From Iceland — Another Year Has Passed: Where Are We Now?

Another Year Has Passed: Where Are We Now?

Published February 25, 2011

Another Year Has Passed: Where Are We Now?

In October 2008, on the eve of the economic crash, then Prime Minister Geir Haarde appeared on television and gave a speech to the nation, closing with the words: “God bless Iceland!” The phrase stuck. The nation collectively thought: what terrible mess have we gotten ourselves into? This year, Haarde will appear before a special court, never before convened in the history of the Iceland, to answer for charges of gross negligence.
Two years later, the crisis (“kreppa” in Icelandic) is bottoming out. Unemployment is at a record high, production is considerably down, and there is great discontentment within society; politicians and institutions are not trusted at all. One of the greatest worries is emigration—the next-door neighbour to Iceland is Norway, and there is a steady stream of doctors, technicians, nurses and workers moving across the N-Atlantic.
This is very different from the boom years when the Icelandic currency was totally overvalued, foreign money flowed into the economy through the banks, and financiers bought up shopping chains and airlines abroad, flaunting their wealth in private jets and yachts. The jets do not fly into Reykjavík airport any more. They have all been sold or confiscated.
These financiers, often referred to as modern day Vikings, have been ostracized. Most of them now live abroad, and in any event they are thoroughly despised and would not be welcome in a group of their countrymen. Many are under investigation by a Special Prosecutor who is investigating the crash—it is likely that some of them will end up in prison. Among those who have been interrogated are bank directors such as Sigurður Einarsson and Hreiðar Már Sigur ðsson of Kaupthing and tycoon Jón  Ásgeir Jóhannesson of now-bankrupt retail empire Baugur.
There are some peculiarities in the way Iceland is handling its crisis. One reason might be pure luck. At the time of the crash, the government employed emergency legislation to disentangle itself from the collapsing banks’ foreign commitments. Well, Iceland could never have repaid this kind of money— which maybe adds up to ten times the nation’s GDP—and admittedly, Geir Haarde’s government tried desperately to secure funding from abroad in the months leading up to the crash in order to prop up the banks. But nobody wanted to lend to Iceland, which was already considered a basketcase. This turn of events now sees Iceland in a different position to Ireland, where the government assumed responsibility for the banks’ debts. The Icelandic government’s failure to secure funds and prop up the banks, and its refusal to honour their commitments, might wind up securing the nation a speedier recovery.
However, the economy is still in dire straits. Iceland is now working within the framework of an agreement with the IMF. The debt situation is crippling for the government, for private enterprise and for many households. There are strict currency restrictions, and even though the present left-wing government refers to itself as ‘a government of Nordic welfare policies’, it has been forced to considerably cut budgets for healthcare, social affairs and education.
In a political climate like this, no government can expect to be popular. Unexpectedly, political veteran and social democrat Jóhanna Sigurðardóttir became Prime Minister in 2009, mainly due to her reputation for being incorruptible and for being a friend of the needy and poor. Her nickname at the time was ‘Holy Johanna’, but now things have changed and in the current vicious atmosphere she is often referred to as ‘Lady Gaga’, due to her head of white hair. The main source of discontent is the household debt, which shot through the roof when the króna collapsed along with the banks.
In March of 2009, French/Norwegian prosecutor Eva Joly stepped into this atmosphere of mistrust. She was in Iceland to do a television interview on how to deal with financial crime. A few days later, due to public pressure, she was appointed an advisor to the office of the Special Prosecutor. Almost overnight, Joly, with her knowledge and gravitas, became a national hero—her moral authority was unequaled. It is mostly due to her efforts that the Special Prosecutor now has a staff of ninety people investigating the banks’ financial misdoings— but Joly has left and stands to run for president of France in 2012.
A Special Investigative Committee appointed by Alþingi published a 2.600 page report on the collapse early last year. The report describes fraudulent practices by the banks, and a failure of politics and governance. It is on the basis of this report that former PM Geir Haarde will stand trial. But while Al?ingi condemned the political practices that led to the crash, it also descended into party bickering that resulted in a group of ex-ministers escaping prosecution at the last moment. Geir will thus have to face charges alone.
