Reykjavík Grapevine - 28.09.2013, Blaðsíða 14

The Social Democratic Alliance and the
Left Green Party formed a government for
the first time on February 1, 2009, as Ice-
land was struggling with the hardest eco-
nomic conditions that have occurred in
the republic’s history. The circumstances
were without precedent. The nation faced
bankruptcy.
What happened was: a banking col-
lapse, a debt crisis, a crisis of state finance
and an international crisis. This was fol-
lowed by societal dissolution; bonfires
were lit and full social revolt seemed in-
evitable—in the aftermath of the collapse,
our community burned with conflict and
rage.
Corruption, greed and
mismanagement
Iceland’s economic collapse was not least
the result of the crony-capitalistic priva-
tisation of the nation’s banking system
and the bubble economy, both of which
occurred during the reign of the Inde-
pendence and Progressive parties; a pe-
riod that was characterised by continuous
economic mismanagement, corruption,
greed and a growing income gap. Low-
interest loans from abroad were used to
inflate worthless stock in the banking
system, which had in the end, at the time
of the collapse, blown up to being ten
times the size of Iceland’s GNP. The entire
banking system was slowly transformed
to a structure fuelled entirely by greed, for
instance through the use of incentives for
big business and corporations under the
auspices of the newly privatised banks—
which were used to inflate the profits of
corporate executives, which in turn lead
to a gross increase in the nation’s income
gap and general social inequality. Every
single word of warning and urge of cau-
tion from foreign specialists was ceremo-
niously ignored, and the nation’s regula-
tory agencies and supervisory authorities
slept at their guard posts. Supervision
over the financial system was therefore
very weak.
In the end, all of this came together
in a perfect storm that lead to a massive
collapse in the króna’s exchange rate, a
slump in the real estate market and the
nation’s stock market collapsing like the
house of cards it turned out to be. Every-
thing changed. Nine-tenths of the stock
market dried up, inflation rose to nearly
19%. Short-term interest rates skyrock-
eted to 18% at the beginning of 2009, the
króna’s value plunged by 50%. Special-
ists projected a 10-15% downturn in the
economy, which pushed unemployment
numbers above 10%, with an accompany-
ing drop in public spending power and
nearly 20,000 people losing their jobs. It
is furthermore apparent that the collapse
also brought the downfall of the neolib-
eral ideology, as it among other things
exposed the unprecedented purchase of
political influence by banks and business
elites by way of enormous grants to the
ruling Independence Party.
There is reason to add to this the con-
tents of a statement Carsten Valgreen,
former Chief Economist of Danske Bank,
made in Fréttabla!i! on January 10, 2009,
in which he claims that the government’s
appointing a former Prime Minister as
Head of the Central Bank of Iceland’s
Executive Board had disastrous conse-
quences—that it had resulted in the bank
being managed in an astoundingly poor
manner. Indeed, one of the first acts of the
new post-collapse government, in Febru-
ary of 2009, was to instate a new executive
board—at that time it was clear that the
state treasury’s cost of the Central Bank’s
impending bankruptcy would be one of
the bigger expenditures of the collapse.
In the end, the Central Bank’s bankruptcy
cost the state close to 270 billion krónur.
First post-collapse
government results
The emergency procedures and recourses
that the first post-collapse government
was forced to resort to were manifold and
cannot be recounted in full in this venue.
Hopes of staving off national bankruptcy
and loss of financial independence were
dependent on the trust other nations
placed on us. The Social Democratic Al-
liance and Left Green coalition accom-
plished restoring the economy, deflating
the inflation from 19% to 3.5%, lowering
interest rates from 18% to 6% and cutting
unemployment numbers in half. Iceland-
ers’ spending powers had at the end of last
year increased by nearly 8% from the low-
point of the depression—and even more
as they related to the lowest income brack-
ets and lowest paid pensioners.
During the last two years of the gov-
ernment’s term, we managed to instigate
greater economic growth than what most
of the nations we compare ourselves to
experienced over the same period of time.
Household and business debt decreased
to the count of two times the GNP in
three years, which is a great turnaround
by any standard. Since the collapse, the
debts of households and businesses have
gone down almost 50% compared to the
GNP. Out of the 120 largest businesses,
80% underwent restructuring measures
during the last term, along with 500 small
and average sized businesses. Over 200
billion krónur have been written off or
discounted from household loans, and
mortgage debts now amount to the same
percentage of GNP as they did at the start
of the real estate bubble in 2004.
State interest subsidies to households
were also more than doubled. Through-
out the four year term, the government
diverted more than 100 billion krónur to-
wards household interest relief and child
benefits, which is more than any other
government has done.
What’s most important is that the in-
equality in our society’s income distribu-
tion has been completely turned around.
Iceland is now one of the European na-
tions that can boast of the greatest equal-
ity. Furthermore, international surveys
reveal that Iceland was the world’s most
gender equal nation four years in a row.
