Can we learn from Iceland?


Courtesy of here

An Italian radio program's story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt.  The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion. (its not an EU member, but trades with it thru the EEA)

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here's why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors.  But as investments grew, so did the banks’ foreign debt.  In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent.  The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro.  At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution.  But only after much pain.
Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures.  The FMI and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros.  This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country.  As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF.  The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North.  But if we had accepted, we would have become the Haiti of the North.” (How many times have I written that when Cubans see the dire state of their neighbor, Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt.  The IMF immediately froze its loan.  But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis.  Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn't stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money.  (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution.  And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.    
That’s why it is not in the news anymore.

Aug 23, 11 3:29 pm

But yeah, Byork is overdue for an album. About a volcano I hope..

Aug 23, 11 5:09 pm

Are you crazy? Do you know what would happen if other countries behaved like Iceland?  It'd be nuts.  Credits default swaps would explode and all of the banks (especially the "too big to fail" banks) would be obliterated and there would literally be no currency system left.  This would be bad for normal people (who like to eat) and downright catastrophic for bankers who need million $ holiday bonuses.

Besides, unlike Icelanders, the rest of the world can't simply go back to being fisher men and blaming elves.

Aug 23, 11 5:26 pm

You didn't finish your post with Yo!

Maybe the world is ending after all.

Aug 23, 11 5:32 pm

Yes but


Aug 23, 11 6:01 pm


Biophilia is due out in late September. Of what I've heard from the album so far,  Crystalline is so far my favorite.

Aug 24, 11 8:47 am

But if every country is broke (which seems to feel so these days) would it really be the end all, be all?  Money is ultimately just an abstract idea.  Someone could decide tomorrow that instead of using paper and numbers somewhere in the cyberworld, the new currency is going to be shells, than we all would be screwed, except those who collect shell or live in close proximity to a whole bunch of them.

Just some food for thought brought to you by Ira Glass and Co.

Aug 24, 11 9:03 am

lots of pain all at once or some pain for a long time.  Iceland took their medicine the hard way.  Luckily their country is too small to fuck up the rest of the world.

Aug 24, 11 7:41 pm

thanks for the interesting story

Aug 24, 11 7:42 pm

Interesting, but that's like saying Kentucky doesn't have to repay its debt.

Still, it is ludicrous.  People will suffer, think about the money you owe for you car, what if you just decided that it was unfair because you lost your job?  That would trickle all the way back to the factory workers if everyone did that.  Then there'd be no new cars.  

Money and credit keep the world moving.  If all of a sudden you decided to stop the wheels, we'd just slip into a monstrous period of stagnation (no new iPhones if people won't pay their credit card debt! No higher ed if people don't pay their loans back), then continue to decline as nothing new would be created.  Certainly no new jobs.


I certainly agree, as most do, that the burden needs to fall onto the shoulders of those that created the mess (even though almost everyone did participate on the ride up) and over leveraged everything to absurd levels.  S&P should be in jail, frankly, or at least cease to exist with any power.


But yeah, thankfully they are tiny.  We'd be going to WWIII if we tried to pull that off.

Aug 24, 11 9:17 pm


The beat goes on.

Aug 24, 11 9:24 pm

There is a banking class that has played the world by gambling with its money.
when they win with our money, they keep it. Ok we did get some good buildings out of it. But when they lose money from gambling with ours, they make us pay the bill.

And now Obama is going to make sure, that dont they receive too much blame


There seems to be some deep wrong going on now, and its embedded in the system. The popular consensus is 'to let it be'
But I cant help thinking about FDR's 2nd bill of rights, which would have guaranteed the following for every American:

-Employment, with a living wage
-Freedom from unfair competition and monopolies
-Medical care
-Social security

just a dream i guess, as fictional as money

Aug 24, 11 11:56 pm

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