In 2011, three years after the start of the 2008 stock market crash, an online transcription of an Italian radio program about Iceland's 'silent revolution' caught my attention. Iceland was the first country to essentially go bankrupt in 2008, but the story was mentioned only in passing, after which this little-known Nordic European country went off the press's radar again.[tag]
That's because the last thing the financial world wanted was for Iceland to become an example, as one European country after another fell victim to the banksters pranks, imperiling the Euro, with repercussions for the entire world.
What happened in Iceland, a country of 320 thousand, with no army, located between the North Atlantic and the Arctic Ocean, that put it back in the news? The country's banks had been privatized in 2003, and they immediately set about attracting foreign investments. In a typical example of a Wall Street inspired financial system that led to disaster, they did so by offering on-line banking whose minimal costs enabled them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors.
Five years of this pure neo-liberal regime made it one of the richest countries in the world. But as investments grew, the banks' foreign debt increased. In 2003 the debt was equal to 200 percent of GNP, in 2007, it was 900 percent, and the 2008 world financial crisis knocked down that house of cards. The three main Icelandic banks, the Landbanki, the Kapthing and the 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 was basically bankrupt.
Contrary to what we might have expected, the result of this crisis was that the people of Iceland recovered their sovereign rights. The FMI and the European Union wanted to take over Iceland's debt, claiming this was the only way for Iceland to repay it, in particular to Holland and Great Britain, who had promised to reimburse their citizens. The foreign financial community was pressuring Iceland to impose drastic measures, similar to those it succeeded in imposing in Greece Italy, Spain and Portugal, to allow this to happen. Even after a social democratic coalition negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million, protests continued, eventually forcing the government to resign.
Elections were moved forward to April 2009, however the resulting left-wing coalition, while condemning the neoliberal economic system, immediately gave in to the demands of the international economic community that the country pay off a total of three and a half million Euros. This meant that each Icelandic citizen would have to pay 100 Euros a month (or about $130) for fifteen years, with 5.5% interest, a total of 18 thousand Euros, to pay off a debt incurred by private parties vis a vis other private parties.
What happened next was extraordinary. The idea that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be sacrificed to pay off their debts was given the boot. Confronted with a massive general protest, Iceland's representatives went over to the side of those they were supposed to represent but hadn't been. 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. Their bankers pressured the Icelandic people as they went to vote, threatening to block any aid from the IMF, which would withdraw its previously granted loan. The British government threatened to use classical terrorist methods, freezing savings and checking accounts of Icelanders in its banks. 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."
In March 2010, the results of the referendum were 93% against the debt being paid by Iceland's citizens. The IMF immediately froze its loan, but the revolution would not be intimidated. With the support of a furious citizenry, the government began to investigate those civilly and penally responsible for the financial crisis. Interpol put out an international arrest warrant for the ex-president of the Kaupthing, Sigurdur Einarsson. The other bankers implicated in the crash fled the country.
In this effervescent climate, the banks were re-nationalized and a process of direct participatory democracy eventually gave Iceland a new Constitution that would free the country from the exaggerated power of international finance and virtual money. Twenty-five citizens were to be elected from among 522 adult candidates, recommended by at least 30 people, and belonging to no political party, to write the constitution on the internet. It didn't quite happen that way, with everyone able to follow the drafting on-line, although some constituent's meetings were streamed on-line and citizens were able to send in comments and suggestions. However, the process was a lot more open than that of a handful of politicians in smoke-filled back rooms. (Now you know why Jullian Assange has important friends in Iceland, and why the country was considered as a possible refuge for Edward Snowden.)
Update January 2015: Iceland recovered from its terrible financial situation in record time, in ways just the opposite of those generally considered unavoidable (Margaret thatcher's 'There is no Alternative, or TINA) . It opted not to be saved by the IMF or the World Bank, and refused to sacrifice its sovereignty to foreign interests, choosing instead to reinstate its citizens' rights.
While the crisis was reaching its tipping point in Iceland, in 2011, the people of Greece Italy, Spain and Portugal which, like most of the world had still not recovered from the 2008 economic crisis, were also told that the privatization of their public sector was the only solution to the debts their relatively weak economies had accumulated. But as part of the European Union, these countries did not have the luxury of taking matters into their own hands, although draconian austerity soon resulted in unemployment between 25 and 50%.
Greece was the first country to break out of the situation: last week voters installed a forty-year old Prime Minister who campaigned on a promise to abandon the austerity imposed by Greece's creditors and cut the debt in half, obtaining a longer period for Greece to reimburse its creditors. I doubt this would have happened had Iceland not dared, in 2011, reaffirm that the people's sovereign will should take precedence over any international agreement. That news had been slow getting out, but my relay of the Italian report on Daily Kos went around the world. Now, a week after Syriza's win in Greece, Spain's Podemos Party is staging massive demonstrations, and we can expect similar uprisings in Italy and Portugal, leaving Angela Merkel, the IMF and the European Bank ponder the future of the Euro.