The Failure Of Icelandic Politics

Here is a famous quote by Harold Wilson: “A week is a long time in politics”. At the time of writing, it is totally unclear what the political situation in Iceland will be in a week’s time. The day before saw the largest public demonstration in Reykjavík since the socalled ‘pots and pans’ revolution that toppled the government of PM Geir H. Haarde, which presided over the collapse of the Icelandic economy.
This writer must admit that he was totally wrong in his last Grapevine article. It was titled ‘A Case Of Revolutionary Fatigue’. Some of the analysis was fairly accurate, for instance regarding the loss of optimism and citizen initiative, which was in evidence for some time after the crash. But when the author said that Iceland was on the verge of descending into apathy he was mistaken— at least for now.
A night of fierce demonstrations
Monday October 4th was a day of fierce demonstrations in Austurvöllur, a leafy square dominated by the Alþingi, a rather modest cathedral and a statue of 19th century national hero Jón Sigurðsson. During summer it is a place where people hang out and drink beer, but that night the mood was very ugly. Large oil barrels were beaten, bonfires were lit, again there was a din of pots and pans—but this was pretty far from the exuberance of the rather joyful ‘pots and pans’ revolution.
Under the din of the protesters who filled Austurvöllur, PM Jóhanna Sigurðardóttir tried to make the annual Prime Minister’s policy speech, citing what had been accomplished in the last year, and what is to be done. In this way it was a very traditional first working day of Alþingi, but in light of the angry crowd outside it all seemed unimaginative and somehow inadequate. In light of the circumstances parliamentarians might have gone out on the balcony of Alþingi and tried to talk to the crowd, in the spirit of De Gaulle’s famous speech: “Je vous ai compris.” I understand.
Why are they protesting ?
But what were the people protesting? Well, the mood in Iceland is very sombre. There is a great deal of anger and resentment after what happened in 2008. Icelanders—who admittedly can be rather naive—suddenly realised that they had lived in a rather corrupt society. Trust in institutions like Parliament, the government, the civil service and the banks is extremely low. Many people are a lot poorer then they were—in the demonstrations I met an old woman who had been tricked by the bank Glitnir to sell her flat and invest in shares. Which she promptly lost in the collapse. This woman told me she had 3.500 ISK—the equivalent of 20 Euros—to live from every month after her debts had been paid.
Stories like these abound. Iceland is undergoing almost every sort of crisis that is known in the capitalist world: A banking crisis, a currency crisis, a debt crisis, a ruined stock marked and a burst housing bubble.
The period of easy credit
Between 2003 and 2008, housing prices in Reykjavík and its outlying towns shot through the roof. This was mostly due to the fact that after being quite restrictive, banks started giving out mortgages as if there were no tomorrow, competing with a government run housing bank. Soon they started lending 100 percent of the price of a flat or a house—and gradually, as ISK interest rates were raised, loans were given out in foreign denominations.
Iceland was traditionally a country where few people had access to credit. You had to be in the right clique or political party. So Icelanders have had a tendency to regard loans as free money— it is a fact that interest rates have had surprisingly little effect in Iceland. Thus in a period of easy credit, people started taking out loans and mortgages as if there was no tomorrow.
A policy of ownership
Some of them were of course overspending and acting totally reckless. It is sometimes rather difficult to see who deserves to be saved after this period of excess, and who doesn’t. But some had little choice. The hardest hit are people between the ages of 25–40, who were buying their first properties. There is no rental market in Iceland to speak of; it has been government policy that basically everyone should own their own property from a young age. This is very unlike our neighbouring Scandinavian countries. These people therefore had no choice but to take on debt to be able to get a place to live, at a time when housing prices were becoming ridiculously high.
After the collapse these loans have become an impossibly heavy burden on many households. They are either indexed to foreign currencies—a practice that was in fact deemed illegal by the High Court in a recent verdict—or to the rampant Icelandic inflation. At the same house prices have been falling steadily and they have still not found their bottom, salaries have fallen to a level of many years ago, many people have less work or are even unemployed.
