Icelanders have never been shy about getting a foot in the door

Voters all over the world are angry. The success of anti-establishment politicians like Bernie Sanders, US presidential candidate and self-declared socialist, and Jeremy Corbyn demonstrates this. Many feel little has changed since the 2008 financial crash. But in Iceland, much of what causes anger in other countries has been acted on—bankers have been jailed and the economy has thrived for years. One might expect the national mood to be calm.

But on Monday 22,000 demonstrators gathered in Reykjavík. The "Panama Papers" leak from the database of offshore law firm Mossack Fonseca revealed that the family of Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson had sheltered money offshore. He has stepped down.

The story of political anger in Iceland is a complicated one. Many Icelanders think that if you need a favour, it's self-evident that you should ask a friend. Before the financial crash, there was always someone to turn to, and that was seen as being quite cute—even cosy. Icelanders were not shy when it came to getting a foot in the door. But nepotism is corruption's next-door neighbour: Icelanders started to see nepotism among the mega-rich—it was becoming a problem.

The collapse of the three largest Icelandic banks—Glitnir, Landsbanki and Kaupthing—in October 2008 exposed the inner workings of the new business elite who had grown wealthy in tandem with them. Icelanders mostly thought that they didn't live in a corrupt country. Brown envelopes don’t change hands in Iceland, do they? Until the crash, Iceland was number one on Transparency International’s Corruption Perceptions index.

Rumours and media reports post-crash said otherwise. An April 2010 report by a Special Investigative Commission of independent experts, set up by the Icelandic parliament in December 2008, detailed the reality. Investigations by the Office of the Special Prosecutor, also established in that month, detailed the operations of the banks and their largest shareholders. These are also the people who borrowed the most from them.

Icelanders now know that the banks ran ordinary banking services for the majority of clients and then very special services for the largest shareholders and their business partners. The “favoured clients” could borrow without limit, at no or very limited risk to themselves; the banks shouldered it.

Offshore companies were also an essential part of this banking system—the banks found them for some of their clients. This problem was bigger in Iceland than anywhere else in the world. The first of these offshore companies that came to light were registered in the British Virgin Islands; in Icelandic, “Tortola company” now means “offshore company.” Icelandic banks were privatised in 2002, yet political connections still mattered. There wasn't political support for more financial regulation despite banks growing exponentially from 2002 to 2008.

After the crash—the world's costliest banking crisis since 1970—Iceland's economy was back to growth by summer 2011. Since then, growth has been between two per cent to nearly five per cent of GDP. Unemployment is at just four per cent.

But growth and reduced household debt have not helped Iceland's mainstream political parties. The left-green government, voted in by an upset electorate in March 2009, lost dismally in the 2013 elections. The centre-right government that then formed has overseen further economic revival but still fell in the polls.

After they collapsed, most Icelanders thought the banks would clean themselves up. The SIC report was full of sensible advice on how to do this. Prosperity, the SIC report and criminal investigations into bankers and businessmen—that should have made for a content nation. Politicians have repeatedly promised a new Iceland.

Yet over the last few years, some banks have sold assets below market prices behind closed doors. There is a growing sense that the “favoured clients” are again on the rise. The individuals are not the same, but the relationship between banking and politics feels similar.

This was the background, when on 15th March the wife of Iceland's prime minister wrote on Facebook that she owned a company “registered abroad” in order to invest her inheritance. It quickly transpired that this was actually a “Tortola company” and she had written to the nation due to growing interest in her affairs by the international media. Gunnlaugsson himself refused to be interviewed; his explanations have been misleading. Trust ran low. The documents were then published, and Icelanders were horrified and ashamed at his evasion of questions based on them.

Bjarni Benediktsson, leader of Iceland's Independence party—the country's other coalition party—is also named in the documents; his company was closed down by 2012. Another minister and several local councillors also had offshore ties.

So on Monday around 22,000 people—there are just 320,000 people in Iceland—gathered in the centre of Reykjavík to protest. The political lesson of the Icelandic banking collapse is that it takes more than a sound economy to establish trust. And the general lesson is that nepotism is a fertile breeding ground for corruption. In this environment, some get a lot more than their due, not because of merits but because of connections.