Key Challenges

Iceland’s new coalition government, in office since 30 November 2017, faces several key challenges.
Labor market
tensions rising
Labor market prospects are unclear. Many wage agreements from 2015 to 2016 will expire between 2018 and 2019, with a majority of these agreements due to expire between December 2018 and March 2019. The outcome of these labor market agreements will be important for future agreements. Changes in the leadership of Iceland’s largest trade unions in 2018 have led to a more radical and aggressive policy stance on the part of the trade unions. The 2018/2019 winter seems likely to be one of serious discontent and labor market conflict, as the trade unions appear likely to demand substantial salary increases for their members following the large wage increases recently granted to business and political elites, demands that employers claim are economically irresponsible.
Health system facing financial strains
A further challenge faces the health care system, which has been under severe financial strain since the 2008 financial crash. Before the 2016 election and again in 2017, every political party promised to pay more attention to restoring health care provision to its earlier standing. There is political consensus on this approach and several steps in this direction have already been undertaken.
Tourism boom requires new infrastructure
Another major challenge concerns the dramatic rise in tourism in Iceland over the last decade, especially following the volcanic eruption of Eyjafjallajökull in 2010. Between 2010 and 2017, the total number of tourists visiting Iceland rose from 0.5 million to 2.2 million. This has had a dramatic impact on the national economy as tourism has suddenly become the most important earner of foreign exchange, surpassing the combined foreign exchange earnings of the fishery and aluminum industries. Iceland needs more and better quality infrastructure, including roads and airports, and public services (e.g., police and health care) to accommodate the huge expansion of tourism. Furthermore, the expected environmental effects of expanded tourism remain uncharted.
constitution draft
in limbo
The question of the new 2011 – 2013 constitution remains unresolved. After the constitutional referendum called by parliament in 2012, in which voters gave strong support to a constitutional bill drafted by the nationally elected Constitutional Council, parliament has failed to ratified the bill. The primary reason for this political failure has been the unwillingness of the Independence Party to accept the new constitution’s declaration that “Iceland’s natural resources which are not in private ownership are the common and perpetual property of the nation,” a provision supported by 83% of the voters in the 2012 referendum.
Proposal to be revised
over coming years
The result of the parliamentary elections in October 2017 did not offer a clear path forward. Prime Minister Jakobsdóttir has announced that the bill will be revised over the next two parliamentary mandate periods (i.e., eight years). Parliament’s continued disrespect for the clear result of the 2012 constitutional referendum is likely to lead Freedom House and other independent observers to further lower Iceland’s ranking among the world’s democracies.
Ferðamálastofa (Icelandic Tourist Board), Accessed 22 December 2018.

Gylfason, Thorvaldur (2018), “Chain of Legitimacy: Constitution Making in Iceland,” in Jon Elster, Roberto Gargarella, Vatsal Naresh, and Bjørn Erik Rasch (eds.), Constituent Assemblies, Cambridge University Press, New York, 2018. Also available as CESifo Working Paper No. 6018, July 2016.

Iceland Federalist Papers (2017). Accessed 21 December 2018.

Party Polarization

Political turbulence since 2008 collapse
Iceland has been above the OECD average for “Ideological Polarization in Party Systems” since the beginning of the measurement in 2013. Since 2016, however, Iceland has shown signs of greater polarization. There has been substantial turbulence in Icelandic politics following the economic collapse of 2008 and this increased further following the resignation of Prime Minister Gunnlaugsson due to his implication in the Panama Papers scandal in 2016. There have been two subsequent parliamentary elections in Iceland, one in October 2016 triggered by the Panama Papers scandal and one in October 2017 triggered by a pedophilia scandal.
Rising number of viable political parties; variety of focuses for new parties
The number of parties in parliament has increased over the last decade. In the 2007 and 2009 elections, five parties won seats in parliament. After the 2013 election, six parties were represented in parliament, which increased to seven parties in 2016. Since 2017, eight parties have been represented in the parliament. Whether this is a result of increased polarization in the political arena is not clear. The new parties now represented in the parliament (Althingi), such as Regeneration (Viðreisn) and the Center Party (Miðflokkurinn), were not established on the basis of any significant ideological polarization. Regeneration is essentially a liberal, pro-EU splinter group from the right-wing Independence Party. Meanwhile, the Center Party, a splinter group from the centrist Progressive Party, was formed by Gunnlaugsson, a former prime minister who was forced to resign in 2016. The Pirate Party and the People’s Party are more ideological. The Pirate Party emphasizes freedom of speech, free information, direct democracy, and transparency in politics and public administration. Meanwhile, the People’s Party focuses on the interests of the lowest-paid workers and vulnerable groups, such as the elderly and disabled.
Crypto-fascist tendencies not present
Crypto-fascist tendencies increasingly in evidence elsewhere in Europe are not visible in Icelandic politics. Nevertheless, latent sympathy with real or imagined foreign strongmen (e.g., President Putin and President Trump) and their methods can be discerned in the political discourse of some representatives of the Independence Party, including its main organ (Morgunblaðið), and the Center Party. For example, the constant criticism of RÚV, the state broadcasting corporation, by right-wing politicians is considered unfounded and unfair by most objective observers.
Traditional coalition patterns after crash
The pre-crash government (2007 – 2009) was a coalition of the Social Democrats and the Independence Party, and spanned the left-right ideological spectrum. However, two subsequent coalition governments (the left-wing 2009 – 2013 and the center-right 2013 – 2016 coalition governments) followed more traditional patterns of allegiance, with polarization more clearly evident then than it is today. Under the present coalition government (a coalition of the Independence Party, the Left-Green Movement and the Progressive Party, formed in 2017), the Left-Green Movement and the Progressive Party have historically been considered the main opponents of the Independence Party. Until recently, it is was considered highly unlikely (if not unthinkable) that the Independence Party and the Left-Green Movement would join forces in government, but that is exactly what happened after the 2017 election.
Current coalition spans political spectrum
During its first year in office, the current coalition government has not encountered any significant internal disputes concerning policy objectives, despite significant left-right ideological differences. Though some observers have not been surprised by the lack of internal conflict. The three current parties of government and the Social Democrats have long been referred to as the “Gang of Four” (Fjórflokkurinn) – a corrupt alliance of political parties perceived to behave like political interest organizations. (Score: 8)
Eva H. Önnudóttir and Ólafur Th. Hardarson: “Iceland 2017: A new government from left to right.” Accessed 21 December 2018.
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