* Independence Party takes first place in vote
* Little public trust in parliament
* Election seen as rejection of bailout terms and EU
* Campaign focused on household debt relief
By Balazs Koranyi and Robert Robertson
REYKJAVIK, April 28 Fatigued by years of
austerity and swayed by promises of debt relief, Icelandic
voters dumped the Social Democrats from power on Saturday,
returning a centre-right government that ruled over its stunning
financial collapse just five years ago.
Once a European financial hub, this windswept north Atlantic
island of glaciers, geysers and volcanoes has been limping along
for years, still crippled from a crash that brought it to its
knees in just a matter of days.
"We are offering a different road, a road to growth,
protecting social security, better welfare and job creation,"
Independence Party leader Bjarni Benediktsson, the favourite to
become the next prime minister after his party took first place
in the vote, told Reuters as the results were coming in.
"What we won't compromise about is cutting taxes and lifting
the living standards of people," said Benediktsson, 43, a former
professional soccer player.
The victory caps a remarkable comeback for Benediktsson.
Just two weeks ago he considered resigning after record low
poll ratings prompted calls for him to hand over his party's
leadership to his deputy.
Hailing from a wealthy family with extensive business
interests, Benediktsson, an avid trout and salmon fisher, was
considered out of touch and tainted by the financial collapse.
Instead of stepping aside, he fought back with a rare
personal television interview, giving voters a glimpse of his
human side and propping up his party's ratings.
His Independence party took 26.5 percent of the vote, giving
it 19 seats in the 63-seat parliament. The Progressive Party
collected 22 percent, winning 18 seats, while the ruling Social
Democrats got 13.5 percent and 9 seats, according to results
with over two-thirds of the vote counted.
Benediktsson's first task will be to form a coalition,
although a tie-up with Sigmundur Gunnlaugsson's Progressive
Party, an ally in several governments over the past three
decades, is a widely expected outcome.
In a country where Nordic civility prevails, the president
walks without security and members of parliament are listed in
the phone book, coalitions are usually formed in just days.
"Historically two-party coalitions are the strongest and ...
if you look at the (results board) the choice seems to be
clear," Benediktsson said. "We'll go into coalition with whoever
we can govern with."
The Independence Party has been part of every government
between 1980 and 2009, presiding over the privatisation of the
banks, the financial sector's liberalisation and its eventual
Campaigning on a platform of tax cuts, it promised relief to
households whose inflation-indexed mortgages have kept growing,
despite several write-offs since the crash.
It also argued that foreign creditors of its failed banks,
now locked into the country because of capital controls, will
have to accept a massive write-off, perhaps as much as 75
percent, before they would be let out.
The write-off and the refinancing of other corporate debt,
for example to Landsbanki and Reykjavik Energy, could let
Iceland ease capital controls within 12 to 18 months,
Still, Gunnlaugsson was not yet ready to concede the
premiership: "Sometimes the biggest party delegates the prime
minister, sometimes not. We've seen all sort of governments."
The vote was also a de facto rejection of EU membership as
staunchly independent-minded voters rejected the Social
Democrats' argument that joining the block was the only way for
With a population of just 320,000, Iceland became a European
financial centre 10 years ago when its liberalised banks
borrowed heavily on ultra cheap overseas markets and lured
British and Dutch savers with high returns.
Amassing assets worth more than ten times Iceland's GDP,
Landsbanki, Kaupthing and Glitnir collapsed in quick succession,
dragging the entire country into a financial abyss in October
The shiny Land Rovers that some Icelanders purchased,
jokingly renamed 'Game Over,' were collected and taken offshore
by enterprising Europeans, property prices tumbled, unemployment
soared and the currency was only saved by capital controls that
locked in foreign investors indefinitely.
The Social Democrats stabilised the economy with a bailout
package hailed as exemplary by the IMF, but a series of policy
blunders, tax hikes, leniency toward foreign creditors and their
inability to deal with soaring household debt cost them
Leaden skies and driving sleet were a fair reflection of the
mood of voters who have seen promises of a quick recovery fade,
while mortgage debts rise, prices soar and capital controls keep
investment at a record low. Turnout of 83.3 percent was the
lowest since Iceland gained independence from Denmark in 1944.
"People seem to have a very short memory," Halldor
Gudmundsson, 44, said after casting his ballot on Reykjavik's
outskirts. "These are the parties that got us into the mess in
the first place."
Like many voters, he has little faith in the ability of
politicians to make a difference.
A recent Gallup poll showed that only 15 percent trust
parliament, making it the second least-trusted institution after
"There's so little room to manoeuvre and they promised so
much, their popularity will be gone in three months," said Egill
Helgason, a political commentator for the Icelandic national