Icelanders don’t mince their words; the Panama Papers scandal has been described as a ‘betrayal’, the Prime Minister as ‘arrogant’ and the country as being in ‘crisis mode.’ Following the discovery of offshore funds connected to Prime Minister Sigmundur Gunnlaugsson, days of national protests led to his stepping down and the government installing a replacement until elections in autumn. What does this mean for Iceland, a country that has only recently recovered from the effects of an enormous banking crash in 2008?
The leak of 11 million documents containing details about the tax exploits of many of the world’s most prominent figures have sent shockwaves around the world, but nowhere more so than in Iceland. It was revealed that his family owned offshore holdings in an investment company – Wintris – with claims on Iceland’s failed banks – multi-million pound claims. Tens of thousands of Icelanders took to the streets calling for the government’s removal, with some reports claiming that up to 14 per cent of Iceland’s 330,000 inhabitants took part in protests. With numbers like that, it is perhaps no surprise that Gunnlaugsson stepped down. However, public discontent is only one reason why his story has become so notorious amongst the lineup of red faces the papers have caused.
With the Prime Minister now out of office, the two leading parties in Iceland’s coalition government have handed control to Sigurður Ingi Jóhannsson, the agriculture and fisheries minister. Although it is unlikely that he will make any major policy changes between now and the election, this sudden change of government is undoubtedly going to create uncertainty for both the government and the electorate. Whenever an election is called unexpectedly, it drastically limits campaign times and makes it harder for the electorate to engage with them. This could cause an election result that would have been different had it been expected – speculative, yes, but something to think about when considering the effect a sudden change of government could have.
These revelations about the former Prime Minister’s offshore earnings have been seen as a betrayal and an undermining of Iceland’s recovery. . . .
One of the reasons why the Panama Papers scandal has been so devastating for many in Iceland is because this is not the first time they have seen a financial crisis of this scale. In 2008, the world was shaken by an economic downturn that saw unemployment soar and businesses fail. In Iceland, the downturn caused three major banks – Kaupthing, Glitnir and Landsbanki – to collapse within days of each other. The value of the krona also halved and the Reykjavik stock market fell by 97 per cent. The former Prime Minister had offshore bonds in these banks, leading many Icelanders to feel as though they had been betrayed. The effects of the downturn were harsh, and it has only been in the last few years that Icelanders have begun to feel as though the country was on the road to recovery. These revelations about the former Prime Minister’s offshore earnings have been seen as a betrayal and an undermining of Iceland’s recovery at a time when the population is only just beginning to feel like the country is back on track.
This could have far-reaching implications for public trust in government, possibly creating voter apathy and leading to a decrease in voter turnouts. Iceland is a country which obviously values democracy – the 2013 election saw an 81 per cent turnout, and the six previous elections all saw turnout rates of over 80 per cent, with no compulsory voting. A betrayal on the scale of Gunnlaugsson’s in a country as democratically-focused as Iceland could have drastic implications for voter confidence whatever the result of the election. In the long term, this could create apathy and distrust of the government, which could undermine the stability of future governments. Lack of confidence could also have economic effects as people may become less likely to invest if they do not have confidence in their government’s relationship with the economy. Iceland’s economy has only recently recovered significantly from the crash of 2008, so a slump in confidence could serve to undermine this recovery. This may be speculative, but it is nonetheless worth considering.
Recent years have seen a rise in the popularity of the right in Denmark, Sweden, Finland and Norway as well as across Europe more widely.
Interestingly, the Iceland Monitor has reported that public support for the government has actually increased in the aftermath of the scandal. A Gallup poll shows that electorate support for the government now stands at 34 per cent – up four points from the first week of April. Of course, support for the government and support for the Prime Minister specifically are not necessarily the same, and it may simply be that Icelanders believe that Gunnlaugsson was an exception within his government. However, it has also been reported that his party – the centre-right Independence Party – has seen a swell of support despite the party leader Bjarni Benediktsson and Home Affairs minister Ólöf Nordal also being named in the Panama tax havens list. This is somewhat confusing given the high levels of protest following the leak, but the poll may not be entirely accurate. As we saw in the 2015 general election, polls can never be completely reliable so it is possible that this result does not reflect the views of those most disappointed in the government.
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Iceland Monitor has also reported that the Left-Green Movement has seen a rise in support from 11 per cent to 19.8 per cent, which could suggest that Iceland is bucking current Nordic trends. Recent years have seen a rise in the popularity of the right in Denmark, Sweden, Finland and Norway as well as across Europe more widely. In 2015, Denmark’s centre-left coalition was defeated and replaced by a minority government supported by the Danish People’s Party, a centre-right movement which doubled its support base in the last election. Norway’s current government also has a large Conservative faction, and the social-conservative, nationalist Sweden Democrats party has also been enjoying strong support. While the previous point about the accuracy of polls still stands, this shift in support could have significant implications for the makeup of future Icelandic coalitions and subsequent governmental cooperation.
The Panama Papers will go down in history as one of the most shocking information leaks of all time – and for some, the most embarrassing.
What could the scandal mean for Iceland’s relationship with other counties? The short answer is, probably, not much. While Gunnlaugsson’s scandal may be painful to the people of Iceland and shocking to spectators in other countries, it is unlikely that this will change the government of Iceland’s interactions with other states. Of course, much of the nature of relations between Iceland and other states will depend on the character of the new Prime Minister and how willing he is to make compromises, but this is no different from the situation whenever the leader of a state changes, with a famous example of this being the differing attitudes of Roosevelt and Truman towards the USSR during the 1940s.
Whatever happens, the relationship between Iceland and its neighbours and allies will probably remain the same as they recently have been as there appears to be no significant instability at the time of writing. Similarly, this scandal is unlikely to have much effect on Iceland’s tourism and export industries. Promote Iceland has conducted a survey which suggests that international media has not become any more hostile towards the country, with the managing director stating that the PR situation in Iceland remains stable and the country’s image is largely unscathed. Of course, the job of Promote Iceland is to maintain the country’s image and so a statement of this nature may be considered questionable, but it does appear that it is accurate in this instance.
The Panama Papers will go down in history as one of the most shocking information leaks of all time – and for some, the most embarrassing. Gunnlaugsson’s removal and the public’s contempt for corruption have shown the power of information leaks and, if nothing else, brought the murky topic of tax havens back into public consciousness. When judging the future effects of the scandal on Iceland it is impossible not to speculate, especially as outsiders with little understanding of the country’s political culture. However, it is worth keeping an eye on as the aftershocks subside, as this scandal may prove to be just as exciting as your favourite Scandi-noir thriller… just, perhaps, with less taxes.