By Matthew Deaves · 22 Oct 2013
Over the last decade Iceland, more than any other country, has been held up as a model of how to do things right. Pre-crash Iceland was championed by the Right as a shining example of the benefits of liberalized finance. After the financial crisis of 2008 proved them disastrously wrong Iceland was again touted as an example to emulate, this time by the Left. It was lauded as the country that had not taken the crash lying down. According to this narrative, Icelanders had with righteous fury thrown out their government, let their banks go bust, jailed their bankers and created the world’s first “crowd-sourced” constitution. As before, the Iceland cited abroad bore little relation to reality, as became evident in April this year when Iceland’s left-wing coalition government was comprehensively defeated in national elections. So what has exactly been going on in Iceland post-2008? And what’s in store for it now?
Beyond the Soundbites
Both left and right narratives of Icelandic triumph were misleading, without being wholly false. Let’s focus on the left-wing account. It is true that mass protests outside the Icelandic Parliament – known as the Pots and Pans Revolution (búsáhaldsbyltingin) after the kitchen utensils wielded by the protestors – forced the government to collapse in 2009. Its replacement did let several banks go bust, although not on the scale that is widely assumed and not without incurring huge debts to prop up the economy. It did, moreover, instigate a major investigation into the banking crisis which culminated in court proceedings that are still on-going. Notably former Prime Minister, Geir Haarde, was charged and found guilty, but only for a minor offence (failure to hold certain emergency ministerial meetings during the crisis) carrying no punishment. This is a tougher response than any other country, granted, but hardly constitutes ‘holding those responsible to account’. Finally, praise for Iceland’s “crowd-sourced” constitution is mostly wide of the mark. There was a broad consultation and general public involvement, involving a thousand-person assembly and an elected “constitutional council” tasked to come up with a draft proposal. But all of this was non-binding, turnout for the final vote was low and the final draft was constitutionally unsound and thus easily killed off in parliament, through a mixture of government inefficiency and right-wing opposition.
Amidst the hyperbole, though, are some genuine achievements, which together point towards an alternative to neoliberal austerity. In the years following the crisis, the rich in Iceland paid more tax, welfare payments increased and unemployment came down. This is particularly impressive given Iceland’s political history. Unlike its Nordic counterparts Iceland is not a bastion of social democracy and the conservative Independence Party has dominated its politics since independence in 1944. The 2009 protests produced a coalition government comprising two left-wing parties, the Social Democratic Alliance and the Left Green Movement, neither of which existed before 1999. This, Iceland’s first ever wholly left coalition, represented a historic opportunity for the Icelandic Left. What went wrong?
Iceland’s Left in Power
The answer, in short, is a combination of coalition failures, deep public disillusionment and an entrenched opposition, not just in parliament but from the media and private economic interests.
The government of Jóhanna Sigurðardóttir set out to confront almost every special interest and controversial issue facing the Icelandic economy. Its program could have scarcely been more ambitious, including major reforms to fisheries, industrial policy, the environment, the financial sector and Iceland’s relationship with the European Union. The only emotive issue the government did not attempt to stir up was Iceland’s membership of NATO.
Nearly all of these areas are and have long been controlled by entrenched special interests, which overlap extensively and are densely inter-linked with each other, the Independence Party and the media. After the crisis these special interests were down but not out, and they put up fierce resistance. The press, largely owned by former PM Davíð Oddsson (“Iceland’s Thatcher”), relentlessly hounded the government; targeted sectors (notably fishermen) staged large-scale protests, and the opposition in parliament constantly filibustered. In the face of this opposition the Icelandic Left won concessions that, in any other term, would have been remarkable. However this was not any other term and therein lies a problem. The promises the parties made in 2009 were so extravagant that even the government’s most impressive victories were painted as defeats. This created disillusionment and a negative narrative quickly stuck.
The organised opposition was aided by the government’s own failings. First, it fell into the classic left trap of continually splitting. The coalition government began with a majority of 11, significant in a chamber of 63. By the last few months of its term splits within both governing parties had reduced it to a minority government. This weakened the government in parliament and reduced its popularity – as also illustrated in Australia recently, it’s surprising how many will tolerate bad decisions but not disorganisation and disunity.
