On Getting Real and How Whining Wins Votes (ESA)

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eyglo02_dlThe next parliamentary election is upon us. April 27 is drawing close and it appears as if voters are determined to punish the ruling parties, the Social Democratic Alliance and Left Green Movement, whose support has collapsed since the 2009 election.

The first all-left coalition government in Iceland’s history was not meant to be long lived. It seems obvious that neither of the parties will be part of Iceland’s next government as the Independence Party and Progressive Party have by far the highest ratings in polls and a long history of working together.

That collaboration brought about the privatization of the Icelandic banks at the beginning of the millennium. This was followed by an economic boom, peaking with the excess of 2007, but ended abruptly with the banking collapse in 2008 and consequent economic crisis.

In the 2007 election the Progressive Party had grown so unpopular that the Independence Party forged an alliance with the Social Democrats instead, which collapsed a few months after the banks in early 2009.

In the four years since the Social Democrat-Left Green coalition has been at the helm, the economy has been on a route to recovery and in fact, the Icelandic economy has recovered more quickly than many had predicted.

However, this recovery has cost sacrifices, such as further cutbacks to the healthcare system, which was already starved for funds, stagnation in pay raises and higher taxes for average and high earners.

Many young homeowners are heavily indebted with their mortgages growing non-stop. The government’s actions to support them have proven useless in most cases.

These are the people who are planning to vote the Progressive Party, promising a 20 percent write-off of all mortgages, resulting in support for the party soaring like never before. They believe voting the Progressive Party will solve their problems.

Critics say surely not all should be entitled to write-offs. And there’s also the question of how such a move should be financed.

How indeed? The money is to come from the creditors of the Icelandic banks, their foreign owners. Deutsche Bank, for example.

Great idea. Not according to Lars Christensen, head of emerging markets research at Danske Bank, who was slammed after declaring the situation of the Icelandic economy to be dire in 2008, but earned Icelanders’ respect after proven that he was right.

In an interview in Fréttablaðið today, Christensen strongly warns against Icelandic authorities using their legislative power to obtain the assets of the bankruptcy estates of the Icelandic banks. He reasons that such a move would both make the abolishment of capital controls more difficult and make foreign investors lose faith in Iceland.

This brilliant idea of the Progressive Party seems to be losing its magic, or perhaps the party’s members are getting cold feet? In any case, it’s no longer the largest party in Iceland according to the most recent surveys.

The Independence Party has reclaimed its top spot, all because its leader was “sincere” in an interview, as his supporters have put it, where he whined about declining support for his party and people wanting his second-in-command to replace him as chair.

In the interview, he strongly indicated that he intended to step down but then changed his mind a few days later. The crying game did the trick, united opposing movements within the party and regained the trust of its supporters.

At first I thought the party’s vice-chair was planning a coup d’état (which wouldn’t be her first: she overthrew the mayor, her former coalition partner in Reykjavík City Council, in 2008) but now I’m wondering whether this was all a clever move by the party’s spin doctors to get more media attention and sympathy from voters.

The Independence Party has promised up to ISK 40,000 (USD 344, EUR 263) in tax reduction per month for all homeowners, which is to go straight to the principal for lowering their mortgages.

This sounds good but while we live in an unstable economy with an unstable currency and loans remain indexed, inflation will be sure to raise the principal again and make such efforts pointless.

The entire system has to be changed and the only way to do so is to join the European Union. The Icelandic economy and the Icelandic króna are too small to thrive.

While this is our reality, we will always be looking at expansion followed by recession. And homeowners will continue to suffer from impossible interest rates on mortgages.

The only two parties who have offered reasonable solutions to Iceland’s economic challenges and want to conclude the EU accession talks, Bright Future and the Social Democrats, have to step up their game and make their voices properly heard.

Support keeps fluctuating one week before the election and many voters remain undecided. There’s still time to earn their confidence.

So do it!

Eygló Svala Arnarsdóttir – eyglo@icelandreview.com

Views expressed here are the author's own and do not necessarily reflect the opinions of Iceland Review.