Austerity-weary Iceland votes in national election

Saturday, April 27th, 2013 | Finance News

REYKJAVIK, Iceland (AP) — Icelanders were voting Saturday in a parliamentary election that could return to power the center-right parties that led the country into economic collapse five years ago — and stall plans to join the European Union.

Polls show the Progressive and Independence parties, who oppose EU membership and are promising to ease economic austerity, leading the Social Democrat-Left-Green coalition that has governed Iceland during four years of crisis and uneven recovery.

"The government that many people thought was cleaning up the mess is getting severely punished for the last four years," said political analyst Egill Helgason. "I don't know whether they deserve it. In many ways I think not. But this is politics — cruel."

Progressive Party chief Sigmundur David Gunnlaugsson and Independence Party leader Bjarni Benediktsson are the two most likely candidates for prime minister under the system of proportional representation used for elections to Iceland's 63-seat parliament, the Althingi.

The two parties governed Iceland for several decades, often in coalition, overseeing economic liberalization that spurred a banking and business boom — until Iceland's economy crashed spectacularly during the 2008 credit crisis.

Despite being widely blamed for the meltdown, the Independents and Progressives say they are best placed to lead the economic recovery.

The Progressives are promising to write off some mortgage debt, taking money from foreign creditors. Benediktsson's Independence Party is offering lower taxes and the lifting of capital controls.

"We believe we can do a lot for indebted households, but our plan is not to do only that" Benediktsson said after casting his vote in a Reykjavik suburb.

"I think the only way out of the economic difficulties we've had is growing the economy, and we need to create new jobs, start new investments and we have a very strong plan to start doing that tomorrow."

A volcano-dotted North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when the credit crunch took hold in 2008.

In the first years of this century, Iceland's economy experienced a credit-fueled boom that saw its banking sector grow to nine times annual gross domestic product.

Then all three major commercial banks collapsed within a week of one another in October 2008. The value of the country's currency plummeted, while inflation and unemployment soared. Iceland was forced to seek bailouts from Europe and the International Monetary Fund.

A wave of protest — dubbed the Saucepan Revolution after the pots and pans banged by demonstrators — ended with the government blamed for the crisis replaced with a left-of-center alliance led by Prime Minister Johanna Sigurdardottir, which opened EU membership talks.

Since then, Iceland has in many ways made a strong recovery. Unemployment has fallen and the economy is growing.

But inflation remains naggingly high, and many Icelanders still struggle to repay home and car loans they took out — often in foreign currencies whose value soared after the crash — in the years of easy credit.

That leaves many voters swayed by politicians' promises of debt relief. But others fear a return to economic instability.

Dadi Ingolfsson, a 40-year-old computer scientist voting at Reykjavik City Hall, said "Icelanders have a short term memory."

"This is quite serious if it ends up the same way as it did five years ago," he said.

Polls close at 2200GMT (6 p.m. EDT), with full results expected early Sunday.

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Associated Press writers David Mac Dougall in Reykjavik and Jill Lawless in London contributed to this report.

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