The working people of Iceland, one of the countries worst affected by the international banking and financial crisis of recent years, have, in a referendum, rejected by a massive majority their government’s attempts to foist on them onerous terms of debt repayment to the British and Dutch governments, arising from those governments’ compensation to their own citizens when the Icesave online bank collapsed.
By a narrow majority, the Icelandic parliament had endorsed a repayment plan to the British and Dutch authorities for the €3.9bn lost when Icesave collapsed. The terms of the deal, including onerous rates of interest, would have accounted for fully half of the annual Gross Domestic Product (GDP) of this tiny island country of some 320,000 people, imposing a burden of £43,000 on every household, which could only have been extorted by means of massive cuts in public services, mass unemployment and large-scale emigration.
Whilst the previous government led by the right-wing Independence Party may be blamed for its enthusiastic embrace of neo-liberal economics, which led the country’s banking system to implode spectacularly, the government that replaced it in the ensuing political turmoil, formed by two social democratic parties, rapidly forgot that it was popular anger that had brought them to office, and hastened, despite some opposition in their ranks, to agree a supine deal with the UK and Dutch governments, in the vain hope that this would rescue the country from its economic predicament by unlocking huge International Monetary Fund (IMF) funds and fast-track membership of the European Union (EU).
Above all, blame needs to be laid at the door of the imperialist British government, which once again sought to bully a smaller and weaker country, and which has never really treated Iceland as an equal, sovereign and independent country.
What they all reckoned without was both the fighting spirit of the Icelandic working class and the fact that the country’s president, Olafur Ragnar Grimsson, was to prove himself a person of integrity.
The bill to accept the British and Dutch repayment terms was passed by 33-30 votes, with even some government ministers voting against. However, for only the second time since the country became independent in 1944, the president refused to sign the bill into law, declaring:
“The cornerstone of Iceland’s constitution is that the nation is the highest judge for the validity of law.”
Accepting the popular demand for a referendum, he continued: “Now the nation has the power and the responsibility in its hands.”
The referendum was held on Saturday 6 March, with more than 98 percent of those voting rejecting the proposed deal. Just 1.8 percent voted in favour.
Negotiations will now continue to construct a new deal, although these will doubtless be complicated by impending elections in both Britain and Holland (where the coalition government has collapsed as a result of the Dutch Labour Party’s refusal to extend the term of its troop presence in Afghanistan) as well as a possible new election in Iceland, now being called for by the opposition.
Sensing the prevailing wind, the British Labour government, pitiless in its previous attempts to squeeze every possible penny from the Icelandic people, and callously indifferent to the social traumas this would inflict on an entire nation, had already begun to offer concessions before the vote was held. Now, hoist on the petard of its own highblown but utterly deceitful rhetoric of ‘democracy’ and ‘human rights’, by which it seeks to subvert independent nations, it will doubtless offer more.
In the words of President Grimsson, the referendum demonstrated to the British government that, “there is a democratic limit to how far you can pressure ordinary people to shoulder through their taxes the financial failures of bankers”.
Grimsson went on to mock Gordon Brown’s fatuous claim to have “saved the world” at the time of the international banking collapse, saying: “It is not good enough to be a statesman on the global scene and be a bully to Iceland.”
Even without the repayments to Britain and Holland, the collapse of the entire Icelandic banking system in October 2008 has already exacted a terrible price from working people, with wages falling by some 12-15 percent and 20 percent of families forced into negative equity.
British imperialism just as guilty
Whilst there is absolutely no reason why the working people in any country should be made to pay for the capitalist crisis, it is worth noting that, whereas the cost of Britain’s preferred repayment option would amount to nearly £11,000 for every Icelandic man, woman and child, if this debt was paid by the British taxpayer – as it already has been – the equivalent cost drops to just £36, a drop in the ocean of what has already been foisted on British working people to rescue the UK’s own failed banking system, not to mention financing the genocidal wars in Iraq and Afghanistan or the planned replacement of Trident nuclear submarines.
And, whilst the Icelandic workers and farmers should not be forced to pay for the incompetent greed of their capitalist class, the British ruling class bears at least equal responsibility for fomenting the economic catastrophe. The banking and financial policies and practices followed by Iceland in recent years were but a copy of the deregulated and liberalised paradigm introduced by the United States and Britain in the 1970s, and which continued to be endorsed by the British establishment even after the credit crunch froze interbank lending in August 2007.
For example, a November 2007 report from Professor Richard Portes, then President of the Royal Economic Society, commended the “successful and resilient” banks of Iceland, adding that the country’s financial system was based on “an exceptionally healthy institutional framework. The banks have been highly entrepreneurial without taking unsupportable risks. Good supervision and regulation have contributed to that, using EU legislation.”
In fact, the reason why so many British local authorities, in particular, Labour, Conservative and Liberal Democrat alike, were so keen to put their council tax payers’ money in Icesave was because the online bank offered a particularly good rate of interest, precisely because it was known to be high risk.
Moreover, 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.
Having encouraged the Icelandic ruling class in its passionate embrace of deregulated, neo-liberal economics, the British Labour government was quick to twist the knife when the whole financial charade inevitably unravelled.
The use of Britain’s draconian anti-terror laws to freeze the UK assets of Landsbanki aroused particular resentment in Iceland, not to mention reawakening memories of the country’s occupation by British armed forces in 1940 and the ‘cod wars’ of 1952-56, 1958-61, 1972-73 and 1975-76, when British imperialism sent armed gunboats to harass and threaten defenceless Icelandic fishermen after the country had expanded its territorial sea limits for exclusive fishing, fully in accordance with international law.
