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On the Financial Crisis of Iceland

The current financial crisis in Iceland is of course part of and connected to the international upheaval, but it also has its domestic roots.  To put it briefly, for more than 17 years, we Icelanders have had a right-wing government led by the right-wing Independence Party in coalition with social democratic or center parties.  The main ideology has been neoliberal economics, with great emphasis on privatization and deregulation of most sectors of society, not least the financial sector.  Since 2004 we have had increasing inflation and overheating.  The management of the economy has been poor, and the few voices of criticism and words of warning from us on the left have not been listened to.

In the years 2003-2004, government-supported projects of heavy industry investments in aluminum smelters and big hydro-electrical and geothermal power plants set off inflation and increased overheating pressures.  This was followed by tax reductions, benefiting mostly the high-income classes and owners of big estates and capital.  This, of course, added to the increasing inflation.  The housing market was booming and there was also mismanagement in that area.  On top of all this, the financial sector, based on newly privatized banks and investment funds, expanded very rapidly and bought up subsidiaries overseas that expanded to big operations in the UK, Scandinavia, Continental Europe, and even in the US.

This led to a huge hypertrophy of the banking and financial sector relative to the Icelandic GDP.  Many alarming signs were hovering above our heads in the years 2005, 2006, and 2007, but no measures were taken.  The atmosphere was a thoroughly laissez-faire one.  The government and leading members of the business sector seemed to think that the upswing in the economy and good years would last forever.

As everyone now knows, this did not turn out to be the case.   Before the international financial crisis started in the American housing market — followed by the fall of big banks, which then spread to become a global influenza in the capital market — Iceland already had a problem on its hands.  Due to the instability and imbalances in the Icelandic economy existing before the crisis, the consequences are much worse for Iceland than any other developed country so far and are turning out to be a tremendous blow to ordinary citizens of Iceland.  What we are witnessing is a total collapse of neo-liberal, modern capitalism.  What is left of it, however, is being kept alive with huge public spendings by governments around the world.  The cost is even more devastating in Iceland because the whole banking sector, with the only exception of the local saving banks, has collapsed and is now being nationalized.

The worst of it all is that the Icelandic public, the Icelandic taxpayers, who have already been tremendously hard hit are now, for no fault of their own, being held responsible for overseas debts that the banks piled up through opening accounts in their own names in the UK, the Netherlands, and elsewhere.  This is particularly the case of the former Landsbanki hf, which gathered big sums of money for which the Icelandic national system of savings guarantees is now partly accountable.  What this means is that, in the coming years and perhaps decades, Icelandic citizens will have a burden of huge amounts of overseas debts on their shoulders due to the collapsed banks’ activities during the years of hasty interconnections with and dangerous dependence on other economies.  This is of course totally unfair and will also hinder the rebuilding of a stable welfare society and sound economy in Iceland.

As Chairman of the Left-Green Movement of Iceland, I have personally warned and criticized these devastating neoliberal policies in Iceland for a number of years.  My colleagues and I have repeatedly proposed measures to stop this craziness.  As early as 2005, we put forward in the national parliament a bill to tackle these issues.  But we were at that time and in the years that followed almost the only critical voice.

Now, of course, everyone admits that things went terribly wrong.  But, as of yet, there seems to be great reluctance, especially on the right and the center of Icelandic politics, to admit that it was the global neoliberal ideology, together with bad management and wrong decisions, that got us where we are and is causing us all these problems.

Our role — being the biggest opposition party in Iceland — is now to try to encourage people not to give up in a difficult situation, to demand that these things will all be thoroughly investigated and those responsible brought up for charges.  Above all, we are trying to convince the people of Iceland, and especially the young people, that we — despite all of this — will be able to get through the difficulties.  We do, after all, have tremendous possibilities to build a new Iceland, a better Iceland, where we will build on sound and just policies of openness and democracy, where we will build on a solidary Nordic welfare model, and where we will throw into the dustbin of history the neoliberal philosophy of market liberalization that is now hurting Iceland so deeply.

Despite all, we have a lot going for us when we start this rebuilding process.  We are a big country with magnificent nature, rich in resources, especially bountiful fishing grounds and abundant energy sources in geothermal power and hydropower.  We have beautiful highland scenery and breathtaking landscapes all around which attract a growing number of tourists every year.  And we have a young, skilled and well-educated population used to working hard and willing to work hard.

So, at the same time as we are facing enormous difficulties, we are doing our best to be optimistic regarding the long-term future prospects of Iceland.  We are sure that we have all we need to build a new, strong, and prosperous welfare society in Iceland.  But then we must build on the right foundations.  The new Iceland is going to be open and democratic with a strong public welfare system.  It is going to be feminist and based on full actual equality of all individuals, and it is going to build on the principles of sustainable development as regards energy policy and all investments.

We are at the end of a chapter in the world‘s political history.  A new one is about to begin.  Let us join hands, wherever we live — be it in Iceland, the United States of America, or elsewhere on the globe — to ensure that this new chapter will be a better one for ordinary people, for the global environment, for the North and the South, for women and men, for young and old.  If that be the case, something good might come out of this after all.  We would finally get rid of the devastating neoliberal economic philosophy and practice and be able to end up with a better world.

Greetings from the Althingi, the Parliament of Iceland
Steingrímur J. Sigfússon


Steingrímur Jóhann Sigfússon is a member of the Icelandic parliament, the Alþingi, since 1983 and the chairman of the Left-Green Movement.



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