The Real Winner of the Icelandic Election

Sigmundur Gunnlaugsson, leader of Iceland's Progressive Party (L) and Bjarni Benediktsson (R), leader of the Independence Party
Sigmundur Gunnlaugsson, leader of Iceland's Progressive Party (L) and Bjarni Benediktsson (R), leader of the Independence Party

Saturday's parliamentary elections in Iceland saw the Independence Party – which was banished from power in 2009 following the country's financial crisis – once again emerge as the largest party, with a 26.7 percent share of the vote.

The result was a "dramatic comeback" for Bjarni Benediktsson's party following its disastrous campaign in April 2009, which took place four months after the party resigned from government amid mass street protests over the financial crash. Following Saturday's results, Beneditktsson said, "The Independence party has been called to duty again."

However, while the media has hyped up the return of the Independence Party from the abyss in just four years, Silja Bára Ómarsdóttir, a professor of politics at the University of Iceland, argues that Benediktsson cannot be seen as the winner.

"True, they are the largest party in Parliament," Ómarsdóttir said, "but they only picked up three percent more of the vote than they did in 2009, which was a historic low for the party. So, their performance is really very poor if you look at the party's traditional status in Icelandic society, where it normally has about a third of the seats in Parliament."

Indeed, the Independence Party was the traditional party of government, winning the largest share of the vote in all elections between 1929 and 2009.

(Read More: Icelanders Oust Government Over Austerity Program)

Ómarsdóttir believes that Sigmundur Gunnlaugsson, the leader of the Progressive Party, is the real winner of the election and that he is more likely to become the next prime minister, leading a new coalition government with Benediktsson.

The Progressive Party may have only achieved 24.4 percent of votes, a few points less than the Independence Party, but both parties still managed 19 seats each within the Icelandic parliament.

In terms of share of the vote, Saturday's result is the Progressive Party's best performance since 1967 and the last time it had 19 seats was in 1963. The Progressives saw their share of the vote increase by 10 percentage points since 2009, far greater than the Independents' three percentage point rise.

The momentum is with Gunnlaugsson, who became leader in 2009 and dramatically changed the party's traditional outlook. "Gunnlaugsson embraced a rather nationalistic agenda, positing himself and the party against EU accession and the Icesave deal," Ómarsdóttir says.

The Icesave dispute began after Iceland's banking collapse caused savers who had put their money into Icesave accounts in the U.K. and Netherlands to lose money. The U.K. and Dutch governments demanded compensation for depositors, but Iceland's government refused to pay the money.

Gunnlaughsson's position against repayment was key to the party's success, according to Ómarsdóttir.

"The Progressive Party had steadily gained support throughout the last electoral term, but the final push in their favor was the [European Free Trade Association] court ruling in favor of Iceland on the Icesave dispute," she said.

(Read More: Iceland Wins Controversial Icesave Case at European Court)

"Having consistently maintained that Iceland need not pay, he is being rewarded for having defended Iceland's interest."

Ómarsdóttir contends that in many ways this was an election the government lost, rather than the opposition won. The Social Democratic Alliance showed a willingness to negotiate over Icesave, thus betraying the national interest, and voters felt the Alliance focused far too much on issues they didn't care about, such as a constitution and joining the EU.

The wider lessons for Europe from the election are clear. Icelandic voters showed a deep mistrust of parties wanting the country to join the EU, with many weary of joining the union given its current crises. Furthermore, this was a rejection of the austerity policies of the outgoing government and the need for a rise in living standards and a way out of the pain of the 2008 financial crisis.