Davíð Oddsson

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Davíð Oddsson

Davíð Oddsson (born 17 January 1948, in Reykjavík, Iceland) is an Icelandic politician and the longest serving Prime Minister of Iceland (1991–2004). He then served as the Minister of Foreign Affairs in Iceland from 2004 to 2005. Previously, he was Mayor of Reykjavík (1982-1991), and at present he is Governor of the Central Bank of Iceland.

Early Years

Oddsson was born in Reykjavík. His father was a medical doctor, and his mother a secretary. His parents were not married, and he was brought up in his maternal grandfather’s home at Selfoss, a small town in the South of Iceland, until the grandfater died; then he moved with his mother and his grandmother to Reykjavik. He took an early interest in acting and attended an acting school for a while. He also attended the gymnasium Menntaskólinn í Reykjavík where he graduated in the spring 1970. There, he became well-known for a masterful interpretation of the leading role (the king) in the play Ubu le roi, set up by the students. He was also inspector scholae, or president of the Student Association. In the autumn of 1970, Oddsson married Ástríður Thorarensen, a nurse. The next six years, Oddsson read law at the University of Iceland, working almost full-time as well. He was assistant to the director of a small theatre (now the Borgarleikhúsið) for a while, and produced, with two friends, a popular radio comedy show for two years; he was for a while a political commentator at Morgunblaðið, and the director of publication of Almenna bókafélagið, a conservative publishing house. In 1973, Oddsson translated a book by the Estonian emigre writer Anders Küng on the communist oppression in Estonia. Upon receiving his law degree in 1976, Oddsson became a managing director of the Sjúkrasamlag Reykjavíkur (Reykjavík Public Health Insurance Company). He had been elected to the Municipal Council in Reykjavík in 1974, for the Independence Party.

Mayor of Reykjavík

Oddsson was a member of a group of young intellectuals within the Independence Party who felt that the party should support more strongly attempts to extend economic freedom in the heavily regulated Icelandic economy. He and his friends, who included Þorsteinn Pálsson, Geir H. Haarde, Jón Steinar Gunnlaugsson, Kjartan Gunnarsson, Magnús Gunnarsson, Brynjólfur Bjarnason and Hannes Hólmsteinn Gissurarson, published the magazine Eimreiðin in 1972-1975; in the following years they followed with interest what was happening in the United Kingdom under Margaret Thatcher and in the United States under Ronald Reagan; they also read books and articles by and about Milton Friedman, Friedrich Hayek and James M. Buchanan, who all visited Iceland in the early 1980s and whose messages of limited governments, privatisation, and liberalisation of the economy had a wide impact. Oddsson got a chance to further his ideals when the Independence Party, under his leadership, regained the majority in the Municipal Council which it had lost four years earlier to three left-wing parties. Oddsson swiftly reduced the number of Council members from 21 to 15, and privatised the largest fishing firm in Reykjavik which had been a huge burden on the municipality, but which merged with a private company and is now Grandi, one of the strongest fishing firms in Iceland. Oddsson also built a City Hall, by the Reykjavík pond (there had never been a City Hall in Reykjavík), and a big restaurant, Perlan, revolving over the old water tanks in Öskjuhlíð; the city of Reykjavík in 1986, on its 200th birthday, received an old and distinguished, but somewhat derelict building in Viðey, an island close to Reykjavík, and on Oddsson’s initiative, it was rebuilt. In the nine years when Oddsson was mayor, a whole new district of Reykjavík, Grafarvogur, was built and also a new city centre around the shopping mall Kringlan. A forceful and uncompromising politican, Oddsson was much-criticized by the left-wing opposition in the Reykjavík Municipal Council.

Alliance with Social Democrats

Oddsson’s old friend and ally, Þorsteinn Pálsson, had been elected leader of the Independence Party, and in 1989 Oddsson had been elected deputy leader, or Vice-Chairman of the Party. After Pálsson had to abdicate as Prime Minister in 1988, after falling out with his government partners, there was a widespread feeling in the party that its leadership should be changed, and much pressure on Oddsson to stand against Pálsson. This he did in 1991, and became leader of the Independence Party. Under Oddsson’s leadership, in the parliamentary elections of 1991, the Independence Party regained most of the support it had lost in 1987 when it had been severely weakened because of a split in its ranks. In record time, Oddsson formed a coalition government with the social democrats, Alþýðuflokkurinn, whose leader, Jón Baldvin Hannibalsson, became Minister of Foreign Affairs. Oddsson and Hannibalsson jointly decided that Iceland should become the first state to recognise the reinstatement of the sovereignty and independence of the three Baltic countries, Estonia, Latvia and Lithuania, after the fall of communism.

Oddsson’s government inherited a huge government deficit, and a backlog of public malinvestments; much money had been invested, for example, in fish farming, with little result. Inflationary pressures were also building up, and the fish stocks in the Icelandic waters were being depleted. The government deficit was turned into a surplus in 1996, not least because of the close cooperation between Oddsson and Friðrik Sophusson, the Minister of Finance. There has been a surplus almost continuously since then, which has been used to reduce the public debt, and also to reform the pension system, which is now almost wholly self-supporting. Monetary constraints were imposed by making the Central Bank largely independent of any political pressures. It also helped the Oddsson government that there was a wide consensus between the labour unions and the employers that the rampant inflation of the 1980s, with huge, but largely meaningless, nominal wage increases, could not go on; therefore, in 1990, the unions and the employers had signed a “National Accord”, whereby wage increased would be moderate, and government would be assisted in bringing down inflation. Since 1991, inflation in Iceland has been on a level with the neighbouring countries.

