A crisis continues in Iceland

June 21, 2012

Jason Netek reports on the situation in Iceland three years after its financial collapse.

ON THE eve of a presidential election in Iceland on June 30, many of the same economic problems that plagued the country for the past three years remain.

In January 2009, the government of Iceland became the first political casualty of the global economic crisis. For nearly 20 years, the conservative Independence Party had dominated the political scene and steadily reoriented the tiny nation's economy toward the increasingly deregulated financial sector. Before the crash of 2008, Iceland was one of the richest nations in the world thanks to its bloated banking sector, which held debts that amounted to as much as 10 times the country’s gross domestic product.

As the crisis unfolded in the fall of 2008, Iceland's national currency, the krona, collapsed and the three biggest banks went under. Runaway inflation and rising unemployment rapidly produced a politically untenable situation. Before the collapse, half a million British and Dutch citizens had deposits in Iceland's highly unregulated banks.

Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson (Kris Krüg)

The governments of Britain and the Netherlands footed the bill for the lost savings, and the International Monetary Fund (IMF) forced Iceland to agree to pay it all back with interest in exchange for an emergency bailout loan.

Weekly protests against the government began in October, and within three months they had grown to massive proportions. In a nation of just over 300,000 people, with 120,000 concentrated in the capital of Reykjavik, some protests turned out 10,000 people. Many thousands of these demonstrators banged pots and pans together as they demanded the resignation of the government, and their movement became popularly known as the "Saucepan Revolution."

After the existing government stepped down, a center-left coalition of the Social Democratic Alliance and the socialist Left-Green Movement stepped in as a caretaker government. This coalition was elected in April 2009 on promises that it would enact sweeping reforms and prosecute the reckless bankers and politicians who brought the nation to disaster.

The former Prime Minister Geir Haarde was indeed taken to court, but was only found guilty of failing to inform the rest of the government of the impending crisis and faces no jail time or even a fine. A series of emergency measures--an end to home foreclosures, a moratorium on debt collection and the nationalization of a few banks--were implemented to alleviate the worst of the people's economic burdens, but the effects of the crisis are still being felt.

Unemployment is at 6 percent, the krona is only worth 50 percent of its pre-crisis value, and household debt is at 130 percent of GDP. To add insult to injury, while ordinary people suffer the effects of runaway banking, the current government has decided to move forward with the ousted former government's plan to pay off some bogus foreign debts.

SUPPORT FOR the parties entrusted with the people's welfare is half what it was two years ago, and it's no surprise. After overthrowing the government that ushered in the crisis, voting against the debt repayments on two separate occasions, and electing a government that promised to "work with the people," Icelanders have been betrayed.

The Icelandic Supreme Court ultimately upheld the emergency legislation allowing for the repayments to be made. This decision was, of course, made over the heads of the population, which rejected it in two national referendums.

In the last election, the Social Democrats and Left-Greens won about 29 percent and 21 percent of the vote respectively, but both parties are suffering in opinion polls as the economic situation remains much as it was a year ago.

The Social Democratic Alliance makes up slightly more than half the seats in the government coalition. This party is essentially the Icelandic version of Greece's PASOK, a party which has long since made peace with capitalism. The Social Democrats can only maintain their dominance with the support of the Left-Greens.

Some dissident Left-Green MP's have spoken out against their own party for prioritizing the IMF over the welfare of the people. Others have abandoned the party altogether, saying the current government is incompatible with the party's socialist principles. One notable defector, Lily Mósesdóttir, departed to form a new party called "Solidarity," which has polled as low as 6 percent and as high as 21 percent during its short existence.

A decline in the polls is not the only sign that patience with the coalition is wearing thin. Last October saw large protests to mark the anniversary of the movement that toppled the previous government.

On June 30, Iceland will hold a presidential election. The incumbent, Ólafur Ragnar Grímsson, is an independent politician and veteran of the former People's Alliance. Initially, Grímsson declared his intention to not seek reelection, but a petition signed by 30,000 Icelanders convinced him to change his mind.

It was his presidential vetoes that upset parliament's plans to repay foreign debts by relegating the decision to national referendums. On both occasions, the people voted "No" by large margins.

June 30 was also originally intended to be the date Icelanders voted on their new constitution, but parliament failed to organize the referendum on time. In November 2010, 25 delegates were elected to a constitutional council, which was to draft a new constitution.

Due to its own concerns that the elections weren't conducted with enough respect for voter privacy, the Supreme Court nullified the elections, but the group was appointed by parliament to draft a constitution anyway. The council regularly blogged about its discussions and took suggestions from the population as a whole.

The new constitution, while not radically different from the old one, includes a number of progressive additions, including a formal separation of the state from the Church of Iceland, a provision making all natural resources public property, and government-provided Internet access to all citizens. Most significantly, it would allow for any petition backed by 15 percent of the voting public to be presented as a bill in parliament or as a national referendum.

These reforms are positive, but the ability of global financial institutions to subvert the will of the masses shows that the struggle against austerity and its proponents is just as necessary today as it was when the saucepans began clanging three years ago.

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