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Why Iceland is Not in the News Anymore

[by Deena Stryker, originally published in OtherJones]

An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution. But only after much pain.

Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures. The FMI and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros. This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country. As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF. The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North. But if we had accepted, we would have become the Haiti of the North.” (How many times have I written that when Cubans see the dire state of their neighbor, Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt. The IMF immediately froze its loan. But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis. Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn’t stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money. (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution. And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.

That’s why it is not in the news anymore.

UPDATE: A partial rebuttal and correction of some of the factual errors in this article.



  1. Iron Knee wrote:

    As some of my readers know, I have started a number of companies. Some have succeeded, but many have failed. In the aggregate, I can’t complain.

    But what blows me away is this sense of entitlement from big investors (especially those “too big to fail”). When one of my companies failed, I lost money. My investors lost money. My employees lost their jobs. But nobody complained. Nobody expected anyone to bail them out. That is the whole point of investment — you TAKE A RISK and sometimes it pays off well, and sometimes it doesn’t.

    I completely do not understand the sense of entitlement displayed by investment bankers and their clients. The crazy idea that if they make what turns out to be a bad investment, someone owes them their money back. If you take the risk out of a free market, you destroy incentive, which destroys the whole point of a free market. That would be socialism pure and simple (or worse, fascism — whose proper name is National Socialism — when the bankers and big corporations control the government).

    I applaud Iceland for figuring this out.

    Wednesday, August 24, 2011 at 7:43 pm | Permalink
  2. David Freeman wrote:

    Icelandic Exceptionalism.

    I love the good ole USA, but with a little less hubris, we could benefit from the experience of other nations.

    Wednesday, August 24, 2011 at 9:04 pm | Permalink
  3. Patricia wrote:

    Reading this puts a whole new slant on why the robot right has been trained to scream “facist” at the left. It’s a smoke screen. But the public will never wake up — they’re being seduced by the noise machine and no new perspective on our economic problems can be heard or discussed. Sorry about the negativity, I just can’t understand the stupidity.

    Wednesday, August 24, 2011 at 9:50 pm | Permalink
  4. ZJD wrote:


    Wednesday, August 24, 2011 at 11:41 pm | Permalink
  5. Falkelord wrote:

    This is honestly how I wished things would have happened here.

    We don’t deserve this country if we can’t even stand up for ourselves.

    Thursday, August 25, 2011 at 3:35 am | Permalink
  6. john haskell wrote:

    It turns out that this “little known member of the European Union” is so little known that Political Irony thinks it is actually a member of the European Union.

    Thursday, August 25, 2011 at 5:16 am | Permalink
  7. ebdoug wrote:

    Exactly how “Inside Job” starts. What is left out of this article is the S&P, Moodys gave the toxic mortgages in this country the AAA rating, the lobbied the Icelandic banks to invest causing Iceland to lose its capital. Except for how Iceland responded, this is all described in “Inside Job”
    And I think of Neil Bush running away untouched with all the Savings and Loan Money.
    Just read an article on the 9/11 “charities” running away with millions to live the high life. No difference between this and the banks.
    Buyer beware

    Thursday, August 25, 2011 at 6:20 am | Permalink
  8. Dan wrote:

    Private gain, socialized risk, supply side economics at its best. I still don’t understand why we own GM and not the big banks, well, OK, I do understand, can’t own something that owns you. I’m going to make myself a bumper sticker with “I (heart) Iceland Democracy at its best”

    Thursday, August 25, 2011 at 8:06 am | Permalink
  9. Falkelord wrote:

    @ John Haskell

    Probably should look these things up before insulting the poster of the article who isn’t actually the one who wrote it in the first place.

    Thursday, August 25, 2011 at 9:05 am | Permalink
  10. Jake wrote:

    The math in this article doesn’t seem to add up. In the article, where it says “pay off a total of three and a half million Euros. This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest,”, with a population of 320,000; 100 Euros a month per citizen is equal to 32,000,000 Euros a month…ten times the debt listed here. I’m guessing they really meant to say billion, which makes the math a bit better. Though even at a debt of 4.5 billion per 320,000, it still is only a quarter of the US debt of 16 trillion per 320 million.

    Thursday, August 25, 2011 at 9:53 am | Permalink
  11. Michael wrote:

    @Falkelord, John Haskell was actually correct. Iceland, Lichtenstein, Norway, and Switzerland are members of the EFTA, not the EU. The EEA allows countries of both the EFTA and EU to participate in the Internal Market. But really, the distinction is pedantic.

    Thursday, August 25, 2011 at 12:11 pm | Permalink
  12. Falkelord wrote:

    @Michael yeah that was the intention of my post really. They enjoy member benefits but retain their sovereign currency, similarly to Britain.

    Thursday, August 25, 2011 at 12:36 pm | Permalink
  13. PatriotSGT wrote:

    IK – I could not agree more. You are absolutely correct on the risk/reward. We should not IMO have bailed out any banks or businesses (GM). When businesses are allowed to fail, new and better business models emerge. As long as there is money to be made entrepreneurs will keep trying and eventually come up with a model that succeeds.

    Even in the case of the Madoff scandel, I don’t have much sympathy for the investors. When I learned the market in hte late 80′s and haad a series 7 license for a while the first thing we learned was risk and reward and the proper investments for different levels and categories of investers. Growth or high risk investments are only for the young (who can re-earn losses) and expendable cash of seasoned or older investors. If you were 50 most of your money (75%) should be getting moved into guaranteed or AAA rated investments like US treasuries or AAA muni’s. at age 60 it should be closer to 90% in those secure investments or long term CD’s insured by FDIC. Those idiot Madoff customers who lost their shirt at age 60 abandoned solid investing principles in search of fairyland returns and got what they were looking for.
    Bottom line is failure in business is part of the learning process. Each business is unique and it takes innovation and persistance to succeed. If continue to bail out failure we only breed weaker business models dependant on taxpayers and the CEO’s managemnt don’t learn a thing nor are they invested in fixing or working through to a solution.

    Thursday, August 25, 2011 at 1:41 pm | Permalink
  14. Falkelord wrote:

    I found this today when I was about to back-link to the original article. Probably worth a read or two:

    Friday, August 26, 2011 at 11:25 am | Permalink
  15. christof wrote:

    Drawing parallels between a nation of 313,000 covering the area of Virginia and a nation of 330,000,000 just doesn’t work.

    The article is great, and it’s a great “our counties and states should do this!”- But you cannot extend it to the United States as a nation.

    I lived in Iceland for 3 years- lovely place, lovely people. Very insular, but friendly once you find something to share with them. They are a model of how a small* socialist leaning democracy can work out- and the dangers it can face.

    *small- The city of Sacramento is 4 to 8 times (depending on how you count suburbs) the size of the NATION of iceland. LA- more than 30 times the size of the NATION of Iceland (and likely closer to 50, again depending on how you count)

    I live outside of what’s considered a large town or small city- and we are 1/4 the population of the NATION of Iceland. And that’s not even a major city in Nevada.

    Saturday, August 27, 2011 at 6:40 am | Permalink
  16. Thanks to all who commented, with a higher level of understanding than many other readers.

    Wednesday, December 21, 2011 at 4:22 pm | Permalink
  17. Iron Knee wrote:

    Thanks for the good article, I hope to see more from you!

    Thursday, December 22, 2011 at 1:01 pm | Permalink

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