Why pick on Iceland?

Ögmundur Jónasson

At the beginning of October last year the Icelandic economy was in one fell swoop more or less brought to a standstill. One fell swoop are the right words to use about the actions of the British government which used anti-terror legislation to take down the Icelandic banking system. And the justification for doing so? Icelandic banks were said to be a threat to the stability of the British economy!

Iceland has been particularly badly hit by the present crisis of capitalism. The financial sector in the country, recently privatised, has in the last few years taken full advantage of the abolition of laws and regulations previously restricting the free flow of capital. The banks invested abroad and expanded far beyond what was sensible. Gradually they – like most international financial companies of our day were turned into monsters which needed an ever bigger feed to sustain their existence.

In this process Iceland´s connection with the European Union (through the European Economic Zone) has been instrumental. When the European Union knocked down all barriers to restricting capital all member states were requested to establish an insurance fund guaranteeing the deposits of creditors and investors up to a certain limit. What was never clearly defined at the time, however, was to what extent a nation, i.e. the general public, could be held responsible in the unlikely event of the entire financial system of a country collapsing and indeed the entire economy as has been the case in Iceland.

Some of us had warned against the privatisation of the banking sector, maintaining that this was especially risky for a small economy – a small nation. We were told that our views belonged to the past. Laissez-faire was the order of the day and the new young set of speculators and bank directors arrogantly declared that their banks were no longer “Icelandic“ – they were simply international finacial institutions and that we should be grateful so long they cared to have their headquarters in our country!

Iceland was not, of course, unique with regard to such attitudes in recent years. Throughout the world greedy capitalism has been rampant and now the collapse of this system is also a universal development. In times of crises states tend to become inward-looking and egoistic. At the same time as the Icelandic banks were brought down, financial institutions began to crash on both sides of the Atlantic. The response of governments was parochial and self-centered.

In the United States, Lehman Brothers was allowed to go under but not Bear Stearns. Why? The context is that 90% of Lehman's creditiors were outside the US, in the case of Bear Stearns the creditors were US creditors. When Lehman's collapsed they moved huge amounts of money from London on the last day, they sacked most of their London staff, but kept their New York offices almost intact. So London lost out, but in Whitehall no one uttered a word of criticism. Britain did not use anti-terror legislation against the US although many British creditors were harmed. The power of Friendship? Or was it just cowardice?

I think there may have been one more factor explaining the assault on Iceland: The power of politics. Could it be that a Prime Minister running low in public opinion polls, as Gorden Brown was doing at the time, saw an opportunity for gaining popularity by showing resolution and strength? Remember Thatcher and the Falklands? Anyway Iceland – with its 300,000 inhabitants - would be an easy prey to deal with in such a political maneuver. It was easy to make a convincing case.

Icelandic banks, especially one bank, the Landsbanki had been expanding rapidly in Britain, offering its customers high inetrest rates– a promise for a quick kill? - which all too few recognized as high risk investment. Many British institutions and municipalities had placed their money in this bank. So there were considerable stakes, although never threatening the economic stability of Britain!

This was nevertheless enough for Mr Brown to make a case. By reference to anti-terror legislation the British government decided to take over all operations of the Landsbanki in Britain in a police action. Iceland was put on a list with terror groups and terror states in Mr Brown´s valiant fight to protect British citizens. Here it must be emphasised that the Icelandic government has all along made it clear that foreign obligations would be guaranteed according to law. The disagreement, in the aftermath of these events, has been about how to interpret these legal obligations of the state. And in this case the state means the Icelandic tax-payer - not only this present generation of tax payers but also our children and grandchildren, such would be the enormity of the burden for Icelanders, according to Mr Brown´s interpretation of these obligations.

The day after the collapse of Landsbankinn, the British government ordered that another Icelandic bank operating in Britain, Kaupthing, be invaded and taken into administration. This act of economic vandalism had disastrous consequences since this bank, the biggest bank in Iceland, which evidence shows was fully able to meet all obligations of its UK deposits, was forced into default. This caused irreparable damage not only to the Icelandic banking system and Icelandic-owned firms operating in Britain but to Icelandic society at large. It also caused harm in Great Britain.

