Why has Iceland returned to the politicians who caused their crisis?

The centre-right's victory masks growing disaffection with politics.

As Iceland re-elects the parties that led it into the financial crisis and Italy forms its broadest coalition since 1946 to the sound of gunfire, something strange is afoot in European politics. As the economic crisis rumbles on past the five-year mark, traditional party systems across the continent are under strain and contorting themselves into ever-more unusual arrangements to meet the challenge posed by the plunging living standards of their electorates.

In retrospect Britain, which elected its first coalition since World War II in 2010, now looks like a trend-setter. Everywhere one looks across the continent, the financial crisis has upended the old patterns of politics. The "grand coalition" of left and right in Italy is only the latest example of political parties closing ranks against threats to their traditional position – in this case, economic woe and a surge by the anti-establishment Five Star Movement, which may be led by a comedian but proved it was no joke by garnering over 25 per cent of the vote in February’s election.

Meanwhile in Iceland, voters have just returned the centre right to power in the form of the Progressive Party and the Independence Party. These are the parties many blame for getting them into a financial mess in the first place. It was Independence Party Prime Minister David Oddsson who gave Iceland its version of the City’s "big bang" and was central bank governor when the financial crisis struck. That voters would turn back to these old hands – much less in the biggest electoral swing in Iceland’s independent history – is, to put it mildly, a sign of some desperation.

The head of Iceland's Pirate Party – another anti-establishment force which just won its first seats in a national legislature, becoming the first Pirate Party to do so – was rueful about the return of the centre right. "It is the problem of the leftwing," said Birgitta Jonsdottir, a Pirate Party MP. "They clean up the vomit after the cocaine party of the neocons, who go into rehab and then come back to reap the benefits." But the very success of her own movement is a sign of something else – outsiders are increasingly crashing the party.

Europe's national governments all share a basic impotence in the face of the economic crisis and the austerity consensus imposed from Brussels, Berlin and the bond markets. Even Iceland, which has its own currency, is not fully ruler in its own house – and the outgoing government had received many plaudits from outsiders like the IMF. The exact party configurations ruling in each capital are, to an extent, besides the point in the face of this external pressure. Witness how France’s first Socialist government in twenty years is now planning to slash capital gains tax to attract businesses.

This impotence is leading to a general decline of established party systems across Europe. Voters are realising that none of the traditional parties can fundamentally challenge the austerity consensus, and are turning to outsiders who might. Italy's Five Star Movement is one example. Greece's Coalition of the Radical Left (Syriza), which is now the second-biggest party in the country’s legislature, is another. Even UKIP is capitalising on the mess on the continent and economic fears here at home to shake up the British political scene.

As austerity passes into its second half-decade – and as forecasts for when it will come to an end are pushed further into the future – the strain on Europe’s traditional parties will increasingly show.  If Italy’s broadest coalition since World War II and Iceland’s establishment parties cannot deliver economic security to their voters – and there seems little reason to think they can – then what happens next will be unpredictable.  Voters are running out of options near the traditional centres of their politics.

All of this poses the greatest long-term threat to the austerity consensus across Europe, as perhaps leading figures in Brussels and Berlin are starting to realise as they rhetorically distance themselves from austerity and start to talk about how, as Jose Manuel Barroso said recently, the policy has reached the limits of its popular support. But the pull of the consensus – tied up as it is with continued euro membership and the European project as a whole – remains strong.

If European governments of the traditional left and right don’t find a way to keep public confidence in both themselves and the European project alive, then we will see outsiders keep rising and rising until one day they rise all the way into power. Even more worrying is what happens when despair at the political centre becomes despair over the political system as a whole, and starts to find expression in movements like Greece's Golden Dawn or in senseless acts of violence like the shooting of two police officers in Rome. They too are warning signs on the road to an austere future.

