Iceland PM calls second snap election in less than a year

Iceland’s prime minister on Friday called for a second snap election in less than a year after one party in the ruling coalition quit the government.

The outgoing party, Bright Future, cited a “breach of trust” after prime minister Bjarni Benediktsson’s party allegedly tried to cover up a scandal involving his father.

The outgoing government would be the shortest-living in the history of Iceland, whose economy was wrecked by the collapse of its banking system nearly a decade ago.

The previous government was felled by the Panama Papers scandal over offshore tax havens last year.

“We have lost the majority and I don’t see anything that indicates we can regain that. I am calling an election,” Benediktsson told reporters.

He said he would be looking to hold the election in November though that would mean it would not be possible to finish next year’s budget.

It is ultimately up to President Gudni Johannesson, whom Benediktsson will meet with on Saturday, to make the decision on a new election.

If he accepts the call for an election he is likely to ask the government to stay in place until a new coalition is formed but he could also ask other parties to try form a majority.

The scandal

Bright Future accused Benediktsson of failing to inform the government that his father had signed a letter supporting a convicted paedophile’s bid to have his criminal record erased after serving five and a half years in prison.

“I was shocked to hear that. I could never sign such a letter and I would never defend such a deed,” the 47-year-old Benediktsson said.

“The board of Bright Future has decided to terminate cooperation with the government of Bjarni Benediktsson,” the party said in a statement.

“The reason for the split is a serious breach of trust within the government.”

The news knocked more than 1 percent off the value of the Icelandic crown against the euro and the dollar.

The prime minister’s father, Benedikt Sveinsson, confirmed on Friday that he had signed a letter supporting his friend’s application to have his “honour restored”, a procedure that effectively erases a criminal record. Among the requirements is a letter of recommendation from a close friend or associate.

Sveinsson said he had not discussed the letter with anyone.

“This week, it came forth that my father had written a letter... I couldn’t have written such a letter myself and I will never try to defend that,” Bendiktsson told a news conference.

Economic stability at stake

Capital Economics economist Stephen Brown said a change of government could frustrate plans to overhaul Iceland’s monetary policy framework.

Benediktsson’s administration has asked experts to look at options, including pegging the crown to the euro or the pound to keep sharp shifts in the currency from destabilising the economy.

The central bank cut interest rates four times in the year to June to tame the crown.

The currency has soared on the back of a tourism boom that has helped the economy recover from years of crisis but increased the risks of overheating. The strong currency is also hurting Iceland’s exports.