Iceland’s People Snub Bankers and Politicians

Since the global financial crisis began, it seems that average people across the world have been disproportionately left to deal with the consequences. We must foot the bill for the recklessness and greed of financiers and bankers, who’ve faced little justice or accountability thanks to the incompetence or outright collusion of public officials (whose corruptible nature allowed this mess to transpire in the first place).

To add insult to injury, international financial institutions and foreign investors are pressuring governments, especially in Europe, to impose a form austerity that’s only added more pain while at the same time counter-productively weakening their economies (it’s hard to grow economically if people are paying higher taxes and struggling with cuts in services and wages).

All in all, it seems we’re powerless in resisting the suffering that is being placed upon us due to the actions of a few individuals. But one little country that rarely merits much international attention is bucking the trend in a remarkable way: the people of Iceland have rejected these pressures of forces far larger than themselves. From the article “Why Iceland Should Be in the News, But is Not”:

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.

Indeed, Iceland was one of the countries that was most affected by the global recession. Given their country’s tiny size and lack of international political clout, it seemed unlikely that Icelanders could do much about the hand that was dealt to them.

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.

Sound familiar? The people fuss, demonstrate, and vote out those responsible, but little else changes. The masses subsequently become more cynical and everything remains business as usual, as people go about their lives and accept their fate. But the people of Iceland wouldn’t be so complacent.

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 weren’t content with just snubbing these demands. They knew that they’d have to change the system to ensure that this sort of thing would never happen again. A good crisis should never go to waste: when a systemic problem like this occurs, it won’t suffice to merely address it and go back to how things were. You have change the underlying structures that lead to it in the first place. So that end…

…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.

The article I’ve linked to is a bit old, as the elections already occurred, with far little change or fanfare as might be expected (you can read about it onSingularity Hub). Pretty admirable stuff. Who wouldn’t want a resolution like this? Of course, no system is perfect, and this solution is hardly without flaws. But as the SH article rightly points out:

The lessons we are to learn from Iceland’s new constitution, then, are a mixed bag. It’s absolutely amazing that an entire structure of government was made with help from social media and in total view of the world. Anyone from Reykjavík to Rio de Janeiro could watch and even give input to how Iceland should be governed. But that didn’t guarantee widespread public support nor even success. The new constitution is 700+ pages of ideals that may or may not be ratified come October, and whose ultimate benefit to Iceland is uncertain. Crowd-sourcing a constitution was a remarkably ballsy move, but it will take years before we know if it was a smart one.

1000 points to Iceland for being progressive, daring, and crazy enough to undergo this revolutionary approach to government formation. 1,000,000,000 points to whoever can find a way to learn from this example and successfully leverage the power of social media to truly make the world a better place to live.

Couldn’t have said it better myself. Obviously, Iceland is very different from the US, but that doesn’t mean we shouldn’t take some lessons from it. It’s a shame, though not surprising, that this has received so little attention amidst all the doom, goom, and injustice of the continuing economic crisis.


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