Prior to the days before the referendum, British government ministers again sought to pile the pressure on Iceland, foolishly threatening the country with international isolation.
Chancellor Alistair Darling warned in January that failure to accept London’s terms would “make things a lot more difficult” for Iceland. City Minister Paul Myners went further, telling the BBC in January that if they dared vote against the bill:
“The Icelandic people … would effectively be saying that Iceland does not want to be part of the international financial system, that Iceland doesn’t want access to multinational, national and bilateral funding and doesn’t want to be regarded as a safe counterparty with whom to do business.”
But Darling adopted a different tone after the referendum, saying that, “we are prepared to be flexible, because it’s not in our interest to have Iceland excluded. We want Iceland to be part of mainstream Europe, and this is just part of that process.” Conceding that it would take “many, many years” to recover the money, Darling continued: “You couldn’t just go to a small country like Iceland with a population I think about the size of Wolverhampton and say repay all that money immediately.”
In reality, Darling had been demanding that Iceland repay the money with an interest rate of 5.5 percent, despite the British government’s own compensation to the Icesave depositors having been financed through a loan from the Bank of England, whose current base rate is 0.5 percent.
Iceland has alternatives
Despite the last ‘cod wars’ of the 1970s having been waged when a Labour government was in office, this imperialist party, in its latest attempts to bully Iceland, clearly had not taken into account three things – the Icelandic people’s strong traditions of independence, the country’s ability to develop a self-reliant economic policy based on its natural resources, and the changing balance of international forces, which increasingly give Iceland alternatives to being part of the “mainstream Europe” into which Alistair Darling is so keen to lock the country.
A pertinent and moving snapshot of the Icelandic people’s spirit of freedom may be glimpsed in this brief excerpt from Halldor Laxness’s novel, Independent People, which won its author the Nobel Prize for Literature in 1955:
“True, it had been quite usual in the old days for the people to owe the merchant money and to be refused credit when the debt had grown too big. It had likewise been nothing uncommon for people thus denied sustenance to die of starvation, but such a fate, surely, was infinitely preferable to being ensnared by the banks, as people are nowadays, for at least they had lived like independent men, at least they had died of hunger like free people.”
And, although lacking in most natural resources, the regular shifts in the massive tectonic plates beneath the surface of this volcanic island generate massive amounts of geo-thermal energy and hydropower, making the country one of the most sustainable in terms of its energy consumption. Virtually all of Iceland’s energy comes from renewable resources and the country expects to be fully energy-independent by 2050. Furthermore, Iceland’s expertise in renewable energy and cutting edge green technology is eagerly sought after by developing countries in the Caribbean and elsewhere.
These resources, along with farming and fishing, and the well-established aluminium industry, provide a perfectly sound basis for a balanced, self-reliant, sustainable economy, meeting the people’s needs, without any need to dabble in casino capitalism, were there to be a government representing and answerable to working people.
Finally, Iceland has increasing options in the developing multipolar world, in which US hegemony (and that of its European imperialist allies) is being progressively weakened. Before deciding to appeal to the IMF and Scandinavian banks for economic relief, Iceland had been in the process of negotiating for a massive loan from Russia.
China and Iceland have held several rounds of negotiations on the possible formation of a free-trade agreement between the two countries. This would attract very considerable Chinese investment as a tariff-free entry point for Chinese goods and services, free of protectionist threats and pressures, to the European Economic Area, which groups the 27-member EU along with Iceland, Norway and Switzerland. A US journalist recently ruefully observed that the biggest foreign embassy in the Icelandic capital, Reykjavik, was the Chinese and that the Icelandic President had been received in Beijing with the same level of protocol as that accorded President Obama.
Iceland’s options are also enhanced by its being one of six countries with territorial claims to vast areas of the Arctic and adjacent sea lanes, whose significance to the entire world is growing exponentially as climate change, energy shortages and the development of new technologies all place on the agenda the possible exploitation of the region’s vast and hitherto untapped oil and gas reserves, along with the possibility of new year-round ice-free sea routes, considerably reducing the time of sea transportation between Asia and Europe.
These international possibilities have not been lost on President Grimsson. As the Financial Times put it on 10 March:
“Mr Grimsson believes Iceland’s location, on the edge of a thawing Arctic, could prove a blessing as it rebuilds its economy. ‘Iceland is at the centre of the sea routes that are gradually opening up, linking Asia in a new way with Europe and North America in a similar way as the Suez canal did in its time’.
“His reference to Suez, scene of a famous British foreign policy failure in the 1950s, is also a warning to the UK that there is more at stake than money in its protracted battle with Iceland about €3.9bn lost in the failed Icesave bank.
“Mr Grimsson is careful to avoid directly linking the Icesave dispute with Iceland’s place in the world. But he is quick to point out that China and India have shown interest in the island as an Arctic logistics hub. The message: Iceland is a country Britain should be wooing, not bullying.
“‘You really have to have your eyes closed not to see the importance of the north for the development of global trade and energy – and when you look at the map, you find Iceland in the middle of it.’” (‘Iceland uses Arctic thaw to turn heat on UK’)
Certainly, whatever course Iceland chooses to take in its diplomatic alignments, the courageous stance of the Icelandic working class in refusing to bend the knee to their own parasitic big capitalists, their social-democratic government or the arrogant British imperialists, just as with the massive struggle being put up by the Greek proletariat, should give heart and example to the working class in Britain and all the imperialist states in resisting the harsh attacks on jobs, living standards and public services, being demanded as the price for the abysmal failure of capitalism.