Today is Iceland´s Independence Day. The Prime Minister held a speech in front of the Parliament telling the Icelanders, the next few years would be very hard. She also said that a new struggle for independence would have to be fought, but she added, it would mainly be about Iceland´s relationship towards other nations and Iceland´s cooperation with the international community in winning it´s trust again abroad, while the dealings of the “business-Vikings” had cost the Icelandic people a big deal of this former trust.
True,near every day new facts about insider deals and enormous corruption and waste of funds come to light. However, the bankrupcy of the banks was not exclusively caused by the corruption of the Icelandic bankers. They just followed the lead of both American and British bankers. And while doing this they were constantly lauded for their “innovative” business concept which spread risks far and wide and so minimized them.
This was the true essence of the “innovative” deregulated neo-liberal financial markets: Spread everything thin, so if one goes under everybody else will drown, too. Actually, before Lehman Brothers went under, the Icelandic banks were still swimming on credits from other banks.
What initially brought on the decline of the banks was the attack on the Icelandic Krona starting in January 2008. Some large “investors” started to massively short-sell the Krona. It dropped like a Stone. More investors pulled out, and the banks lost part of their equity and from then on were depending on inter-bank loans to stay solvent.
When the day of reckoning came the government had no choice but to re-nationalize the banks, splitting them into a domestic and a foreign part, allowing the foreign part to file for bankruptcy, while protecting the domestic banks.
The Icelandic banks held domestically all Icelandic household and business debts. With the catastrophic drop of the currency most Icelandic businesses and many households were over their head in debts, since their bankers had encouraged everyone to take on loans in foreign currencies to avoid the high Icelandic interest rates on loans.
In it´s neo-liberal sell-out spree the Icelandic government had sold the fishing quota to the Icelandic fishing industry. Like others the fishing-industrywas over it´s head debts now. If those businesses went under and were taken over by the creditors of the bankrupt banks all things would be over for Iceland. In spite of us making big strides to diversify the economy, 70% of all export revenues still come from fish. If the fishing quota goes abroad Iceland cannot survive. The Icelanders had fought two “cod-wars” with Britain coming close to shooting wars to retain their fishing waters and protect them from over-fishing by foreigners. They are the most vital part of the economy.
No fish – no bread.
This has been true since the 12. century, when the medieval climate optimum was slowly coming to an end , which made traditional Nordic agriculture more and more impossible. Icelanders are no Inuits. They, even then, were used to an European diet and for that they needed to trade: dried fish and wool and wool-clothing.
Trade was so important that in 1262 Icelanders surrendered their national independence to the Norwegian crown in order to keep the trade lines open and the ships from Norway coming. A century earlier, for probably for the same reason, an Icelandic historian had to burn his first book on Icelandic history together with all his orginal sources to write a new and “revised” edition of it.
When in 1308, due to a royal marriage, Iceland came under Danish rule, trade started to decline, poverty grew. When the Danish government put monopoly trade restrictions on Iceland, which banned Icelanders to trade with anyone other than Danish licensed traders, the anti-Danish anger grew in Iceland. The monopoly traders sold crap and spoiled food, and bought Icelandic fish and other products under value.
The trade-restrictions were the main motivation for Icelanders to start their struggle for independence from Denmark.
When Iceland became finally a fully sovereign nation in 1944, the country finally started to rise from abstract poverty and underdevelopment. Iceland was not a near socialist country, as some people claim. All industries were in private hands. Only the infrastructure was public like the roads, the schools, the post-offices, the universities, the hospitals, electricity- , hot- and cold water pipe-lines as well as the phone lines were in public hands…… and the banks.
The banks and mortgage loan funds were some owned by the central goverment, some by the local communities and some by the labor-union-connected pension funds.
And they, together with the general tax-payer, financed all the infra-structure needed for a modern society, even one with a very small population in a difficult climate on a relative large land. The banks and the pension-funds also financed the construction of new modern housing, built from steel and concrete, strong enough to withstand all the strong fall- and winter-storms and flexible enough to outlast earthquakes. There was no real rent-market in Iceland, except a few public housing blocks for handicapped and disabled people. Everyone else had to buy their house or apartment and most everyone could, even low income single mothers. The mortgages were affordable, although not cheap.
