Iceland. In January, Iceland gained a new government, more than two months after the parliamentary elections. Bjarni Benediktsson, leader of the Conservative Independence Party, became prime minister of a coalition with the two small liberal parties the Reform Party and the bright future. The government had the smallest possible majority in the parliament, 32 out of 63 seats.
One of the coalition’s most difficult issues concerned Icelandic membership in the EU. After the bank crash in 2008, Iceland began to negotiate membership but withdrew its application in 2015. The two liberal parties in the government want EU membership, but the Independence Party says no. The compromise was to allow the Parliament to decide whether to hold a referendum on future Icelandic EU membership.
According to Countryaah.com, the new government had to take over an economy on the rise, eight years after the bank crash and deep financial crisis. The credit rating agency Standard & Poor’s raised Iceland’s credit rating from BBB + to A- in January, and in March the country received the rating A. The foreign exchange reserve had grown, the central government debt had fallen from 57% of GDP to 42% in two years, and the trade balance showed significant surpluses, among other things thanks being an almost exploding tourism industry. During the year, Iceland was expected to receive close to two and a half million tourists from outside, compared with just under half a million in 2009.
Figures in March also showed that Iceland has reached its highest growth rate in ten years. In the last quarter of 2016, GDP had risen by 11.3% compared to the corresponding period last year. Growth for the whole year was 7.2%. For 2017, lower growth was forecast, around 3.5%, partly due to the strong krona.
In March, the government decided to abandon the last of the capital controls that were introduced after the banking crash in 2008. This allowed the free movement of capital again for individuals, companies and pension funds.
In March, the government presented a bill that obliges companies with more than 25 employees to show that everyone gets equal pay regardless of gender, ethnicity or sexuality. The hope is that the gender pay gap will be erased by 2022.
In March, Iceland and Norway decided to increase their political cooperation in response to Britain’s plans to leave the EU. The British negotiations on leaving the Union are expected to lead to changes also in other non-members’ relations with the EU. Iceland and Norway therefore want to do a common thing to safeguard their interests.
In April, the Minister of Finance declared that the government is considering tying the krona into a leading currency, probably the euro. The reason was the risks of overheating the economy in the wake of the growth of the tourism industry and the fact that the krona increased in value against the dollar.
In June, everything was approved by an overweight vote in the government’s budget plan for the next five years. The central bank lowered the key rate several times during the year, and at mid-year it was 4.5%.
In September, the government split. The bright future of the party left the coalition and accused Prime Minister Bjarni Benediktsson of corruption by darkening a story about a sex offender. The prime minister had not informed the coalition parties that it was his father who had written a recommendation that a previously convicted sex offender should be cleansed. The case was very controversial, as the convicted man abused his stepdaughter for twelve years. The Prime Minister’s party friend, the Minister of Justice, had revealed to the Prime Minister that his father had written the recommendation, but none of them had passed on the information.
The scandal led the government to resign, nine months after taking office, and new elections were announced until the end of October. New revelations showed that during the banking crisis in 2008, Bjarni Benediktsson sold fund shares for approximately SEK 9 million just before an Icelandic bank was nationalized. Although it was not criminal insider trading, the information was troublesome for him in the election campaign.
The Independence Party went back in public opinion, while the Left – Greens looked to be clear victors in the election. Left leader Katrín Jakobsdottír was expected to become prime minister for a coalition with his party and the Social Democrats and the Pirate Party.
But in the end, the Left – Green Party was almost halved, while the Independence Party withdrew land and became the largest in the election with just over 25% of the vote. The Left – The Greens had to settle for just under 17%. The Social Democrats got just over 12%, the newly formed Center Party with former Prime Minister Sigmundur Davíð Gunnlaugsson in the lead 11.5, the Progress Party just under 11 and the Pirate Party just over 9%.
The election result made it difficult to create a majority government. Leftist leader Katrín Jakobsdóttir was commissioned by President Guðni Jóhannesson to negotiate a left-wing coalition, but the talks failed. Instead, she formed a cross-border coalition with the Left – the Greens, the Middle Progress Party, and the Conservative Independence Party.