Iceland’s people again reject debt slavery


On 9 April, the electorate of the small north European country of Iceland, for the second time, rejected, in a referendum, a proposal by their social democratic government that they accept a regime of enforced penury so as to repay, at onerous rates of interest, the British and Dutch governments, for the payments made by those governments to their own citizens following the collapse of the private Icelandic bank Icesave in October 2008.

As a result, Britain and Holland have now vowed to take Iceland to court, in a last ditch attempt to claw back over 4 billion Euros in lost bank deposits.

Despite predictions from politicians and the media that this time the Icelandic people would be bamboozled into voting yes, the no vote secured just under 60% support, whilst those browbeaten into voting yes accounted for around 40%. The previous referendum, held on 6 March 2010, on an even more draconian proposal, saw it rejected by more than 98% of those voting.

In an article published the day before last month’s referendum, the economist Professor Michael Hudson wrote:

“Icelanders will vote on whether to subject their economy to decades of poverty, bankruptcy and emigration of their work force. At least, that is the programme supported by the existing Social Democratic-Green coalition government in urging a ‘Yes’ vote on the Icesave bailout. Their financial surrender policy endorses the European Central Bank’s lobbying for the neoliberal deregulation that led to the real estate bubble and debt leveraging as if it were a success story rather than the road to national debt peonage. The reality was an enormous banking fraud and insider dealing as bank managers lent the money to themselves, leaving an empty shell – and then saying that this was all how ‘free markets’ operate. Running into debt was promised to be the way to get rich. But the price to Iceland was for housing prices to plunge 70% (in a country where mortgage debtors are personally liable for their negative equity), a falling GDP, rising unemployment, defaults and foreclosures.” (‘The economic crisis in Iceland: ‘IMF medicine’ is not the solution’, Global Research, 8 April 2011)

Professor Hudson’s reference to “decades of poverty, bankruptcy and emigration of their work force” was no exaggeration or hyperbole. The amount sought by the British and Dutch imperialist states amounts to ten times the annual gross domestic product of Iceland, a country of just some 320,000 people.

Eirikur Bergmann, a political scientist at Iceland’s Bifrost University said: “The No campaign speaks so clearly to the Icelandic national identity of not giving in to foreign pressure.”  (‘Iceland president hails nation’s defiance’, Financial Times, 10 April 2011)

It is now the consensus of the British, Dutch and Icelandic governments that the matter will be settled in an international court set up by the European Free Trade Area (EFTA).

Icelandic Finance Minister Steingrimur Sigfusson continued the scare-mongering campaign with which the social democrats have attempted to intimidate Iceland’s workers, farmers and fishermen into picking up the pieces left by the implosion of the cosy deals previously concocted by a tiny handful of Icelandic oligarchic spivs, the so-called ‘Viking Raiders’, with the finance capitalists of the UK and Holland, by sounding the grim warning that the EFTA court could impose even harsher and more onerous terms.

But by no means everybody agrees with this dire warning. In an extraordinary editorial, even the Financial Times pointed out:

When the Icelandic people faced a second referendum on the Icesave affair, they could have been forgiven for deciding that they had had a good fight but it was time to throw in the towel. Instead, three-fifths of voters faced down UK and Dutch bullying, denying that taxpayers must bail out failed private banks unless a court rules that they are legally obliged to do so.

The Icelandic people’s admirable insistence on this principle may cost them dearly – or not, depending on what a court decides. But they prove that other governments are wrong to say there is no alternative to paying for banks’ losses.”

The editorial continued:

“The dispute is now headed for the European Free Trade Association court. Iceland has a good case: European law tells states to introduce properly resourced deposit guarantee schemes but explicitly rules out sovereign liability. While the Icelandic scheme did not have resources for the kind of crisis that ensued, nor does any other country’s. Claiming that UK or Dutch taxpayers would pay a third of annual income for foreign deposits in equivalent bank insolvencies is either hypocritical or delusional.” (‘Icelanders face down the bullies’, Financial Times, 13 April 2011)

Moreover, as was pointed out after the first Icelandic referendum:

“In seeking to place all the blame on Iceland, the British and Dutch governments conveniently overlook the duty of supervision they were obliged to shoulder under EU law. Icesave in Britain was a branch, not a subsidiary, of Iceland’s Landsbanki. EU Directive 94/19/EC requires that EU states should ‘check that branches established by a credit institution which has its head office outwith the Community have cover equivalent to that prescribed in this Directive.’

“Iceland is not an EU member, but neither Britain nor Holland chose to exercise their supervisory duty, as required by EU law.” (‘Icelandic people reject debt slavery’, Proletarian, April 2010)

Indeed, especially with Eurozone economies presently collapsing like ninepins, the implications of the impending court case, despite the public bravado of British and Dutch ministers, go considerably further. As Simon Bowers wrote in the Guardian:

Many in Iceland believe a court judgement could ultimately shatter the assumption at the heart of the Icesave settlement – that, under European law, a state must make up for any shortfalls in deposit guarantee funds.

“A clear legal ruling on this point would be extremely unwelcome internationally as it would throw a spotlight on huge funding shortfalls in depositor guarantee schemes in Britain, the Netherlands and indeed around the world.” (‘Small majority for Icesave compensation package shrinking before referendum’, 3 April 2011)

Olafur Ragnur Grimsson, Iceland’s president, saw the result as a vindication of his actions in twice referring the matter to a referendum, despite the opposition of Iceland’s government.

The people have now spoken clearly on this matter on two occasions,” he said. “The leaders of other states and international institutions will have to respect this expression of the national will.

The Financial Times added: “More broadly, he seemed to be championing Iceland’s defiant stance as a model for other crisis-hit countries facing similar debates over how to deal with crippling foreign debts. ‘Solutions to disputes arising from financial crisis and failures of banks must take account of …democratic principles,’ he said.” (‘Iceland’s president hails nation’s defiance’, op. cit.)