On 13 October at the Prime Minister’s office, Bjarni told reporters that the coalition of his Independence Party with the Progressive Party and Left-Green Movement, which has been in power since 2017, had accomplished many things during a difficult period of time which included a global pandemic and volcanic activity in the Reykjanes peninsula. He said he’d tried his best to reach an agreement on issues with the coalition parties, but that he’d exhausted all possibilities.
Photo: Golli. Prime Minister Bjarni Benediktsson
Bjarni expects the parties to continue working together until the end of November, when elections could be set. If they can’t continue, he said, he’ll resign as Prime Minister and an interim government will take over. The government coalition’s approval rating has been historically low in recent months. The Independence Party, which has been a central party in Iceland’s electoral history, is also polling as low as 14% in some polls.
The Prime Minister and chair of the Independence Party Bjarni Benediktsson announced that his party was leaving the coalition government, which is also partnered by the Left-Greens and the Progressive Party. As such, official parliamentary proceedings will end. By law, new elections must be held no later than 45 days from the dissolution of Parliament, and he has indicated November 30 for election day.
Vísir reports that the Independence Party meeting was called on short notice. Bjarni said that there was no decision made during the meeting and that no motion had been made to end the government coalition. Multiple members of parliament for the party have voiced their frustration with the coalition.
“Immigration is a big issue, with asylum seekers one of its components,” Bjarni said when asked about the main issues the coalition is facing. He said that these issues had been a point of emphasis for him when the coalition agreement was renewed this spring following the departure of former Prime Minister and leader of the Left-Green Movement Katrín Jakobsdóttir.
Bjarni went on to say that progress was still being made. “Economic issues are important to the nation because of the interest rates,” Bjarni said. The Central Bank of Iceland recently lowered interest rates from 9.25% to 9%, its first reduction since 2020. “Things are looking much better in that regard. Many things are going the right way, but we must keep working.”
Following a meeting with fellow Independence Party members Friday, Prime Minister Bjarni Benediktsson said that the state of the government coalition had been discussed.
“We’re estimating where the party stands and how we feel about the state of the government coalition,” Bjarni told Vísir. “Many are saying that the coalition is weak and we’re aware of the weaknesses. Our goal is to achieve success on our issues for the nation. It’s normal that we discuss any tension in the coalition, which everyone has noticed, and this can often happen in the lead-up to an election.”
The coalition of these three parties was first formed in 2017 (interestingly, in the wake of emergency elections after Bright Future ended its coalition with the Independence Party), and they won enough seats in the 2021 elections to form again.
Their partnership has been tenuous at times. Most recently, when then-Minister of Fisheries Svandís Svavarsdóttir issued a sudden ban on fin whale hunting in June 2023 that the Parliamentary Ombudsman later ruled was unlawful.
Further tensions arose when Svandís, now chair of the Left-Greens, announced her aim of calling for elections in the spring. Her aim was for the different party leaders to meet and agree on an early election day, but some within her party began calling for her to simply end the coalition altogether.
The final straw, as it were, was when Minister of Justice Guðrún Hafsteinsdóttir halted the deportation of a disabled Palestinian child and his family, who were later granted international protection in Iceland. This decision also involved the intervention of Minister of Social Affairs Guðmundur Ingi Guðbrandsson, who implored Guðrún to make the decision, and Bjarni himself, who approved the decision.
The legality of this decision has been fiercely debated, in particular from the parliamentary opposition, but also created enough tension within the ruling coalition for the Prime Minister to ultimately decide to end the coalition.
President Halla Tómasdóttir will be meeting with the chairs of the different parliamentary parties today. In a statement to the press, she said that she would announce her decision on the matter later in the week.
There are few options on the table. One would be to form a new government, in which different parties would once again enter negotiations with one another on the formation of a new coalition. This is unlikely to happen, but is part of the reason why the President is meeting with the different party leaders today. The other option would be snap elections. This is more likely to happen, but again, the President has the final say on the matter.
Should that happen, campaign season will begin for parliamentary elections. If current polling bears out, it appears very likely that the Social Democrats will win the lion’s share of Parliament’s 63 seats, as they have been polling higher than any other party since January 2023. Should that happen, they would be in a key position to decide which other parties to partner with to form Iceland’s next government.
The research division of the bank Landsbanki, Landsbankinn Economic Research, has just released their latest report on the current state and possible future of the Icelandic economy. Entitled “The Economy Catches its Breath”, it forecasts a calmer economic period through 2027 marked by decreased demand, decreased inflation, and modest growth in the coming years.
The report notes that inflation has already decreased considerably, from a high of 10.2% in early 2023 to 5.4% last September. This they attribute to the government providing funding for things such as school lunches and tuition at some colleges, a failed capelin catch at the beginning of the year, and the effects of volcanic activity on tourism.
“We assume that the travel sector is now moving on from this setback and expect considerable growth next year, though at slower rates than in the first few post-pandemic years,” the report states in part.
They also mention rate cuts initiated by the Monetary Policy Committee of the Central Bank of Iceland in keeping with decreasing inflation, and predict to see further cuts in the near future.
Landsbanki predicts a “soft landing” for the economy, and predict that in the coming years, “[i]nflation recedes rapidly … and interest rate cuts continue”. All this is said with the caveat that such factors as renewed volcanic activity and “international war efforts that may impact the economies of our main trading partners and thereby Iceland” could affect the economy differently.
That said, the main highlights predict a 0.1% contraction this year, followed by “stable growth ranging from 2.1-2.3% in the next three years”; inflation decreasing to 3.7% by 2027 alongside continued rate cuts; increased tourism and an increasing valuation of the Icelandic króna, amongst other factors.
Sources: Iceland Review (14.10.2024), Iceland Review (13.10.2024), Iceland Review (13.10.2024), Iceland Review (15.10.2024)
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