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Smári McCarthy, a candidate in Iceland's April 27 elections, represents the left-libertarian Pirate Party, one of the more successful fringe parties. (SHARE Conference / Flickr / Creative Commons).

Will Iceland Shift Right?

Iceland’s surprising recovery was heralded as the great anti-austerian victory. So why are voters unhappy?

BY Samuel Knight

One patron at a cafe on Laugavegur, Reykjavik's main street, joked that the rightwing parties’ support is coming from huldufólk—“hidden folk” elves in Icelandic folklore.

Iceland—the first major victim of the 2008 global financial collapse—isn't in as dire straits as Greece. But that distinction is of scant comfort to people in Reykjavik ahead of Saturday's parliamentary election.

Despite the fact that Iceland's unemployment rate is under 5 percent, voters are expected to send a strong message to the political establishment: The economic data doesn't reflect the ongoing pain, the banks are still skimming far too much off the top and the status quo isn't working.

The government—the first center-left coalition since Iceland gained independence from Denmark in 1944—has earned praise both at home and abroad for averting a total disaster after the banking collapse by imposing controls on outgoing capital flow and attempting to resist deep austerity. It is, nonetheless, expected to give way to a rightwing coalition after the votes are counted and the dust settles. Polls are indicating that the next prime ,inister will come from either the Progressive or Independence Parties—right and center-right parties that ruled Iceland from 1995 until 2007 and oversaw the corrupt banking privatizations that brought the country to the brink of ruin.

The majority of Icelanders, however, haven't indicated that they're going to support either party. The two parties, according to the latest poll, only have a plurality of the popular vote. One patron at a cafe on Laugavegur, Reykjavik's main street, joked that the rightwing parties’ support is coming from huldufólk—“hidden folk” elves in Icelandic folklore.

The polling edge of the right might have been helped along by a fractured left. Parties must win 5 percent of the popular vote to earn any seats in parliament, and a number of fringe parties that have emerged in the run-up to the election are polling below that threshold.

The proliferation of new parties reflects discontent with politics as usual and a lack of confidence in the traditional power players. There will be about a dozen parties at most districts' polling booths when Icelanders cast their votes tomorrow.

“We are filling an ideological gap that has existed in Iceland for way too long,” Pirate Party candidate Smári McCarthy told In These Times, explaining his left-libertarian party's popularity. The Pirate Party is one of the more successful of the smaller parties and is expected to send deputies to the parliament. After campaigning on a platform that seeks to promote open governance, direct democracy, online privacy, copyright reform and Internet freedom, the party has been polling at around 6-7 percent in recent weeks.

Bright Future, a party with ties to the Best Party, which was founded by anarchist-comedian Jón Gnarr in his successful bid to become Reykjavik's mayor in 2010, is also polling above the 5 percent threshold. More than 7 percent of voters are leaning in its favor, according to polls. One of its platform’s main planks involves trying to change the way politics are approached, with an emphasis on civil dialogue and long-term solutions. Heiða Kristín Helgadóttir, one of the party's candidates and the current CEO of the Best Party, said that, to that effect, the party has opened up its manifesto to suggestions online.

“One of the main issues that most political parties are dealing with is the fact that they don't get any participation,” she said in an interview at the party's Reykjavik headquarters, stressing that people outside of politics can offer effective solutions. “We want to have an open source for people to come into the party with ideas.”

Bright Future also wants to adopt the draft constitution that was written using crowdsourced techniques. The proposed constitution was allowed to die in the last session of parliament, despite clearing an important hurdle in a referendum last October. Some people who helped piece together the document and open the process up to the public believe that parliamentarians wanted to neglect it because of the challenges it presented to their power, including many provisions that would have allowed voters to introduce parliamentary bills and call for referenda on a variety of issues.

One new party that has emerged—the Iceland Democratic Party—was even founded primarily to promote the constitution. It, however, doesn't appear poised to win any seats.

Fringe parties aren't only motivated by political issues, either. One such party, the Household’s Party, has been founded mostly to protect those with “mutated” mortgages, whose interest payments are linked to the ballooning consumer price index. Another such party is the People's Front of Iceland. Led by Vésteinn Valgarðsson, it has attracted many former supporters of the Left-Green party who became disillusioned by its capitalistic tendencies after assuming power in 2009. Valgarðsson said that even if the party doesn't win any seats—a likely outcome, according to polling—it is taking the long view of things by attempting to build up an anti-capitalist movement that has been absent in Icelandic politics for decades. The party's platform includes nationalizing natural resources and the financial sector.

