Iceland's Election Is a Tight Race as Left-Winger Bids for Power

(Bloomberg) -- Iceland may soon join New Zealand in electing a young, female, left-winger as prime minister, riding a wave of change that’s rippling through Western politics.

Katrin Jakobsdottir, 41, comes from a family of poets and politicians. A polyglot, she received a post-graduate degree with a dissertation on one of Iceland’s favorite noir writers. 

Her Left Green Movement is in a tight race with the ruling Independence Party in the polls. It’s never wise to rule out the Independents, which have led or taken part in 19 of the 27 administrations that have governed Iceland since it became a free nation in 1944, and are now staging a strong campaign despite being tainted by scandal.

But Jakobsdottir’s focus on inequality could make her the latest young politician to vault to power after the recent wins of Emmanuel Macron, Leo Varadkar, Sebastian Kurz and Jacinda Ardern, who are all in their 30s. She wants to tax the wealthy, use dividends from the banks to rebuild infrastructure or reduce public debt, make Iceland carbon neutral and boost public spending on health and education.

Analysts say a center-left government that pushes for an expansionary fiscal policy might accelerate an increase in interest rates and add to risks the economy will overheat.

Humbly Ambitious

Her supporters describe her as honest, straight-forward and ambitious.

"She’s a rather young woman, a mother of three who lives in an apartment block and cycles to work," the party’s former chairman, Steingrimur J. Sigfusson, told Bloomberg in Reykjavik. "People see in her a different kind of leader."

According to a recent poll, Icelanders value Jakobsdottir’s down-to-earth approach: nearly one in two want her to become the next prime minister. That’s double the support they give to her party. Such popularity appears to be borne from a deep desire for change.

The establishment has been dogged by scandal since the financial crisis and the collapse of its biggest banks, a decade ago. The outgoing prime minister, Bjarni Benediktsson, was forced to call a snap election just nine months into his term after it emerged that his father had written a letter vouching for the character of a convicted child molester. His predecessor, Sigmundur D. Gunnlaugsson, also had his tenure cut short after becoming the most high-profile casualty of the so-called Panama Papers.

Jakobsdottir’s Left Greens have supplanted the Social Democrats as the biggest force on the political left, centering their manifesto on feminism and environmentalism long before such issues went mainstream. Sigfusson says the party would look to the Social Democratic Alliance, the Progressive Party and the maverick Pirate Party as potential allies in a coalition government.

Fiscally Responsible

An education minister in Iceland’s last center-left government, Jakobsdottir opposes NATO and EU membership and has expressed reservations about free trade. A deal signed with the Philippines last year was opposed by the Left Greens on human rights grounds.

With the economy at risk of overheating and infrastructure in bad need of an overhaul after years of post-crisis restraint, political parties have been showcasing their fiscal policies on the campaign trail.

Critics say Jakobsdottir’s may not add up.

The Left Greens "want to tax the wealthy, but this tax base is very small," said Kristrun Mjoll Frostadottir, chief economist at the Icelandic Chamber of Commerce. "If you really want to generate income from taxation, the middle class is where the money is. Even raising their taxes by a couple of percentage points will take you far." 

At the same time, the economist describes the party leader’s pledge not to reduce the budget surplus as "responsible."

According to Gylfi Magnusson, an economics professor at the University of Iceland, investors shouldn’t be spooked by a Left Green victory.

"The emphasis will be different" depending on who wins, "but I doubt fiscal policy will look much different," Magnusson said. And even though a party may have fought against an agreement while in opposition, "it will honor it if it later comes to power."

©2017 Bloomberg L.P.