Iceland's Debt Solution


Iceland used to be known for Björk and a semi-popular, eponymous British supermarket chain, and for occasionally sending a few volcanic clouds the continent’s way.

Yet these days, when you start chatting politics with a Spaniard or an Irishwoman, they are as likely to mention the tiny Atlantic nation as any of the larger European states.

For the Left in much of crisis-afflicted Europe — and some of the Right too — the tiny volcanic rock in the middle of the Atlantic Ocean hints at what might have been for their nearly bankrupt, desperate nations.

Iceland underwent the most rapid program of economic deregulation — and then the quickest bust — in European history. Between 2001 and 2004 nearly the entire economy was deregulated. Controls on fishing, banks and capital were largely abandoned. Four years later, when an investment bank that had lent funds to a huge number of the island’s residents collapsed, so did the country’s banks.

So far, so familiar. Iceland’s story was later mirrored in a number of other countries — from Spain to the United States.

Yet although many of Europe’s leaders have been judged guilty by the electorate for their failure to foresee and manage the global financial crisis, it’s rare that a leader has been put in the dock for their perceived culpability.

Last week, while another two European governments (Romania and Holland) fell due to the crisis, and a third (The Czech Republic) wobbled, Iceland’s former prime minister was judged and condemned for a minor offence related to 2008’s banking crisis in the Mid-Atlantic.

Geir Haarde may have escaped more serious criminal charges but a panel of High Court judges found him guilty on a count of not adequately informing himself while the Icelandic banking system was collapsing in Autumn 2008. The condemnation related to Haarde’s failure to call special cabinet meetings to address the crisis, reports Austria’s Der Standard.

Yet Haarde was found innocent of more serious charges, which claimed that he "bore a share of responsibility for the 2008 crisis," the Vienna-based daily writes. The ex-Icelandic premier was given a suspended sentence but — amidst boos and whistles — announced an appeal to the verdict, Der Standard’s dispatch concludes.

Indeed, Haarde’s trial has scarcely revealed who’s to blame for Iceland’s 2007-08 crisis, writes Stockholm’s Svenska Dagsbladet.

An economic rupture in the North-Atlantic nation was triggered by the collapse of three major banks — Glitnirs, Landsbankis and Kaupþings.

But the high court never managed to work out how the balance sheets of those banks could "swell to 923 per cent of GDP", writes the paper’s correspondent in a dispatch from Reykjavik.

Perhaps because those balance sheets were falsified, continues Svenska Dagsbladet, Haarde was found innocent of the regulatory failures that led to the misinformation being published in the documents.

And in a further injury to Icelandic pride, the ex-PM made taxpayers pay over $200,000 in legal costs for his trial, says the Stockholm daily.

Indeed, those who have taken a closer look at the nation recently have found things may not be looking economically or politically sunnier there than in Southern Europe after all.

Five years after the financial crisis began there, Icelanders remain "furious" with their former government and "everything to do with politics", opines a columnist in Portugal’s Expresso . Despite a relatively low rate of unemployment (7 per cent), and an economy that grew 3 per cent last year, the island’s residents remain mired in their debts:

"Despite the decisions of governments and the justice system, unthinkable elsewhere, which have seen interest payments on mortgage loans fall…they continue to be impossible to pay." Leaving many in Iceland nostalgic for the popular protests of 2008 that toppled Haarde’s conservative government, finds Mexico’s Proceso. Despite that "silent" revolution, the country is still suffering from "galloping inflation" (at 6 per cent per annum), rising taxes, monetary restrictions and health and education cuts.

And on top of all that, a new constitution authored collectively by ex-protest participants was never introduced. The constitution, drawn up via crowdsourcing, "emphasised social values and the environment".

But conservative parties have held up its implementation in parliament, by delaying a referendum vote: "It’s the last stand of the old guard," a member of the Icelandic constitutional court tells Proceso.

Desperate for investment, Iceland — like many countries in Southern Europe — is now turning to Chinese funding, reports France’s La Parisian.

With the polar icecap foundering, new reserves of oil and gas may soon be accessible. And "use of geothermic resources, the principle source of energy in Iceland" also formed part of the framework agreement, the French daily writes.

Still, Iceland’s young people are in the midst of a social revolution, French magazine Owni wrote in a 2011 dispatch.

After the failure of Iceland’s banking system and its economy, Iceland’s young people went through something of a sea change:

"Young people refuse to embark on a classical career, preferring to just get by making art," writes a journalist from the magazine.

"Treating the past like a blank canvas has become a popular idea among Icelandic young people…the crisis has changed people’s minds and brought about a refusal of politics as it is practiced everywhere."

And, with Iceland still to emerge from its five-year downturn, the country could again be foreshadowing where mainstream Europe is heading — just as it did at the start of the crisis.

ABOUT BEST OF THE REST: It’s a big world out there and plenty of commentators and journalists are writing about it – but not always in English. And not surprisingly, ideas about big events of the day shift when you move away from the Anglosphere. Best of the Rest is a fortnightly NM feature by Berlin-based journalist Charles McPhedran. Charles reads the news in French, German, Spanish and Portuguese and reports on what the rest of the world is saying about the big stories.

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