Birgitta Jonsdottir, leader of Iceland's anti-establishment Pirate Party. (Photo: Getty.)
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What Brussels can learn from the Italian referendum

Matteo Renzi's proposed reforms would have made it easier for eurosceptic forces within Italy to gain power in upcoming elections in 2018.

The Austrian presidential elections can justifiably be claimed as a victory for supporters of the European Union. But the Italian referendum is not the triumph for euroscepticism some have claimed.

In Austria, the victorious candidate Alexander van der Bellen ruthlessly put the EU centre stage in his campaign. “From the beginning I fought and argued for a pro-European Austria,” he said after a campaign that saw posters warning against “Öxit”.

Austrians have traditionally been eurosceptic, only joining the bloc in 1995, but Brexit changed all that.  Austrian voters saw the instability in the UK and support for EU membership soared. An overwhelming majority now back continued membership.

Van der Bellen’s opponent Norbert Hofer was at an immediate disadvantage. His far right Freedom Party has long pushed for an Öxit referendum.

The Freedom Party has claimed to have undergone a Damascene conversion but voters were not fooled.  They even blamed Nigel Farage for harming their chances with an interview he gave to Fox News claiming that the party would push to leave the EU.

The European Commission, as one would expect, hailed the result. “Europe was central in the campaign that led to the election of a new president and the final result speaks for itself,” chief spokesman Margaritis Schinas said today in Brussels.

“We think the referendum in Italy was about a change to the Italian constitution and not about Europe,” Schinas added.

Brussels has a history of sticking its head in the sand when it gets political results it doesn’t like.

When asked what lessons the Commission could learn from Brexit, Schinas had said the lessons to be learnt were for the government that called the referendum.

But in this case, the commission is right. The EU was a peripheral issue compared to domestic politics in the Italian referendum.

Alberto Alemanno is Jean Monnet Professor of EU Law and an Italian. He said the reforms would have been vital to modernise Italy but rejected any idea it would lead to an Italian Brexit.

“While anti-establishment and eurosceptic actors are likely to emerge emboldened from the vote, interpreting the outcome of the Italian referendum as the next stage of Europe’s populist, anti-establishment movement – as many mainstream journalists have done – is not only factually wrong, but also far-fetched.”

Renzi was very popular in Brussels after coming to power in a palace coup in February 2014. He was a pro-EU reformer, who seemed keen to engage in European politics.

After the Brexit vote, he was photographed with Merkel and Hollande on the Italian island of Ventotene, where a landmark manifesto by the EU’s founding fathers was written.

This staged communion with the past was swiftly forgotten as Renzi indulged in increasingly virulent Brussels-bashing over EU budget flexibility in a bid to shore up his plummeting popularity. 

Commission President Jean-Claude Juncker even publicly reprimanded Renzi for demonising the EU.

Renzi’s vow to resign personalised the referendum. He gave voters a chance to give him a bloody nose when his popularity was at an all-time low.

Some of the reforms he wanted were marked “to be confirmed”.  The referendum question was astonishingly verbose and complex. He was asking for a blank cheque from the voters.

Ironically Renzi’s reforms to the constitution and senate would have made it easier for the eurosceptic Five Star Movement to gain power in upcoming elections in 2018.

For reasons best known to themselves, they campaigned against the changes to their own disadvantage.

Thanks to the reforms, a Five Star government would have found it far easier to push through a “Quitaly” referendum, which now seems very distant.  

As things stand, Five Star has said it would push for an advisory vote on membership of the euro but not necessarily the EU.

The Italian constitution bans the overruling of international treaties by popular vote, so Five Star would need to amend the constitution. That would require a two thirds majority in both houses of parliament and then another referendum on euro membership. Even that could be blocked by one of the country’s supreme courts.

The Italian referendum was closely watched in Brussels. It was hailed as another triumph for euroscepticism by the likes of Farage and Marine Le Pen. But Italians are far more likely to be concerned about the possibility of financial turbulence, which has so far been mildly volatile, than any prospect of leaving the EU in the near future.

James Crisp is the news editor at EurActiv.com.