Iceland heads into its second snap parliamentary election in less than a year on Saturday with the financial crash that brought the country to its knees nearly a decade ago still playing out in its politics.



The island’s economy is thriving again, thanks mainly to an unprecedented tourism boom, but some of its top politicians have been hit by a succession of financial and ethical scandals that have badly dented voters’ trust.

The prime minister, Bjarni Benediktsson, called the election last month after his three-party government collapsed over an alleged attempt to cover up efforts by his father to help “restore the honour” of a convicted child sex offender.

Benediktsson formed his centre-right coalition barely 10 months ago, following early elections triggered by his predecessor’s resignation. Sigmundur Davíð Gunnlaugsson had stepped down amid public fury at revelations in the Panama Papers that his family had sheltered money offshore.

The Guardian revealed this month that while an MP, Benediktsson – whose name also appeared in the Panama Papers – had himself sold millions of króna of assets in a major Icelandic bank’s investment fund as the state was about to seize control of the country’s failing financial sector at the peak of the 2008 crisis.

The prime minister, a member of one of Iceland’s wealthiest families, has denied any wrongdoing, but newly leaked documents suggest his relationship with Glitnir bank was close enough to raise serious questions about a possible conflict of interest between his roles as an MP and one of its most valued clients.

Glitnir Holdco, which administers the collapsed bank’s estate, has since sought an injunction preventing Stundin and Reykjavik Media, the Icelandic news outlets that worked on the investigation with the Guardian, from publishing more of the leaked data. Benediktsson has said he had nothing to do with the gagging order.

Despite the scandals, polls show the prime minister’s conservative Independence party – a member of 19 of the 27 governments that have run modern Iceland – is now edging ahead in the race with its main rival, the Left-Green Movement, which earlier this month held a clear lead.

Headed by 41-year-old Katrín Jakobsdóttir, the Left-Greens have largely succeeded the more traditional Social Democrats as the leading party of the Icelandic left, campaigning against inequality and for greater investment in public services and higher taxes for the better-off.

Polls show nearly half of Iceland’s voters would like the popular Jakobsdóttir, seen as representing a new breed of politician, to be prime minister – around twice the number who say they plan to vote for her party. A centre-left government would be only the second since Iceland won full independence from Denmark in 1944.

At least six other parties – including a new Centre Party launched by Gunnlaugsson – could win seats in the 63-member alþingi in a continuing fragmentation of Icelandic politics that reflect mounting voter dissatisfaction with the cronyism and corruption many see as endemic in their political and business classes.



Iceland was plunged into a deep recession following the 2008 crash, during which its three major banks, including Glitnir, failed with liabilities of 11 times the country’s GDP. The stock market fell 97%, the value of the króna halved, and Iceland became the first western European country in 25 years to ask the International Monetary Fund for a bailout.



A perception now exists that Benediktsson, 47, “is part of the elite that crashed the system”, said Egill Helgason, a political commentator at the public broadcaster, RUV. The prime minister and his circle suffer from a serious lack of trust in the wake of recent scandals, he said.

With growth surging at 7.2% last year, however, and unemployment down at just 2.5%, it seems likely that many Icelandic voters still see the Independence party, which has campaigned on a platform of tax cuts and more business investment, as the most likely to deliver economic stability.