Second, the coalition compounded its reputation for watered down radicalism by going against the spirit of its mandate. The government in general didn’t let the banks collapse; worse, it bailed out a handful of very indebted private insurance companies, a move that was deeply unpopular. The nail in the government’s coffin was Icesave. Icesave is largely forgotten in the UK, but it involved repayments on money lost by Dutch and British savers. It briefly came to prominence here in 2010 when Gordon Brown used counterterrorism legislation to freeze Icelandic assets. The issue rumbled on and in February of this year Iceland won its case. One might imagine that this would help the government, but in fact it worked in the opposition’s favour. The government had earlier decided against taking the fight to the court of the European Free Trade Area, and only did so after the President of Iceland, in an uncommon step (Ólafur Ragnar Grímsson was the first President to use his power of veto which he did in 2004 over reforms to the media), vetoed its decision and put the matter to two popular referenda. The gamble paid off, but having opposed taking it, the government reaped no reward from the victory. It redounded instead to the benefit of current Prime Minister Sigmundur Davíð Gunnlaugsson. He, along with the President, became a figurehead for Icelandic populism. What the international left credited to Iceland’s left government – a heroic refusal to pay international creditors – was in fact the achievement of a popular nationalism directly opposed to the left coalition.
All these factors allowed the opposition to take the advantage. Remarkably, however, it was the (now ruling) Progressive Party that took the lead rather than the establishment Independence Party. Like many Nordic former agrarian parties, the Progressive Party has spent a long time trying to find itself, eventually settling on a populist right-wing nationalism with very little substance (similar to UKIP in the UK). Prime Minister Gunnlaugsson, from the Progressive Party, was emboldened by the Icesave “win”, which also stoked a populist sentiment that obscured his party’s lack of workable policies.
So what’s next for the Icelandic left? It has suffered a major defeat that will take a lot of effort to overcome. But the election also threw up some potentially positive developments. Though the established left of LGM and SDA suffered a horrendous night, two other sections of the left did very well. The biggest surprise was the entrance of the Pirate Party to parliament, with three members. A left of centre liberal party called Bright Future, based in Reykjavík and the Mayor of Reykjavík Jón Gnarr’s “best party”, also outperformed expectations. It will be interesting to see how these develop over the course of the parliamentary term and what effect they have on the more established parties. The election results continued a trend in Icelandic politics away from the traditional four parties. Since 2009 the portion of votes going to them has fallen from 90% to 75% and the amount of “dead” votes (votes that went to a party which did not get a seat in Parliament) rose from 2% to 12%. This is encouraging for the left, since it indicates that although the public is dissatisfied with the left coalition, neither is it convinced by the other two big parties. Yet it also poses a problem, because it fragments the left and splits its vote far more than it does the right.
More broadly, one has to bear in mind the distinction between left-wing popular forces and the formal left parties. The Pots and Pans revolution was the biggest eruption of popular protest since the 1946 anti-NATO demonstrations. Although many members of the SDA and LGM took part in it, it must be recalled that the SDA sat alongside the Independence Party in the very government the revolution overthrew. Indeed, the SDA’s former leader, Ingibörg Sólrún Gísladóttir was almost indicted along with former PM Geir Haarde.
The movement that produced the uprising is unlikely to resurface, but more demonstrations and extra-parliamentary activity can be expected. This has already occurred under the new government with the green movement, which is now the popular organisation most able to mobilise a mass, cross-sectional public. On May Day this year the green movement held a rally that dwarfed the traditional one organised by the union. A few weeks later a green demo held outside the Prime Minister’s office attracted over 2,000 people.
In July, a petition was delivered to President Ólafur Ragnar Grímsson regarding changes to a tax on the so-called “fishing barons”. In 2004 Grímsson had set a precedent, whereby on receiving a petition of at least 35,000 signatures he would intervene and call for a referendum. As noted he did this twice during the Icesave affair,. The July petition was bigger than either of the two Icesave petitions, and organised in a shorter time, but the president opportunistically rejected it. Nonetheless, it is clear that a large section of Iceland’s population remains able and ready to mobilise quickly, both online and off.
Iceland’s economy is still in critical condition. Its biggest problem is the continued use of capital controls. Controls were introduced as a temporary stop-gap to prevent foreign capital fleeing, and they did their job – foreign capital twice the size of Icelandic GDP is still in the country. But the country is now trapped: without lifting the controls the economy cannot be sustainable, yet lifting them would trigger crippling capital flight. Solving this problem, and finding a way to pay the first instalments on Iceland’s debt, are the central economic problems facing the next parliament.
It is against this economic backdrop that the battle over Iceland’s future will be waged. At the moment, there is a worrying lack of positive ideas being put forward by the Left, a problem we can identify with left-wing and centre-left parties across Europe. Absent convincing contributions from the Left, the Right is dominating the political space. Make no mistake, the course adopted by Iceland’s new Progressive and Independence Party coalition will lead to a second crash sooner rather than later. Their vision would see Iceland once more in the hands of bad business, dodgy investments and cheap credit, its environment destroyed in order to attract aluminium companies. This is a vision which the majority does not want, and the Left in its many forms has a duty to provide an alternative.
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