since entered into formal negotiations with Independence Party leaders.

The outcome of those talks isn’t exactly a foregone conclusion, however. Many observers see the Progressives’ victory as an anti-austerity vote, despite claims Iceland’s previous government eschewed austerity. The Independence Party merely proposed relief in the form of tax cuts implemented via a flat tax – three-quarters of which, according to Jón Steinsson, an Icelandic economist at Columbia University, “would run into the pockets of those who are not in any financial trouble.” The tax cuts would ratchet pressure on an already squeezed welfare state. Although cuts in Iceland haven’t been as severe as they have been in other countries still weathering the collapse of global credit markets in 2008, welfare spending declined by about 22 percent – from $139.7 million to $108.8 million – between 2007 and 2011, while, according to Statistics Iceland, the percentage of the population “at risk of poverty or social exclusion” grew from 12 to 14 between 2008 and 2011. The Progressives, on the other hand, gained at the polls, in part, by promising relief for indebted homeowners in the form of a 20 percent write-down of mortgage principle. Mortgage interest payments here are pegged to the consumer price index and inflation, which, in spite of higher than average unemployment in recent years, have increased since the value of the krona took a steep dive after 2008. A steadily improving labor market – unemployment is less than 5 percent – doesn’t reflect the frustration that many Icelanders feel. One disaffected left-leaning Icelander sarcastically described the previous center-left government – the first leftist government since Iceland gained independence from Denmark in 1944 – as “the best right-wing government in Iceland’s history.” The Left-Green Party, the outgoing junior coalition partner, saw the number of parliamentary seats it controls halved – it will have seven parliamentarians when the Althing, the national parliament, reconvenes. The senior partner of the last government, the Social Democratic Alliance, lost 11 seats, and will be represented by nine legislators at the start of the next session.

But despite activist anxiety wrought by a resurgent right, there were bright spots for the horizontalist ideas that have gained popularity in post-collapse Iceland. The Icelandic Pirate Party, formed in November in the vein of other European Pirate Parties, became the first Pirate Party in history to win seats in a national parliament. Helgi Hrafn Gunnarsson, one of three Pirate MP-elects, told Truthout that he and his colleagues – including Birgitta Jónsdóttir, producer of WikiLeaks’ Collateral Murder video – can appeal to both left and right by proposing to open up government data to advance discussion on how the state can run more efficiently. A few days before the election, the Pirates also announced they would be using an online platform called “Better Iceland” to appeal to the general public for ideas on how to further the cause of human rights and open information. And, rounding out the Althing’s 63 seats are legislators from a party called Bright Future, a liberal environmentalist party that’s also opening up its deliberative process by taking suggestions on priorities from party supporters online.

Bright Future officials also say that they’re trying to inject more civility into the political discourse. In an interview with Truthout at a Reykjavik cafe on Tuesday afternoon, Bright Future MP (Member of Parliament) Róbert Marshall, talking coalition politics, said that his party would probably not be a part of the “opposition,” but “the minority.”

And even if Gunnlaugsson doesn’t invite either the Pirates or Bright Future to join a coalition, an innovative draft constitution, written using crowdsourcing techniques, could be advanced by the next government. The Left-Green Party and Social Democratic Alliance both supported the constitutional reform movement.

But the document is unlikely to be ratified under a staunch right-wing government – something that is likely to happen if European politics play a big role in government formation horse-trading. The EU and the Euro are divisive issues in Iceland. The economy here, on one hand, has been reinvigorated to a degree by the krona’s devaluation – unemployment in Iceland is much lower than in the southern fringes of the troubled Eurozone. On the other hand, a weak krona has caused the cost of living to rise. Both the Progressive and Independence Parties are Euroskeptic – unlike the Social Democrats and Bright Future.

But even if the majority of parliament leaning to the right doesn’t guarantee a right-wing coalition, Saturday’s election triggered post-traumatic memories of the ideology that enabled the country’s bankers to borrow 10 times the country’s GDP while committing a bevy of white-collar crimes in the process. The top-viewed headline on DV, the country’s main tabloid, the day after the election, featured a quote from a rapper and Left-Green supporter named Eyvind Erpur, who said that Iceland “chose the lottery and she will fucking lose.” The Independence Party – the intellectual bedrock of the country’s Reaganite libertarians, which ruled the country with a variety of coalition partners from 1991 until 2009, appears to be in denial about its responsibility for the crisis. In a recent interview with the Reykjavik Grapevine, an anonymous party official said, “there isn’t any government policy that could have averted the meltdown. It’s easy to look back and try to point to things that could have been done differently.” But even before the collapse, journalists found that the privatization process was rotten. In a 2002 backroom conspiracy, then-Finance Minister Geir Haarde and then-Prime Minister David Oddsson – both from the Independence Party – met with Progressive Party cabinet officials Halldór Ásgrímsson, then minister of Foreign Affairs, and Valgerður Sverrisdóttir, then minister of business affairs. The quartet agreed – behind the back of the privatization committee – to sell two of Iceland’s then-state-owned banks to party loyalists. Consequently, according to a lengthy postmortem conducted by a parliamentary committee, the banks grew too quickly, managers abused their power to manipulate stock prices and finance personal ventures, and regulatory commissions didn’t keep pace with the banks’ growth.

Thus, Saturday’s vote and Progressives’ campaign promises have raised eyebrows.

“They claim they can manage to magically lower peoples’ debt,” author and environmentalist Andri Snær Magnason told Truthout. “People are skeptical of what kind of government they’ll form and what sort of policies they’ll make.”

Magnason said that to finance their promises, Progressives could promote the sort of reckless short-term growth that most associate with the boom before the bust. It’s not just banking deregulation and the selling of state shares in Iceland’s financial institutions – including the once again almost wholly state-owned Landsbanki. Magnason said that there was a danger in the Progressives and the Independence Party forming a caucus friendly to what he termed “the aluminum industrial complex.” Under the Progressive-Independence coalition that lasted from 1995 until 2007, the government invited Alcoa to the island to build smelters and dams that, as they were told at the time, would eventually do significant environmental damage.

Magnason said that the Independence Party has pursued the aluminum industry so aggressively that Pétur Blöndal, one of its parliamentarians, once said, “he cries for any drop of water falling undammed to the sea.”

Another Independence Party MP named Brynjar Níelsson , in a radio interview that indicated support for heavy industry in Iceland, said on Wednesday that creative industries aren’t profitable – a statement that provoked a minor Facebook backlash, particularly among employees in Iceland’s growing IT sector.

In a bid to head off the possibility of intense industrial development, thousands of people attended traditional May Day protests in Reykjavik to voice environmentalist concerns for the first time ever.

But whether or not activists in Iceland will feel the need to maintain protests depends, to a great deal, on how coalition-making unfolds.

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