Iceland’s New Government: Meet Me In the Middle

Pictures of Left-Green Movement leader, now Prime Minister, Katrin Jakobsdóttir at the VG offices in Akureyri, Iceland. (Photo by M. Lanteigne)

After a month of coalition negotiations following Iceland’s 28 October parliamentary election between two veterans of many previous governments, the centre-right Independence Party (Sjálfstæðisflokkurinn), or IP, and the Progressive Party (Framsóknarflokkurinn), and the Left-Green Movement (Vinstrihreyfingin – grænt framboð) or VG, a deal was struck this week. Katrín Jakobsdóttir [In Icelandic], leader of the Left-Greens, became Iceland’s twenty-eighth prime minister and the fourth since 2013.

After two previous (truncated) governments, many in the country are hoping the incoming administration, promoting an ambitious experiment in ‘grand coalition’-building rarely before seen in Iceland, will be more successful not only in bringing about political stability but also in addressing the myriad economic challenges the island state is facing.

At first glance this coalition may prove more durable than the previous one, which fell when one of the partners, Bright Future (Björt framtíð), left the scandal-ridden IP-led government in September, thus triggering the election a month later. However, there may remain some challenges to the incoming government, starting with the basic ideological differences between the three parties. One major policy chasm between the Left-Greens and their partners was the issue of tax policy. VG supported raising taxes on the most wealthy, while IP was of the opposite view. A compromise which was reportedly worked out included no change in the value-added tax (VAT) on tourists, and a modest rise in the capital gains tax in the country.

Not all members of the Left-Greens were satisfied with the coalition agreement and while two members of parliament, Rósa Björk Brynjólfsdóttir and Andrés Ingi Jónsson, voted against [in Icelandic] the agreement this week, this dissent was not an impediment to closing the deal. However, these no votes would mean that the new coalition holds only 33 of 63 seats. The two dissenting MPs subsequently stated that they would vote with the coalition on a case-by-case basis.

The three-party agreement [pdf] which was released this week covered a wide range of domestic and foreign policy priorities for the coalition. The document promised that ‘parties spanning the political spectrum from left to right intend to establish a new tone, concentrate their energies to key projects that will bring Iceland into the front rank and take steps that will make Iceland a good place to live for young and old alike.’

According to the power-sharing agreement, announced at a joint press conference during the morning of 30 November, IP will oversee the Ministries of Finance, Foreign Affairs, Justice and Fisheries, and VG will administer Health and (unsurprisingly) the Environment, with the Progressives receiving the Industry and Tourism portfolio, as well as Social Affairs, Education and Local Government / Transportation. The new Environment Minister will operate outside of parliament, as Guðmundur Ingi Guðbrandsson, who is the managing director of the Icelandic Environment Association (Landvernd), does not hold a seat.

Bjarni Benediktsson, outgoing prime minister and head of IP, becomes Minister for Finance and Economic Affairs, a position he previously held a year ago. Regarding policy platforms, environmental affairs were identified as a priority, as well as infrastructure development, reform of the Icelandic health care system, gender equality and LGBT rights, and improvements in the labour sector.

Such a left-right coalition has not been seen in Icelandic political circles since the ‘Renewal Government’ [In Icelandic] (Nýsköpunarstjórnin) period of 1944-7, when Iceland was dealing with the European post-war period while taking its first political steps as a fully independent state since breaking away from then-occupied Denmark in June 1944. However, closer to the present, the left-wing Social Democratic Alliance (Samfylkingin) did help support IP during the second (ill-fated) administration of Geir Haarde in 2007-9.

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Downtown Reykjavík. (Photo by M. Lanteigne)

Economically, the country is still faced with several challenges. Although the country’s economy is considered to be stabilising following an extended period of up-and-down swings since the banking crisis almost a decade ago, there are still questions about the future of Iceland’s burgeoning tourism industry and its effect on rising housing prices and rents. The number of tourists in Iceland was expected to exceed two million by the end of this year. There is also the reporting that Iceland will shortly remove the last of the currency controls which were placed on the Icelandic króna in the wake of the 2008 economic collapse; another sign that the economy is in improving health.

Relations with the European Union may also be less of a policy and economic complication with the new government, as all three parties have expressed scepticism about closer EU political ties and are against membership. However, as a report [pdf] released this week [Icelandic full version here, pdf] by the Icelandic Ministry of Foreign Affairs argued, the ongoing Brexit question will present specific economic challenges for Iceland in the near future, especially since the UK will also be leaving the European Economic Area (EEA), thus requiring some renegotiations including in labour transfers. Iceland has also expressed interest in a separate free trade agreement with Britain after the Brexit process is completed in early 2019.

The Arctic was also noted in the new government agreement, including the need to maintain the fight against climate change in the region. As Iceland prepares to assume position of chair of the Arctic Council in 2019, there was a call to work with that organisation to promote global efforts to preserve circumpolar and ocean ecosystems.

The incoming government has promised it would represent the great share of the interests of Icelanders, and one of its first challenges will be to assure the public that the divisions and troubles faced by its immediate predecessors will not be repeated.

(The author would like to thank Hjörtur J. Guðmundsson for his assistance with the researching of this post.)