Investors drawn to Iceland’s high yields following the partial dismantling of capital controls are facing parliamentary elections that could produce a toxic mix of political turmoil and radicalism. Klaus Spoeri, a fund manager at Frankfurt-Trust, says that while he recently bought more Icelandic bonds because of their attractive yields of more than 5 percent, he’s now holding off. “We’re quite confident about Iceland and the turnaround,” Spoeri said. But if Saturday’s elections should “go wrong, we’ll liquidate the position.” Despite an impressive turnaround in the economy, latest surveys suggest the ruling conservative coalition of the Independence and Progressive parties stands little chance of surviving the election. An untested alliance of opposition parties has set its sights on the leverages of power. The alliance is spearheaded by the Pirate Party, a direct-democracy movement that’s been leading the polls by riding a global wave of resentment toward the establishment.
In the run-up to election day, the Pirates have met with other opposition leaders to explore the possibility of forming a government as soon as all votes have been counted. Latest polls say the Pirate Party, the Left Green Movement, the Social Democratic Alliance and A Bright Future could together muster a comfortable enough majority to push for constitutional change and higher taxes.
According to Lars Christensen, an economist with the Copenhagen-based consultancy Market and Money Advisory who predicted Iceland’s dramatic 2008 crash, such a heterogeneous alliance risks producing a fragile and undecipherable administration.
“If we get a four party coalition, it will be four quite different parties and a lot of inexperienced policy makers,” Christensen said in an interview.
Full Article: Investors Who Poured Into Iceland Now Face ‘Messy’ Election – Bloomberg.
