Let’s talk about Iceland. We don’t hear about it very much in the news anymore, do we? For a while there their position paralleled ours; every time they were mentioned, we were mentioned – ‘what’s the difference between Iceland and Ireland’, went the joke, ‘one letter’ the reply. Well, the difference now is that they went down one route to solve their problems, we took another. So let’s look at what happened to Iceland, and how they’re now faring (Plagiarism on a large scale from Wikipedia by the way).
You can skip all the detail if you wish, go straight to the ‘Summary’ at the bottom.
TIMELINE:
Early 2008
Iceland's three main commercial banks collapse within the space of a week. One of those banks, Landsbanki, had taken retail deposits from more than 400,000 British and Dutch customers through its branches in London and Amsterdam through a product known as ‘Icesave’. The Depositors' and Investors' Guarantee Fund (set up and operated under a specific Act of Parliament) had equity of only 10.8 billion krónur, about €68 million at the exchange rates of the time, far short of the £2.35 billion claims from the UK plus an additional €1.2 billion in the Netherlands.
Initially the Icelandic authorities disclaimed state responsibility for the shortfall in the insurance fund, pointing out that both the Guarantee Fund and Landsbanki were private corporations. This led to a diplomatic dispute and the unprecedented (and controversial) freezing of Landsbanki assets in the United Kingdom through the Landsbanki Freezing Order 2008.
Amidst the chaos and the panic the main bank of the country is nationalized, the krona (Iceland’s currency) drastically devalues, the stock market stops – the IMF are called in as the country falls into bankruptcy
16 November 2008
After mediation by France and the European Union an outline agreement is reached, Iceland agreeing to guarantee the liabilities of the Depositors' and Investors' Guarantee Fund to British and Dutch savers, while the UK and the Netherlands would effectively lend the Guarantee Fund the money necessary to pay the savers.
January 2009
Collapse of the government of Iceland.
April 2009
Elections held.
5 June 2009
A final bilateral agreement is reached between Iceland, the United Kingdom and the Netherlands, £2.35bn (UK) and €1.2bn (Netherlands) to be paid between 2017 and 2023 at an interest rate of 5.5%.
28 August 2009
The Althing (Iceland's parliament) votes 34–15 (with 14 abstentions) to approve an amended bill (commonly referred to as the Icesave bill) to regulate the repayments. It set a ceiling on the repayment based on the country's gross domestic product (GDP) - under the measure up to 4% of Iceland's GDP growth would be paid to Britain from 2017–2023, while the Netherlands would receive up to 2% of Iceland's GDP growth for the same period. Opponents of the bill argued that Icelanders – already reeling from the crisis – should not have to pay for mistakes made by private banks under the watch of foreign governments. However, the government argued that if the bill failed to pass the UK and the Netherlands might retaliate by blocking disbursements from the IMF.
19 October 2009
The British and Dutch governments did not accept the amendments to the deal and so continued their opposition to payment of the second tranche of the IMF loans. Back they went to the negotiating table and on the above date a revised agreement was concluded, including the cap on repayments.
30 December 2009
The new ‘deal’ went back to the Althing and a second Icesave bill was passed, 33–30 (no abstentions).
31 December 2009
The bill is presented to President Ólafur Ragnar Grímsson at a routine meeting of the government the next morning. Grímsson refused to sign the bill immediately, pointing out that it was less than 24 hours since it had been passed by the Althing, and asked for more time to consider it. Article 26 of the Icelandic Constitution states that bills passed by the Althing must be counter-signed by the President within fourteen days or face a national referendum.
2 January 2010
Thousands having taken to the streets in protest, President Grímsson holds a previously scheduled meeting with ‘Indefence’, the people’s movement which opposes the bill,. At the meeting Indefence presented a petition bearing 56,089 signatures (nearly 25% of the Icelandic electorate) urging Grímsson not to sign the bill.
4 January 2010
The number of signatories on the petition has risen to 62,000. However, the leaders of the Confederation of Labour (ASÍ), the Federation of State and Municipal Employees (BSRB), the Confederation of Employers (SA) and the Federation of Icelandic Industries (SI) all urged the President to pass the legislation.
5 January 2010
At a press conference in his official residence (Bessastaðir), President Grímsson announces his decision not to sign the bill, precipitating a referendum.
The Icelandic government, led by Prime Minister Jóhanna Sigurðardóttir, immediately expresses its ‘disappointment’ with the President's decision and stresses that ‘the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law.’
The UK Financial Services Secretary, Lord Myners, responds by saying that ‘The Icelandic people, if they took that decision [not to accept the bill], would effectively be saying that Iceland doesn't want to be part of the international financial system,’ while Dutch Minister of Finance Wouter Bos called such a decision ‘unacceptable’, saying that, whatever the outcome of the referendum, Iceland would still be ‘compelled to pay back the money’. A spokesman for UK Prime Minister Gordon Brown reacted in similar terms: ‘The Government expects the loan to be repaid. We are obviously very disappointed by the decision by the Icelandic President, but we do expect Iceland to live up to its legal obligations and repay the money.’
