From Iceland — A Year of Reckoning

A Year of Reckoning

Published January 14, 2010

A Year of Reckoning

One word in particular can be used to sum up the atmosphere in Icelandic society in the year 2009. That word is: reckoning.
During the past year there has been a political and a moral reckoning taking place in Iceland. This reckoning has been the effect of the catastrophic economic collapse that happened on the island in the autumn of 2008.
The most important element of this reckoning was the pseudo-revolution that took place in Iceland in January. This revolution led to the end of the coalition government of the Independence Party (Sjálfstæðisflokkurinn) and the Social Democrats (Samfylkingin).
Following the premature end of this coalition, Samfylkingin formed a temporary, minority government with the left-wing party Vinstri Græn (Leftist-Greens) until elections were held in April, where these two parties received a majority to form a new coalition government.
This left-wing government was historical in the sense that it was for the first time since Iceland received its independence from Denmark in 1944 that a left-wing, majority government had been formed.
This was interpreted as the consequence of the reckoning with the right wing policies of Sjálfstæðisflokkurinn, which many believed were one of the main causes of the Icelandic economic collapse of 2008.
This interpretation entails the belief that the collapse had been caused by a small group of greedy, immoral oligarchs that had bought up most of Icelandic companies and been allowed to mismanage them in a reckless way. The financial deregulation and the hands-off policies of the government of Sjálfstæðisflokkurinn, as well as a very weak financial services authority, allowed these oligarchs to run wild and do as these pleased, and were understood as being the consequence of the crude type of capitalist ideology that Sjálfstæðisflokkurinn had implemented during its eighteen years in power.
However, the followers of Sjálfstæðisflokkurinn argued that the collapse of the Icelandic economy did not show that capitalism was bad, but only that the particular capitalists that bought up Iceland had not properly used the freedom granted to them by the capitalist policies of Sjálfstæðisflokkurinn. It had therefore not been shown, they claimed, that capitalism as such had failed in Iceland. Furthermore, Sjálfstæðisflokkurinn could not take responsibility for the actions of the oligarchs even though the party had been the political entity most responsible for the creation of the system that collapsed.
Whoever is right, there was this strong reckoning between right wing and left wing politics during the year. Currently the left is winning, since the left-wing parties form the present government. But that might change since it is a historical anomaly for Iceland to have a left-wing government in power and the polls show Sjálfstæðisflokkurinn is gaining strength again.
This debate can be seen as one side of a more general, moral discourse that has been ongoing in Iceland, about the business methods used by this small group of oligarchs; methods that most people agree were a part of the cause of the economic collapse.  
The general stance is that the condemnation of these methods is apolitical: Most people, right or left, agree that they are immoral and unjust. In this moral debate it has been the majority of the general public against the oligarchs who have tried to answer for their ways of doing business.
The most notorious aspect of the business model of the Icelandic oligarchs is the incredible amount of money they borrowed from the Icelandic banks—banks they themselves often owned large stakes in.
The bankrupt holding company Baugur, for example, leaves a debt of more than 300 billion Icelandic krónur. While Milestone, another bankrupt holding company, owes around 100 billion krónur that were mostly borrowed from the bank Glitnir, which the company partly owned. Then there is Exista, tottering on the brink of bankruptcy. Exista was the biggest creditor and shareholder of Kaupthing bank. Most of these debts will be written off by their creditors, since the loans were either unsecured or the assets used to secure them—most commonly the shares in the banks—are now worthless.
The sky-high loans to these large holding companies only form one side of an even murkier tale, since smaller companies and individuals could often get loans from the Icelandic banks without putting forward any pledges. In many cases these companies and individuals received these so-called “bullet loans” because the banks offered them to the customers or the employees of the banks. They did not stand a chance of losing anything if they decided to take the loans: The only party who took any risk was the bank itself.
Ordinary, everyday Icelanders did not have access to loans like these, and it has made them angry to learn all the stories about the business practices of the banks and oligarchs, and how common they had become prior to the collapse. This has led these people—certain businessman and bankers—to be considered as public enemies number one in Iceland over the past year, and it is almost certain that some of these people will serve prison time for the crimes they committed.
So the reckoning I initially mentioned is, first and foremost, a reckoning between the general public of Iceland, the people who did not belong to the economic or the political elite and who cannot be blamed for the collapse, except indirectly at most, and the people who governed the country into the mess it is currently entrenched in.
As I write this, it is not foreseeable what the end result of this reckoning will be, since the events that led to collapse are still be looked into by the ‘Special Prosecutor’ hired to do so, and a special committee that is investigating it from a more academic, analytical standpoint. Icelanders can only rest assured that the answer to the question: “What happened and who will be punished for it?” has been and is being looked into. But we are a pretty long way from having a satisfactory answer. That will probably take years; the reckoning has only just begun.
Ingi F. Vilhjálmsson, is a journalist at the newspaper DV in Reykjavík.

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