Iceland's Tories are back

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Sarah Ensor unpicks the myth that Iceland has taken an alternative route to austerity

Iceland's Tories are back in power just five years after their spectacular disgrace. Though their vote only increased by 3 percent, the conservative Independence Party has returned to government in coalition with the liberal Progressive Party.

This is a dramatic turn of events. In 2008, as the shockwaves of the global financial crisis hit Iceland's economy, the then Tory prime minster Geir Haarde had to announce, "There is a real danger that the Icelandic economy could be sucked with the banks into the whirlpool and the result could be national bankruptcy."

The Tories, particularly under Davið Oddson, who served first as prime minister and then as governor of the Central Bank, were responsible for deregulating and privatising the banks. They had turned Iceland into a giant hedge fund and when Lehman Brothers, the fourth largest investment bank in America, went bust it almost took Iceland with it. Around 10 percent of the population took part in the protests that drove Haarde's government out.

Their replacements were Social Democrats (SD) in coalition with the Left - Green Alliance (LGA) and which initially enjoyed serious support. They had a reputation for honesty - especially Social Democrat Jóhanna Sigurðardóttir who became the new prime minister and who had refused to work with the Tories even before they were disgraced. The Left-Green Alliance represented a more radical left than the mainstream Social Democrats. They wanted the American airbase out of Iceland, called for greater environmental protection, and raised demands for a new constitution written by ordinary people selected by a lottery.

The myth about Iceland since the crash is that it has taken a different path from the road of relentless austerity taken everywhere else in Europe, with the IMF thrown out, banks allowed to fail and people protected from the destruction of society wrought on Greece. The reality has been more like a war of attrition against ordinary Icelanders presided over by the ruling left coalition of the SD/LGA.

In the immediate wake of the crisis pensions were slashed, interest rates shot up, and the value of the Iceland krona plummeted. Unemployment reached 10 percent. Since then interest rates and unemployment have fallen and tourism has boomed but so have prices and household debt. Homes have been lost and mortgages on ordinary family houses bought in the boom years have gone up by the equivalent of tens of thousands of pounds. Rents have risen by over 50 percent in the capital, Reykjavik, and its surrounding sprawl. Staple foods such as buttermilk, rye bread, flour, vegetables and fruit have gone up by between 61 and 233 percent. A cinema ticket that was 800 kr in 2008 is now 1,350 kr. Public services have been cut, including the health service, and wages are stagnant.

While absolute unemployment has fallen, underemployment has not. Tens of thousands rely on benefits and government support in various ways but unemployment benefit runs out after 42 months. A new work programme, set up in January this year to provide "2200 new temporary jobs for long-term jobseekers" is the latest government funded scheme. These jobs are supposed to be created mostly in the private sector. In fact employers will be paid the rate of unemployment benefit for six months to create a job. By this time if it isn't a real job the worker will be entitled to unemployment benefit again. It's depressing thinking about it, let alone living it.

There were near riots in 2009-10 but the unions signed up to austerity practically before Haarde had finished his announcement. This explains why the recent nurses' dispute was a threat of mass resignations, not a strike.

The lack of resistance has worn people down and allowed the Tories to regroup. The lowest turnout in any general election since Iceland's independence from Denmark was a reflection of this.

Promises by the Independence Party and the Progressive Party to deliver jobs and debt relief, in contrast to the austerity delivered by the ruling left coalition, allowed them to return to office.

The Social Democrats and Left-Green Alliance combined lost 27.7 percent of their vote - the biggest swing in the country's history, while the Progressive Party's election promises included a 20 percent mortgage write-off. Their vote went up 10 percent and two new parties emerged: Bright Future - liberal democrats - and the local wing of the Pirate Party. Between them they took 8.3 percent and nine seats in the parliament.

The leadership of the Left-Green Alliance clearly have no idea why they only got 9 percent, down from nearly 22 percent. Steingrímur Sigfússon, a founder of LGA and finance minister in the post-crash government, wrote last month in the Financial Times. He said they lost the election, "despite guiding the country through a difficult but impressive recovery...can any politician meet the unrealistic expectations of Europe's voters?"

In Steingrímur's world view there is no alternative to being forever at the mercy of the markets - austerity cannot be fought so it must be endured. The election results suggest more of a quiet desperation and the lack of a clear left alternative.