It has been argued that it helped much to open and liberalise the economy, that Iceland became, in 1994, a member of the European Economic Area (EEA). It should be pointed out, however, that neither privatisation nor cuts in the corporate tax rates (down from 50% to 30%, with the abolition of a special turnover tax) were brought about by the EEA membership. In the first four years of Oddsson’s first government, also some small companies were privatised, with great success. However, the social democrats refused to accept the privatisation of the two commercial banks under government control. Also, they did not want to develop the existing system of individual transferable quotas in the fisheries (ITQs) into more clearly defined individual rights. Instead, they wanted to declare the quotas public property and either rent them to the fishing firms and auction them off. This idea met with much opposition by the owners of the fishing firms many of whom were strong supporters of the Independence Party. Nevertheless, in the first four years of Oddsson’s government there was a widely-perceived shift in the public opinion: people ceased to look to government for remedies for their troubles. Oddsson himself jokes that he managed to empty his waiting room at the Ministry: there were no more government favours to hand out.

Alliance with Progressive Party

In 1994, the social democrats split, and as a result they suffered a huge loss in the 1995 parliamentary elections. While in theory the coalition government maintained its majority, it only consisted of one seat. Oddsson therefore decided to form a coalition with the Progressive Party which has its power basis mainly in the countryside, supported by farmers and the inhabitants of the small villages scattered around the coastline in Iceland. The leader of the Progressive Party, Halldór Ásgrímsson, became Minister of Foreign Affairs. In the new government, privatisation was continued, on a much greater scale than before. For example, a big and important chain of fish processing plants was sold; semi-public or public investment funds were merged and sold as a private investment bank; most importantly, the two commercial banks under government control were sold in a few stages, and are now wholle private; in 2005, the Icelandic telephone company was also privatised. The two coalition parties worked together to stabilise the legal framework in the fisheries: They accepted the loud demand by many people that a charge would be imposed on the holders of fishing quotas, but at the same time, the quota system has been stabilised and liberalised, to some extent.

Oddsson’s two governments have been staunch allies of the United States and strongly in support of NATO of which Iceland is a founding member. Oddsson for example supported the actions undertaken by the U.S. and its allies in Afghanistan and Iraq. After the fall of communism, there has been some uncertainty however on whether the American defence force could or should remain in Iceland, having been invited there in 1951, at the height of the Cold War. The Icelandic government believes that the U.S. should continue to commit itself to the defence of Iceland, while it has also made clear its willingness to share in the costs of maintaing the arrangements. Oddsson has not been enthusiastic on joining the European Union (EU), unlike for example the leadership of the social democratic party. A vocal supporter of a free market, Oddsson has publicly expressed doubts about the dirigeste tendencies of the Brussels bureaucracy; he has also pointed out that Iceland, as a prosperous high-income nation would have to contribute much more to the EU than it would get back; again, and more importantly, it would have to cede control of the Icelandic waters, fought for and gained in many “cod wars” of the past with the United Kingdom, to Brussels; while Iceland has a reasonably well-functioning system of fisheries management, there is a consensus that the Common Fisheries Policy (CFP) has not been successful.

The latter Oddsson government (since 1995) has embarked on a course of ambitious tax cuts. It cut the corporate incomes tax down to 18%; it has abolished the net wealth tax; it has lowered the personal incomes tax; and it has lowered the inheritance tax. There is little doubt that the combination of the opening up of the economy, fiscal and monetary stabilisation, the privatisation of many vital companies, and the corporate tax have together created an entrepreneurial climate in Iceland. Since 1995, there has been record economic growth in Iceland, with the real average income of individual households increasing by more than one-third.

After the elections of 2003, it was agreed that Davíð would cede his office in September 2004 to Halldór Ásgrímsson, the head of the junior coalition partner Progressive Party (Framsóknarflokkurinn). Davíð made an announcement 7 september 2005 that he was withdrawing from politics. The vice-chairman of the party and then minister of finance Geir Haarde took over the foreign ministry later that month and was voted the chairman of the Independence Party at the next general meeting.

Davíð, on the other hand, took the position of the Chairman of the Board of Governors of the Central Bank of Iceland, the most powerful post within that institution.

Although educated as a lawyer and serving as a politician for most of his working life, Davíð Oddsson has never laid aside his literary enthusiasm: during his days in office he has authored several plays, published two volumes of short stories, as well as some poetry.

Politically, Davíð has championed the Icelandic right-wing cause presiding over privatization of multiple government owned corporations. He is the only member of parliament in the history of Icelandic politics who has never held a seat without being a minister as well (mainly as prime-minister).

Davíð's political achievements are far from being undisputed. Opposition critics have maintained that he should be held responsible for obscuring distinction between the legislative, judiciary and executive powers. He has also been criticised for disregarding proper democratic processes in recent controversies over political issues as the fish quota, legislative constraints on the free media, support of the U.S. led invasion of Iraq, the building of Hydro-electric power-plants and aluminium factories in nature resorts.

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Davíð Oddsson with George W. Bush in the White House

Though these matters have raised some controversy, it does not look like it has affected Davíð Oddsson's popularity within his own party. At the latest party conference he received 98% of the party leader votes. Because the Independence Party (Sjálfstæðisflokkurinn) has had important role in past coalition governments, Davíð Oddsson's influence will remain important in Iceland’s future.

In foreign affairs Davíð has been pro-American from the start and a staunch NATO supporter. He is opposed to Icelandic membership of the European Union.

External links

• Article on Icelandic economic miracle by H.H.Gissurarson in Wall Street Journal 2004
• Oddsson’s address on the Icelandic economy at the AEI in Washington DC 14 June 2004
• Oddsson’s paper on Iceland and the EU at Linacre College, Oxford, 27 April 2004
• Comments by Richard Rahn on Oddsson’s paper at Mont Pelerin Society meeting in Iceland