Arctic Mutiny How the Panama Papers Upended Icelandic Politics

By Thorgils Jonsson, FOREIGN AFFAIRS, April 11, 2016

Two weekends ago, 143 politicians were implicated in wrongdoing detailed in leaked documents from a Panamanian law firm, Mossack Fonseca, which had created offshore tax havens for wealthy patrons. Included in the mix were Russian President Vladimir Putin, Syrian President Bashar al-Assad, Saudi Arabia’s King Salman, and someone who, until then, was less well known: Icelandic Prime Minister Sigmundur David Gunnlaugsson. On April 6, Gunnlaugsson became the first politician to resign as a result of involvement with Mossack Fonseca. Now that he has left office, the future of Iceland, still feeling the sting of the global financial crisis, which caused the nation’s banking institutions to collapse, is up for grabs. And a band of pirates may ride the tide all the way to parliament.

FIRED AND ICED

The leaked Mossack Fonseca documents showed that Gunnlaugsson’s wife, Anna Sigurlaug Pálsdóttir, kept shares from the sale of her family’s Toyota dealership in an offshore company located in the British Virgin Islands. Gunnlaugsson himself owned 50 percent of the company, selling his shares to his wife months only after he was elected to parliament in 2009. The leak indicated that Pálsdóttir’s company, Wintris Inc., also held claims on Icelandic banks that had collapsed during Iceland's 2008 financial meltdown worth about $3.95 million. Before the Panama Papers went public, Gunnlaugsson had developed a reputation for being tough on foreign creditors that sought to recover assets from Iceland’s failed banks. But his credit vanished almost instantly after he delivered an embarrassing performance during a TV interview in which he denied ever owning an offshore company. Gunnlaugsson stormed out of the interview after being confronted with documents that contradicted his statements.

From the start, Gunnlaugsson has consistently denied any wrongdoing. He maintains that Wintris was taxed in full and his wife’s business interests did not interfere in his government’s dealings with foreign creditors. Even though there has been no indication that Gunnlaugsson's or Pálsdóttir’s financial dealings violated Icelandic law, few in the country are pleased to hear that the prime minister is sheltering money offshore while the government is set to slowly ease capital controls on its citizens, which include restrictions exchanging currency and transferring money abroad.

In fact, the morning after the Panama Papers were made public, as many as 22,000 people gathered in Reykjavik in front of the Althing, Iceland’s parliament. Some threw Icelandic yogurt, Skyr, at the steps of the building. Gunnlaugsson met with Icelandic President Olafur Ragnar Grimsson on April 5 to request permission to dissolve parliament and call elections, staving off a vote of no confidence that the opposition had put forward. Grimsson rejected the request, stating that Gunnlaugsson intended to use it as a political gambit. The fact that Gunnlaugsson did not confer with his party members before meeting the president led to a reported breach in trust and eventually forced Gunnlaugsson to step aside. Icelandic Minister of Fisheries and Agriculture Sigurdur Ingi Johannsson, Gunnlaugsson’s deputy, was introduced as the next prime minister later that day. His appointment, along with a cabinet shuffle, was confirmed last Thursday.

MORE OF THE SAME

Iceland’s political future is now uncertain. The former prime minister still serves in parliament, and he retains his position as Progressive Party chair. Iceland will hold elections this fall, about six months ahead of schedule. A majority of Icelanders, however, want parliament to dissolve immediately and for elections to take place as soon as possible. Protesters gather outside of the Althing every afternoon, demanding meaningful change. The governing parties, however, have an ample majority in parliament and seem set to remain in power until fall, citing the need to finish various legislative issues before holding elections.

Although Gunnlaugsson fell from grace quickly, the popular push for his ouster has its roots in Iceland’s economic collapse eight years prior. "The Crash," as it is known in Iceland, saw the nation’s banking system collapse, and Icelanders’ trust in government broken. They still feel betrayed by political and business elites and have little patience for wealthy politicians who exploit tax havens—especially as the nation slowly recovers from the crash.

