Iceland’s Social Democrats Reach Agreement With New Government

Article content

(Bloomberg) – Iceland’s new coalition has agreed on a platform of austerity budget to fight inflation and a referendum to continue negotiations to join the European Union.

Article content

Article content

Following negotiations since early December, the Social Democrats who won the election on Saturday signed a government deal with the center-right Liberal Reform Party and the People’s Party that supports more public spending. Kristrun Frostadottir, chairman of the Social Democrats, will be prime minister.

The new cabinet appears to be paving the way for more investment as part of efforts to diversify the tourism-dependent economy that has become prone to cyclical growth. The government will also have the task of dealing with the growing difficulties in infrastructure such as health care and the school system after the high influx of foreign workers.

Article content

The trio, with a combined 36 seats in the 63-seat legislature, will replace the outgoing cabinet of incumbent Prime Minister Bjarni Benediktsson who was ousted by voters frustrated by the high cost of living and housing shortages. Although economic output appears to have stagnated this year, borrowing costs remain at 8.5% and inflation is expected to be 5.9% in 2024, according to central bank projections.

Thorgerdur Katrin Gunnarsdottir, head of Liberal Reform, will serve as foreign minister. Liberal Reform will also take charge of the Ministry of Finance, while the party’s vice-chairman Dadi Mar Kristofersson will be the head of finance.

Inga Saeland, head of the People’s Party, will be the minister of social affairs and housing. The three leaders of the party have been named “Valkyries,” a reference to the female heroes of Norse mythology, as the alliance will be the first in the country to be led by women only.

A national referendum on the continuation of negotiations on Iceland’s membership in the EU will be held before 2027, the parties said.

Iceland has been a member of the European Economic Area, an extension of the EU’s single market, since 1994 along with Norway and Liechtenstein. It applied to join the bloc in 2009 under the leadership of the Social Democrats, and accession talks were suspended in 2015 after a change of government.

Article content

According to a survey conducted in November by pollster Maskina, 55% of respondents considered it “very important or very important” to hold a referendum on EU membership during the next four-year government period.

“At the beginning of the election period, independent foreign experts will be tasked with preparing a report on the advantages and disadvantages of using the Icelandic krona and Iceland’s options in monetary matters,” the groups said.

The 36-year-old Yale-educated Frostadottir, a newcomer to the island’s politics, was the chief economist of local investment bank Kvika hf. She is a mother of two, has led the Social Democrats since 2022, and has worked for Morgan Stanley in New York and London.

Gunnarsdottir, 59, has been a member of Iceland’s parliament, the Althingi, for more than two decades and served as education minister from 2003-2009. He is a strong supporter of prudent fiscal policy and EU membership. His deputy, Kristfersson, 53, the incoming finance minister, is an economist by training and a resource economist.

(Reviews and important subjects, main principles from the second section)

Article content