8 January 2010
The Althing approves a motion which calls for the referendum to be held by 6 March at the latest. The motion passes 49–0 with 14 abstentions. The referendum was the first to be held in Iceland since 1944 and required special legislation.
6 March 2011.
The referendum is held, the people speak – on a voter turnout of 63%, 93% vote against the loan guarantee scheme, 5% of votes are invalid, a mere 2% vote ‘yes’.
Meanwhile the government has initiated an investigation to bring to justice those responsible for the crisis and many high level executives and bankers are arrested.
In this crisis an assembly is elected to rewrite a new Constitution which can include the lessons learned from this and which will replace the current Constitution (a copy of the Danish Constitution).
25 citizens are chosen for this Constitutional Assembly from the 522 candidates. There is no political affiliation, all that was needed was to be an adult and to have the support of 30 people. The Assembly began its work in February of 2011, will produce the Icelandic ‘Magna Carta’ from the recommendations of the different assemblies happening throughout the country. It will be approved by the current Parliament and/or by the one constituted through the next legislative elections.
THE CONSEQUENCES
Iceland has obviously fallen off a cliff, disappeared from the planet, barely a word in the last year from our media. The Armageddon that’s constantly being threatened on us should we decide to do something along the lines of what the people of Iceland did, must have befallen them. Less than a tenth the population of Ireland (320,000 souls), likewise less than a tenth of our Gross Domestic Product (GDP), their economy has to be in bits, their currency destroyed, unemployment rife, rampant inflation, widespread poverty.
Iceland has obviously fallen off a cliff, disappeared from the planet, barely a word in the last year from our media. The Armageddon that’s constantly being threatened on us should we decide to do something along the lines of what the people of Iceland did, must have befallen them. Less than a tenth the population of Ireland (320,000 souls), likewise less than a tenth of our Gross Domestic Product (GDP), their economy has to be in bits, their currency destroyed, unemployment rife, rampant inflation, widespread poverty.
So let’s pull back the veil a little and have a peep (courtesy of tradingeconomics.com). Well, the Inflation rate is 6.4% - high, but then you read that the average from 1989-2010 was 5.88%, so nothing they’re not used to. GDB has expanded 2.7% in the fourth quarter of 2011 over the same quarter in 2010 – good news there then. It’s the same in the employment figures, unemployment at 7.3% in February of 2012 from a historical high of 9.3% in February 2010. Government debt? That’s at 87.8% of GDP. In the past few weeks they’ve also had their credit rating improved and they are repaying the IMF loan and a loan they got from Norway before the due date.
Armageddon? I don’t think so – inflation apart these are figures we can now only dream of.
SUMMARY
Iceland endured a horrific bank crash which brought down its economy. Its private banks had run up debt of around €4bn in Britain and Holland, debt which the government – under threat from the far bigger political entities of the UK (especially) and The Netherlands – agreed to pay with loans granted by the UK and The Netherlands, those loans postponed for a few years for the next generation of Icelandic taxpayers to enjoy.
The people revolted, took to the streets in mass protest; the President refused to sign the legislation, forcing a referendum. Defying all the pressure and threats from home (the unions were on board with the government) and abroad, the people took their courage in their hands, refused to be frightened, voted against the bank guarantee.
Two years later Iceland is on the road to recovery. GDP is growing, unemployment is falling, they are repaying their IMF and international loans early, their credit rating is rising.
THE DIFFERENCE
On a proportional level our bank debt burden is greater than Iceland’s. Theirs was around 40% of GDP, ours will work out at over 50% (maybe a lot more). Like Iceland our government was threatened by larger political powers (Germany and France); like Iceland we were blackmailed into converting private bank debt to sovereign debt (the ECB doing the strong-arming in our case); like Iceland we were offered loans by the interested parties to cover the cost of paying those debts; like Iceland our elected government succumbed to the bullying and the blackmail, agreed to a deal. Unlike Iceland, however, our President never gave us the opportunity of having our own referendum; we – the people who were going to be burdened with this massive new debt – were never given a choice as to whether we wanted to pay these debts or take our chances on our own. Today, we are where we are, they are where they are.
None of this is to say I’d like to move to Iceland. Nothing at all against them and I'm sure they believe they’re living in their own slice of heaven up there in the ice and cold, but I’ll take what we have here any day.
However, I would like to see us follow their example of peaceful mass protest, I would love to see us achieve what they’ve achieved. They’ve shown, conclusively, that there IS another way, they’ve shown that even in a situation where a government has already caved in to the demands of the banks, to the threats of bigger political powers, the people can still take control, and prosper. They have shown us the true power and the true worth of democracy.
Regards, Diarmuid O'Flynn.