He said the idea that Iceland's center-Left has eschewed austerity—a theory pushed by Paul Krugman, among others—isn't exactly true. While cuts haven't been as severe as they have been in other crisis-stricken countries, like Greece and Spain, they have, too, been implemented in Iceland. According to the Ministry of Finance, welfare spending did increase by a percentage of GDP between 2007 and 2011—from 6.85 percent to 7.76 percent of GDP. However, because of economic contraction, framing welfare spending as a percentage of GDP hides cuts, particularly when considering the greater need. Accounting for the recession, overall welfare spending has declined by about 22 percent—from $139.7 million to $108.8 million—between 2007 and 2011. As a worker in a publicly run psychiatric hospital, Valgarðsson said that he has seen belt-tightening firsthand, having been repeatedly shuffled between different departments.

Some Icelanders say that the cuts will do lasting harm to the universal healthcare system, by pushing top professionals to emigrate to Norway; in 2011, a Reykjavik area clinician warned that such a brain drain threatened the “imminent collapse” of Iceland’s healthcare system. Similarly, while unemployment here is relatively mild compared to other countries stung by the collapse of credit markets in 2008—there are those who say unemployment would be much worse, about three times as high, if not for about 13,000 Icelanders who have left for Norway.

It is undeniable, however, that the ship has been steadied. Tech companies, tourism and other creative industries have sprung up, with exports made more affordable by the krona's decline, and commercial conditions stabilized by capital controls (which themselves have been controversial). Despite the panic and anger that followed the banking collapse, the crisis may be considered a blessing in disguise by those who hail Iceland’s post-crisis economy as more diverse and sustainable.

In another indication that Icelanders are back on their feet, by many measures the demand for charity has decreased. Sólveig Ólafsdóttir, a spokesperson for the Red Cross in Iceland, said that it has wound up a number of programs it offered for unemployed Icelanders after the crash. She also said that the organization's Christmas assistance is down. So too, is assistance doled out by the Church of Iceland.

But there are doubts as to how robust this recovery actually is. Christmas assistance handed out by another charity named Mæðrastyrksnefnd was up in 2012.

“We cannot see that the condition is better, rather the opposite,” its chair, Ragnhildur G. Guðmundsdóttir, told the newspaper Fréttablaðið in December.

There’s also evidence that pride deters those in need from requesting handouts. According to a survey by Hagsmunasamtök heimilanna (HH), an association of homeowners, though only around 12 percent of Icelanders have asked charities for help in recent times, over half have asked family and friends for help.

Ólafur Garðarsson, chairman of the HH, told In These Times that articles touting Iceland as being past the crisis “are like a joke to me.”

“This is basically propaganda from the IMF and the government,” he says.

He likens the situation for indebted Icelandic homeowners to that of frogs in boiling water. The “mutated” mortgage interest payments here have mushroomed because they are indexed to inflation—a convention that had been in place since the boom years. The decline of the krona caused by the banks' collapse has, in turn, caused inflationary pressures due to Icelanders' dependence on imports. Problems have thus multiplied for indebted homeowners, rendering a large number with negative equity and mortgages that they will struggle to pay off, unless the rules change or the banks agree to write off debt.

Banks—which are believed to be owned by enablers of the old banks' reckless managers, although no one really knows who owns these institutions after the government privatized them with a discounted asset portfolio—are thus siphoning off a significant portion of wealth created since the collapse. Some people here have scoffed at the idea that Iceland didn't “bail out” its banks.

Which does, somewhat, explain the Progressive Party and Independence Party's success. The former has promised to write down mortgages by 20 percent and end CPI mortgage indexation; the latter want to lower tariffs and taxes on gas (though it does also want to implement a flat tax—a move that would harm lower tax brackets).

Many Icelanders skeptical of the Right doubt that these promises amount to anything but opportunistic PR moves. The Progressive Party hasn't proposed unfettering mortgages already tied to indexation; it has promised to outlaw the practice. Some have suggested that its 20 percent write-down will fuel a housing bubble and benefit the rich more than other income brackets. Fueling the idea that the Progressives are preying upon low-information voters' disaffection, a Gallup Poll showed that a third of its likely supporters had only a primary school education and 31 percent had only a high school education. A number of Icelanders told In These Times that they wouldn't be surprised if the two rightwing parties, assuming they win, sell public stakes in banks to their friends, as they did in the previous decades.

Nonetheless, the decline of the traditional left, the unprecedented proliferation of smaller parties and the populist rightwing revival do suggest that Icelanders aren't exactly pleased with the situation. Even if Reykjavik is far from resembling Athens.

Sam Knight lives in Washington, D.C., where he is the events editor for OhMyGov.com

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