Now the IMF, the elite police force of international capitalism, has arrived in Iceland. In great secrecy and without any democratic discussion, it has forced the Icelandic government to accept its conditions, which include the acceptance of the demands of foreign creditors (their welfare comes before the welfare of Icelandic have-nots) inevitably resulting in unforseeable cuts in welfare for many years to come.

Proportionally the burdens are bigger than for the Germans after WWI and the Argentinians in the early nineties. From the start the IMF representatives in Iceland took a stance with Great Britain and other EU states which in unison put pressure on Iceland - i.e. the Icelandic public - to pay the price demanded – whatever the social consequences! The Icelandic government has – against the advice of the socialist left – given in to this demand and Icelandic ministers are “negotiating“ with Britain, Germany and Holland, on the level of interst rates on outstanding debts. 1% up or down is equal to the 10% slash already ordered in our vulnerable health service for this fiscal year.

Of course the collapse of the banks has had serious consequences for people who lost part of their savings and investors who lost their deposits. But for the British economy at large this is not of the enormity we are made to believe by Mr Brown and friends. What remains true is that a British government felt it would be a good idea to place the biggest financial institutions of a small and friendly nation on a list with Al Qaida and North Korea. Why is such a desperate and incredible measure taken? To save the British economy? To save jobs in Britain? No, it is, among other measures, taken to make sure that nobody learns the truth about capitalism, it is an attempt to divide and rule. Furthermore, it is an attempt to divert attention.

Why a Labour government would act in such a way is incomprehensible. Despite the propaganda, the spin, the headlines, the British government was not at all protecting public interests by its actions. On the contrary, it was causing great public harm both in Iceland and in the UK.This in not a fight between working people in Iceland and Britain although the authorities try to make it look as such. I lived in Scotland for a period in the late sixties and seventies – and have ever since been a great admirer of Scotland. From those years I rembember the time when the Labour party still stood up for its name. From afar I have seen the party taking a sharp right turn , now calling itself The New Labour Party. For me this terrible episode has made me wonder why the party did not go all the way in its re-branding, and call itself the New Party. This of course would be logical if there was no labour left in the party at all. After attending a vigorous and inspiring conference held by the Labour Representation Committee in London last November I am however convinced that this is not the case. At the LRC conference I recognized the good comradeship of Old Labour.

The deep crisis capitalism is now suffering offers a new hope for our values; our hopes for a society based on equality, cooperation and democracy and not competition and greed. The political pendulum is again heading in our direction. After the dust settles and the sky clears in the wake of this crisis, the world will not be the same. It is becoming evident to people that the governments in Europe and America have been playing for high stakes with lousy cards; and that the people of Britain and the people of  Iceland are not to blame. It is the unjust, mindless, corrupt and obsolete capitalist system that is to blame.  This is not about shopkeepers, manufacturing, farming or trade. We are talking about social injustice of proportions not seen for a hundred years, which suddenly took over the hearts and minds of the world. Now this is changing.

The struggle ahead concerns whether or not the obvious lessons will be learned. It is absoloutely necessary that the ownership of the means of production be in the hands of the many and not the few. How we achieve this is now our task. Let us remember that what has been privatised can be nationalised again. And let us never forget that an infrastructure which is firmly in public ownership and under public control together with a hoard of small businesses makes a nation strong. And conversely, a nation with capital and power concentrated in the hands of the few is weak and will fail  - and will eventually fall – as we are indeed now experiencing.

What are the lessons to be learned? Firstly that for capitalism to work it needs to be underwritten by unconditional guarantees from the taxpayer. That means that the taxpayer must have absolute control over the system, i.e. democratic control is necessary. Wages, bonuses, loan stragies, structures etc must all be scrutinesed and approved by the public. There is no room for the silent partnership of public intsitutions, public funds or pension funds. Secondly, that if there is to be international capitalism, it requires international law and regulations to control it. As in the case of Iceland, a big and a powerful nation can crush a small nation by using means that it would never even consider faced with a an equally powerful nation.

As far as my nation is concerned we are going to have didfficult times ahead. But we know at the same time, that if we stick closely together in the spirit of solidarity – we will prevail. We know that the fish are still in the sea, the potatoes still grow in the garden. The sky is blue and in our hearts and soul there is a good fighting spirit. This gives us confidence.

Ögmundur Jónasson,
Member of the parliamentary group of the Left Green Movement in Iceland and the chairman of  the Federation of State and Public Employees in Iceland