Resurrected banks
The present government has been very clumsy in dealing with this problem, but this is what’s really poisoning political life on the island: During the collapse all deposits in banks were guaranteed by the government and they still are, billions were put into the rescue of money market funds where more affluent people had put their money—but the perception is that very little has been done for common debtors.
It is a paradox that in the time of a nominally left wing government that the banks have been given new life. They all collapsed, but now we basically have the same banking system as before, excepting a fray of smaller financial institutions that have gone bust. Two of the banks have changed their their names, with one of them, the Landsbanki of Icesave disrepute, even blatantly retaining its tarnished name.
One of the demonstrators from October 4th said to me: “This government of the left had the banks on their knees, but then it decided to resurrect them.”
Who is protesting ?
There is also a question of who was protesting. Some even stated that this was a revolt by the middle classes who normally might vote for The Independence Party, the party considered most responsible for the crash. Many left wing people, supporters of the government who took an active part in the ‘pots and pans’ revolution, stayed away this time. There were even claims that the demonstrators had arrived in their SUVs, filling all the parking places downtown.
In the crowd that night a Nazi flag was hoisted, along with different neo- Nazi insignia, fuelling fears that the extreme right might be on the rise in the country. There was also a flag with the image of Che Guevara to be seen, as well as the black flags of anarchists. Some of these people might have a different agenda, ranging from an aversion to the IMF or the EU to general dislike of capitalism.
The defensive shield that failed
However, it can be claimed that the demonstrators were quite normal people, people who are fed up with the incompetence and constant bickering of politicians. It has been claimed that of 150 people—many of them politicians— interviewed the Special Investigative Committee, not a single person felt any responsibility for the collapse. Most of these people can’t seem to wait to get back to business as usual, while the general public becomes more and more frustrated by the aftershocks of the collapse.
Surely the government’s task was always going to be difficult, but at the outset it announced that it would throw a defensive shield around the homes of Iceland. The term for this, “skjaldborg”, has become a byword for broken promises. It was also going to be a government of Nordic welfare, after many years of relentless neo-liberalist policies. However, the government has been extremely bad at communicating with people and inspiring then. Trust in Alþingi, the Icelandic parliament, is almost non-existent. Few people lament that it was pelted with eggs and rotten vegetables on Monday the 4th of October.
An ungovernable country?
This all leads to a serious political vacuum. Not many people seem to want the old government back. One prominent politician from the Independence Party got hassled during the demonstrations and had to be rescued by the police. In September, Parliament decided—after recommendations from the aforementioned parliamentary committee—to prosecute ex-PM Geir Haarde before a special court, never before convened. This created an outcry amongst Geir Haarde’s supporters, but it was evident that no one on Austurvöllur was demonstrating on his part.
It could be surmised that Iceland is essentially ungovernable at the moment. Debate is unusually vicious and uncompromising, as can be witnessed on local blogs. Foreigners who come here see a country with nice houses, cars and shops. The crisis is not evident when you move about Reykjavík. But underneath there lies a kind of malaise that is eating up our social capital. The feeling is almost that the country is ungovernable. A recent comparative study shows that trust in Iceland is on the level of—no, not Sweden or the other neighbouring countries—but Venezuela.
Brain drain
There are calls for a government of all parties, or a government of specialists appointed by the President. But then one wonders whether such governments would have the clout to deal with the powerful interest groups that the current government has been so afraid to take on: The banks, who seem to be back to their old secretive ways, writing off the debts of the extremely rich while persecuting the small debtors; the very powerful owners of fishing quotas; the farming lobby and the bosses of the pension funds.
We have a nation that might have thought that the economic collapse was an abstract that wouldn’t affect people in any real way—but now it does. The crisis—in Icelandic “the kreppa”— will be a long-winded affair. One of the serious dangers with debt, budget cuts, unemployment and general discontent is that young people will leave the country in herds. Iceland has very many square kilometres, but the population is small—a brain drain is the last thing we need, but just next door, we have affluent Norway…