With all revenues of the banks pumped back into the economy and not siphoned out by self-interested bankers the system worked and the economy grew steadily. Before the privatization of the banks the Icelandic economy seemed to have running in a very similar way to the one of North Dakota, the rural state which also owns his own bank, and is one of the few among the 50 that isn´t broke. (Ellen Brown describes the economic system of North Dakota on her Web of Debt Blog)
Sure with the dependence on fish-prizes and exchange rates abroad, there were several periods of high inflation, but the strong domestic labor unions allowed the Icelandic working class to regain the buying power that was lost in a very short time and increasing it steadily. The Icelandic living standard was already high long before the banks were privatized, although prizes were a lot higher than in Europe and wages a bit lower. But there was close to zero unemployment most of the time, and most people worked overtime up to double the normal working hours, especially in the fishing industry. All women worked outside the home. Children started to work at least part time by the age of 14 or even 13. And the early years they also worked as long hours as their parents. Fishermen on tour worked often 16 hours a day 7 days a week and still do. Their work is backbreaking hard and until recent years used to be very dangerous also. They are the national heroes of Iceland honored with a special holiday weekend.
Of course their where ups and downs and occasional economic problems. And so the age of the neo-libs began, with their golden bullet works for all recipe: deregulation, privatization of infrastructure and foreign “investment”:
If they only would do this, the government believed, Iceland would be able to diversify it´s industry. From the 2 Aluminum melting companies, we had before, the country then could get many more. And other industries would be founded as well in every part of the country. And there would be lots of free trade.
“Free trade” that´s what the Icelandic government fell for. And so they started selling the country´s silver-ware and in the end, the banks. And the foreign advisers of the government, coming from one of the largest British banks, HSBC, also told them, that should not put any stricter regulations on the Icelandic banks than the European Union had written in their laws. That´s exactly what the government did and what brought on the catastrophy. The first one to be privatized in 2003 was Landsbanki. It was sold to a company with the name of “Samson”. (The members of the government had obviously forgotten to read their bibles.)
The economy indeed grew like crazy after that, new industries developed all over the place, but the Icelandic labor market was already over-extended, so mass-immigration followed, which again put pressure on the housing market and the prizes there sky-rocketed.
When Samson finally crashed the temple of greed upon the Icelandic people,the crash was total. The country became the one with the highest per capita debt burden in the world. Besides their own debts, the Icelanders now are obligated to also pay the Icesave debts of the bankcrupt privatized bank, Landsbanki. The debt is mainly owed to the British government now.
This makes the Icelanders really angry. They argue, that it was the British government who was responsible for at least some of Iceland´s problems. With their actions of putting Iceland on the list of terrorist countries and organizations, right next to Iran, and treating Iceland like Iran, freezing it´s assets, the Brits had driven the third and largest Icelandic bank into bankruptcy, the only which might have survived. This increased the burden on the Icelandic economy and reduced it´s revenues even further.
But when the Icelandic government considered to settle the matter of the dispute with the British government in an European court, no court would even consider to hear our case, and the whole international banking system put a total trade ban on Iceland. For weeks no money transfers whatsoever, necessary for any kind of imports or exports could be done anymore. Icelandic industries went further under water. And Icelandic retailers finally pronounced that within another three weeks, they would be running out of food. And so once again:
No fish, no bread
Without trade we cannot survive, and therefore, under pressure of the united bankers of the world and in concert with the European Union, the Icelandic government gave in to demands, all Icelanders consider to be unfair. (A new poll published today says that over 70% of Icelanders believe, the government is for the banks, not for the people.)
And so we now will pay the debts of the banks in addition to the household debts and the government debts and the debts of our industries , and hope that in the years to come some money will still be left for bread.
P.S.: Many Icelanders are now putting their hope in becoming an oil- and gas-producing country, being on the same list as Iran, after all. No joke,surveys have found there is a 98% chance of oil and gas being found in a certain area of the Icelandic sea. We just don´t have the money to drill.
