Iceland PM Calls November’s Snap Vote as Coalition Disintegrates

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(Bloomberg) — Iceland’s Prime Minister Bjarni Benediktsson broke up his coalition government and called snap elections on the north Atlantic island in late November.

The move follows long-standing discontent, Benediktsson told reporters on Sunday afternoon in Reykjavik. He plans to visit President Halla Tomasdottir on Monday and ask her to dissolve parliament.

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“Toward the end of the fall, growing tensions between coalition parties began,” he said, naming asylum seekers and energy policy as other areas of division. “My conclusion is that there is no chance that a conclusion will be reached with these major problems.”

An early general election could lead to a power shift in the Nordic nation, where the opposition Social Democrats and Center Party are leading the polls. The last time the Social Democrats were part of a governing coalition was more than a decade ago after the collapse of Iceland’s bank which coincided with the global financial crisis.

The government disputes come after repeated volcanic eruptions in the southwestern peninsula of the country. In addition to taking the attention of the ministers, the earthquake led to the need to rebuild infrastructure and resettle about 1% of the country’s population.

The tourism-dependent island has also been dealing with persistent inflation and interest rates among the highest in western Europe. The central bank this month cut its quarterly borrowing costs to 9.0%.

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Jon Bjarki Bentsson, chief economist at Islandsbanki hf, expected the contraction to continue in November even though national elections could take place shortly after the decision. Still, the central bank “may be very cautious about taking big steps,” he said.

Benediktsson’s centre-right Independence Party has ruled with the Left Greens and the centrist Progressive Party since 2017. The prime minister only took office in April when her predecessor Katrin Jakobsdottir decided to run for president in the June election, where she placed second.

Benediktsson’s party has lost support in recent months, polling third, while the Left Greens’ support of around 4% makes them the least popular of the eight parties represented in parliament.

Still, voters tend to “return home” and ruling parties are likely to do better than polling suggests, says Eirikur Bergmann, professor of politics at Bifrost University. The Progressive Party is the most likely to join any subsequent coalition, he said, as their position in the center of politics makes it “easy for them to make deals on all sides.”

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Elections must be held no later than 45 days after the dissolution of parliament, said Benediktsson. Iceland was due to hold its general election in September 2025, although the Left Greens wanted the vote to be held in the spring.

The election also cast doubt on Iceland’s 2025 budget, said Gylfi Magnusson, an economics professor at the University of Iceland, and a non-partisan former economy minister.

“The most pressing thing in the political arena right now is next year’s budget bill,” Magnusson said by phone. “Although it has been sent” to the parliament, “it cannot be said how important it is when it is clear that the new government may take power before the end of the year.”

An important item in the budget is the possible sale of shares in Islandsbanki, which is planned to take place in two steps later this year and next year.

Two goals

The first term of this coalition reached its climax with the Covid-19 pandemic and the voters rewarded their crisis managers by renewing their mandate in 2021. Since then, there have been tensions over immigration policy, power generation and fisheries.

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Another issue that caused great difficulty for the cabinet was the sudden ban on whaling in 2023, which was put forward by Svandis Svavarsdottir, then Minister of Food and Fisheries. The ban, which surprised some groups, was later found to be unfair and without legal basis. Whaling continues in accordance with existing laws.

Svavarsdottir, who is currently the infrastructure minister, was last week appointed as the leader of the Left Green party, which is Jakobsdottir’s political home.

The asylum policy proved difficult for coalition partners to agree on. The Prime Minister’s Independence Party wants to take strong action, while the Left Greens even intervened in the family’s deportation, a request that was rejected. And on energy, the environmental movement is lashing out at the Independence Party’s plans to build more electricity.

—Courtesy of Philip Tabuas.

(Updates with the comments of economists, political scientists, from the seventh section)

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