We certainly set off with great ambi-
tions, but our plan of action was always
intended to be a realistic and reasonable
one. We did, however, fail to anticipate
the weight and fury with which certain
interest groups organized themselves in
active opposition to our government and
its goals of restoration, equality and trans-
parency. The Constitutional Committee
was stifled and road blocked by Iceland’s
Supreme Court amongst others. Fish-
ery owners and fishing quota magnates
fought fishing fees and changes in the
quota system tooth and nail. Capital con-
trols and a ruined króna created a grow-
ing problem that has now started run-
ning companies out of the country. A few
members of the government caved under
the immense weight of the relentless pro-
paganda, which caused us further prob-
lems. We were accused of neglecting the
problem of household debt, despite the
decisive actions recounted above. House-
hold debt amounted to 135% of Iceland’s
GNP when it was highest in 2009, but at
the end of the last term this spring it was
down to 108%—the same as it was fifteen
months prior to the banking collapse.
The numbers are there, and they
speak for themselves.
Danish analyst Lars Christiansen was
one of the few experts who predicted the
economic collapse of 2008. During a visit
to Iceland in late 2012, he remarked that
Icelanders’ greatest accomplishment was
having tackled the consequences of the
collapse while keeping at bay the mass ri-
ots, strikes and strife that plagued other,
similarly troubled nations. I should also
note that Iceland’s credit default swap
greatly improved over the last term, as did
the state’s credit rating with foreign ana-
lysts.
Again: the above facts and numbers
speak for themselves, and bear witness
to the great results accomplished by Ice-
land’s first purely leftist government.
The wheels of greed are
spinning
I recently met an old Progressive Party
MP and asked what he thought might
happen if his party failed to meet its
campaign promises to instate the largest
debt correction in the world for Iceland’s
households. “Then, we’ll be dead,” the for-
mer MP replied. These bloated campaign
promises made by the Progressive Party
are the main explanation for the former
governing parties—especially the Social
Democratic Alliance—poor results in this
spring's parliamentary elections. There
was no way to trump these unreal prom-
ises, save for directly and intentionally
deceiving voters. Furthermore, the social
rift caused by the application to join the
EU, disappointment with the state of the
constitution and many households’ seem-
ingly insurmountable debts eventually
came together in a great wave of dissatis-
faction. The growing flames of discontent
were fanned enthusiastically and nonob-
jectively by those who stood to lose their
privilege and power as Iceland slowly be-
come a more just and egalitarian society.
Now that the new coalition govern-
ment of the Independence and Progres-
sive parties has been in power for five
months, it is apparent that those in power
are both perplexed and overwhelmed by
the tasks at hand. The main emphasis
seems to be relieving 20 billion krónur
worth of taxes from fishery owners and
the wealthiest of our community. The
current government’s priorities could not
be more different from the ones honoured
by the last one. Inequality is once again
rearing its ugly head, and the sharp knife
of austerity has been turned towards the
welfare system—all to benefit society’s
wealthiest and best-off.
Once more, the wheels of greed are
spinning.

The Collapse | Anniversary
Magnús Andersen
14The Reykjavík Grapevine Issue 15 — 2013
A Look In The
Rearview Mirror
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Jóhanna
Sigur!ardóttir is the
former prime minister
of Iceland
Steingrímur J. Sig-
fússon is the former
minister of finance
The banking and economic collapse of
October 2008 is perhaps not the first
thing one would think to reminisce
about, not a particular cause for anni-
versary celebrations. Especially in the
sense that of course we all wish that The
Collapse’s consequences and its linger-
ing effects on our lives and work would
vanish as soon as possible. “If only we
could forget it all, if only it never hap-
pened,” some are surely thinking. Un-
fortunately, The Collapse was a very
real occurrence, and its consequences
will not evaporate—it has already put its
mark on so much of Icelandic life, and it
will remain a determining factor for the
nation for a long time to come.
The short version boils down to this:
a terrible mistake was made. Iceland
experienced an almost unprecedented
economic collapse, with wide-ranging
and impossibly expensive consequences
for us as a society. The Collapse and its
repercussions will continue to haunt
our existence for the foreseeable future,
and beyond. The Collapse has resulted
in hardships for thousands upon thou-
sands of families and households, an
injured economy that will take time
and patience to repair, and a heavily in-
debted state treasury, to name only the
key effects. This is something we simply
cannot forget in the hopes of things re-
turning to normal. The state treasury’s
debts will not take it upon themselves to
vanish and be forgotten so we don’t have
to be constantly reminded of The Col-
lapse. Rather, they come with crippling
interest payments, serious money that
we cannot set aside for other purposes.
And these debts need to be repaid as
soon as possible (for that, we need a re-
sponsible government), and the krónur
that need to go towards this need to
come from somewhere.
Another five-year anniversary is
drawing closer, one that we should also
commemorate. In April of 2015, it will
have been five years since Al#ingi’s Spe-
cial Investigative Commission issued its
report and this, also, cannot be forgot-
ten. On the contrary, the report should
be and remain an annual required read
for many.
It Cannot
Be Forgot-
ten…
5 YEAR
ANNIVERSARY
OF THE
COLLAPSE
2008- 2013
Iceland’s economic
collapse was not
least the result of
the crony-capitalistic
privatisation of the
nation’s banking sys-
tem and the bubble
economy...