Some might consider this unfair, as Haarde always played second fiddle to his predecessor Davíð Oddsson, Iceland’s Prime Minister from 1991–2004. Indeed, it was Davíð who created the system that failed, a system he kept on managing as a director of Iceland’s Central Bank, where he was positioned after pushing through his agenda of privatisation and deregulation as PM.
Geir Haarde is a modest man who seems to have lost his nerve in office whereas Davíð is ruthless, intelligent and unrepentant. Geir has mostly disappeared from view, while Davíð refuses to leave the stage—after he was fired from the Central Bank he assumed position as chief editor of daily newspaper Morgunblaðið, where he scorns his opponents on a daily basis.
Another issue that complicates matters is Iceland’s application to join the EU. The motion to apply was narrowly passed by Alþingi, and the whole process is very tentative, with polls showing a sizable majority against joining. Many Icelanders feel betrayed by their neighbouring countries—especially Britain, who’s government used terrorist legislation to freeze the assets of Icelandic banks—and by Iceland’s traditional allies in Scandinavia, who have been pressuring Icelanders to pay a huge debt incurred through Landsbankinn’s Icesave accounts.
Therefore nationalism has become rampant, and the person at its forefront is Iceland’s president,  Ólafur Ragnar Grímsson. Traditionally, the role of the president has been a symbolic one, but  Ólafur Ragnar has changed that, vetoing bills passed by parliament and travelling around the world embarrassing the government with his utterances. 
Ólafur Ragnar is a consummate political acrobat. He started out as a socialist, during the time of the boom he was perceived as a shameless cheerleader for the business Vikings, but now, through his stance on national debt, he has managed to restore his reputation and is even considered a folk hero by some.
There has been a radicalization of politics, starting with the so-called ‘Pots and pans revolution’ of January 2009. Passionate mass meetings were staged in the aftermath and the blogs teemed with ideas about the new and improved Iceland that might be built on the ruins. That atmosphere begat November’s elections for representatives in a Constitutional Assembly, which was scheduled to convene this February. The elections were sadly declared null and void recently by the High Court, a bastion of conformism, solely due to technicalities.
Demonstrations returned with a second wave last October. It was an altogether different affair: the mood was much gloomier, there was little optimism and more tangible anger. The big grievance regarded spiralling household debts, and the feeling that in the end business and finance will prevail while the general public will be trapped for years to come. The political atmosphere has turned nasty. Old elites and interest groups that were subdued after the collapse have found their voices again. Parties are back at their old bickering. The blogs are ill tempered.
Nobody has very high hopes about the government of Jóhanna Sigurðardóttir. It still has to be admitted that its agenda is an ambitious one. They are not only struggling to restore the nation’s economy and financial systems, but also negotiating with the EU, rewriting the constitution, restructuring the civil service, all the while pushing for the redistribution of fishing quotas from the extremely powerful group of vessel owners—a huge issue in Iceland.
But the coalition government of the Social Democrats and the Left-Greens constantly has to deal with revolt within its own parties. One of the reasons it has not yet fallen is that the opposition doesn’t really wish to take over. Within the political class there is also fear that we might be in for a repeat performance from the Reykjav ík municipal elections, where a party of comedians gained 40% of the vote and took over city council.
The strong man of the government is Finance Minister Steingr ímur J. Sigfússon, who was never invited to govern during the boom years. He and his party, the Left Greens, were always on the sidelines, criticizing the excesses of the prevailing free market ideology. Now Steingrímur is finally in government. He has to try to clean up the mess. But then he is adhering to the IMF’s program, so many people in his party feel that he has betrayed their cause. Working to resurrect capitalism is probably not what this socialist son of a farmer envisaged himself doing during his long years in opposition, when few heeded his warnings that Iceland had lost its way.

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