Bloomberg News

Iceland’s Grimsson Sees Conflict as Record Re-Election Nears

June 26, 2012

Iceland President Olafur R. Grimsson

Iceland President Olafur R. Grimsson in March unexpectedly announced he would run for a fifth term, responding to a petition signed by almost 10 percent of Iceland’s 320,000 people. Photographer: Chris Ratcliffe/Bloomberg

Iceland President Olafur R. Grimsson predicted he’s the best person to steer the island nation through more turmoil and controversy as he closes in on being re-elected for a record fifth four-year term.

The 69-year-old, first elected in 1996, leads in the opinion polls with 45 percent backing ahead of the June 30 election, according to the average of three surveys released this month. Thora Arnorsdottir, a 37-year-old journalist and television presenter, polls second of a total of six candidates, garnering support of 37.7 percent, on average.

Grimsson in March unexpectedly announced he would run for a fifth term, responding to a petition signed by almost 10 percent of Iceland’s 320,000 people. The political science professor, former party leader and finance minister is the only top official to hold on to his position after a 2008 banking collapse triggered the worst recession in six decades.

“Under normal circumstances I would have come to a different conclusion, but more than 30,000 Icelanders, which is a significant part of all the voters in Iceland, requested that I continue,” he said in a June 21 interview in Selfoss, southern Iceland. “Many significant matters that are likely to lead to conflict and confrontations are going to be on the agenda in the coming years.”

The island’s three-largest banks defaulted on $85 billion in 2008 after an expansion abroad, plunging Iceland’s $13 billion economy into its worst recession since gaining independence from Denmark in 1944. The government escaped bankruptcy by refusing to back the banks, which allowed it to speed up its recovery and emerge from a 33-month International Monetary Fund rescue program in August.

Veto Powers

In a rare display of public outrage in the closely knit, homogenous nation, Icelanders amassed at parliament with rocks in 2009 to demand answers and accountability from the government. Protests escalated into rock throwing, forcing police to use teargas to disperse crowds at the legislature and the offices of Prime Minister Geir Haarde, who was forced to resign. A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009.

Grimsson, who had promoted the Icelandic banks before the crash, has also played an active role in its aftermath, tapping into public resentment by using the rarely activated veto powers of the largely ceremonial presidential post. He twice blocked a parliamentary accord that sought to repay British and Dutch depositors who had so-called Icesave accounts with failed lender Landsbanki Islands hf. Voters then rejected the agreement in a referendum and Iceland is now being sued by the European Free Trade Association for failing to honor depositors’ guarantees.

‘Theatrical Play’

Grimsson has said his pre-crisis support for the banks was based on assessments by Iceland’s Financial Supervisory Authority, an agency that was later criticized for its failure to supervise the industry.

Iceland’s Special Investigative Commission, in a 3,000 page report on the crisis published in April 2010, said Grimsson bears “moral responsibility for the theatrical play.”

He “forcefully drew a beautified, arrogant and nationalistic picture of the superiority of Icelanders, based on old heritage,” according the report. “It’s noteworthy that some of the qualities that the President thought were admirable were exactly the characteristics that eventually led to their and the nation’s demise.”

Political Arguments

To his main opponent, Grimsson has overplayed the power of the presidency. Arnorsdottir, a mother of three young children who gave birth to her youngest daughter on May 18, said she’s running to rein in the power of position.

“I believe that the president shouldn’t be a politician and that he shouldn’t participate in daily political arguments,” she said in a telephone interview. “Those are roles that should be carried out by the political parties and the lawmakers in the legislature. The presidency needs to be moved further away from the daily political discussions.”

Grimsson said he has responded to the call of the people to provide stability. “Numerous polls have shown that over 90 percent of the Icelandic population doesn’t trust” parliament, he said. “Under those circumstances, voters have called for a president in Bessastadir that possesses both experience and is reliable.”

Bessastadir is the formal residence of the president.

The four remaining candidates, Ari Trausti Gudmundsson, Herdis Thorgeirsdottir, Hannes Bjarnason and Andrea Johanna Olafsdottir all average less than 10 percent of the vote in the latest three polls.

Not Forget

The country is now in the midst of negotiating membership with the European Union, which is opposed by a majority, and is also struggling to unwind capital controls in place to protect the krona since 2008. At the same time, parliament is debating changes to the constitution that would increase the powers of the President and give voters greater opportunities to demand referendums on debated subject matters.

The country’s economy will expand 3 percent this year and 3.9 percent in 2013, according to Icelandic lender Arion Bank hf. The output of the 17 countries sharing the euro will contract 0.3 percent in 2012, before growing 1 percent in 2013, the European Commission said on May 11.

“Let’s not forget that there’s an economic crisis still engulfing some of the countries around us and there are turbulent times ahead in Icelandic politics,” he said. “Among them are the revision of the constitution of Iceland and the European Union membership.”

To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


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