According to University of Iceland Professor Gudni Th. Johannesson, popular discontent with Iceland’s political landscape has been endemic for a long time. “A large number of people feel that the current politicians are not living up to their pledges to play clean and fair,” he said. “In particular, it irks many that while the leaders of the nation speak about the necessity to stick together, that we are all in the same boat, they themselves see fit to hide their savings or investments abroad and use disreputable ways to do so.”

Many Icelanders had hoped that the crash would usher in an era of new and improved politics. They also hoped that prosecuting and sentencing bankers connected to the country’s fallen financial institutions would bring about closure. Additionally, the economy seems to be on the right track. Unemployment is currently not as significant as in other European countries and inflation is at an historical low. The Icelandic economy has grown at a steady rate of four percent since the economic collapse, fueled in no small part by extraordinary booms in tourism and by mackerel fishing. But seven years after the “pots and pans revolution,” which saw Icelanders clanging pots and pans during public protests against banks and the government, public trust remains low. And the Panama Papers may prove to be the final straw for many who believe that Iceland’s post-crash reforms have not gone far enough.

SEIZING THE SHIP

For decades, Iceland’s political scene has been defined by the “big four” parties: the conservative Independence Party, the centrist Progressive Party, and the left-wing Social Democrats and Socialist parties. But after the crash, Iceland’s political core found itself in a state of shock, and political elites saw their grip on power begin to erode. Two new parties—the centrist Bright Future and Pirate Parties—entered the fray. Reykjavik’s municipal elections in 2010 saw artist and comedian Jon Gnarr, founder of the Best Party, win his race for mayor.

But now, Iceland’s political powers are bracing as the Pirate Party looks to take advantage of the mutiny in Reykjavik. The party is pushing for a constitutional amendment that would ensure direct democracy and transparency, among other initiatives that have provided the Pirate Party with momentum. The party surged to the top of the polls a year ago, and it now towers over its conventional party rivals. A poll from April 6 gave the Pirate Party 43 percent approval ratings. Prior to that, the party had polled above 30 percent consistently since April of last year.

For now, though, the party has only three parliamentary representatives in a body of 63. In the last election, in 2013, the Pirate Party received five percent of the popular vote. The handful of other upstart parties failed to secure enough votes to provide them with any seats in parliament at all. But now, the governing center-right coalition, made up of the Independence Party and the Progressive Party, is in danger. Recent polls indicate that only 30 percent of the country supports the two parties, and support for the government itself hovers at 25 percent. The nation’s traditional opposition parties have even less support: the Social Democratic Alliance is polling around ten percent, which puts it just below the Left Green Movement. The Social Democratic Alliance and Left Green Movement parties were in power from 2009 to 2013, and oversaw the country’s economic recovery after the collapse.

Were the public to get its early election, it is possible that the Pirate Iceland will emerge as a key player in the Althing, possibly blazing a new trail in Icelandic politics. The Pirates have indicated that if they took control of parliament, they would appoint cabinet ministers from outside of the Althing, a break from the norm, in which ministers are almost always also MPs. They would press for constitutional reforms early into their time in power, as well.

PIRATE'S BOOTY

To be sure, plenty of people view the potential rise of the Pirates with concern. University of Iceland Assistant Professor Hulda Thorisdottir believes that if the Pirates’ momentum continues, the public might become wary of their potential to take power in the Althing, which could lead some to rally around the conventional parties. Support for the party has been driven by young voters, although the number of voters under 30 has declined in recent years. In other words, the groundswell of support for this merry band of outsiders may not materialize when votes are tallied.

Regardless, the Pirates are understandably upbeat about their increasing popularity. But to capitalize on such an unprecedented favorability, they must put promote candidates that are politically viable, articulate on policy issues, and can ensure that Iceland’s youth get to the polls and vote. The next few months are shaping up to write an interesting new chapter in the history of Icelandic politics. After decades of dominance by the nation’s four conventional parties, there is a formidable force waiting in the wings whose emergence might just change the Althing’s political game for good.