On October 27th a grand conference was held in Reykjavik complete with representatives of the IMF, the government and the financial sector, to congratulate themselves on the deeds that squelched Iceland’s revolution.
Here is the text of a letter signed by twenty-two activists from all walks of life on behalf of the general public and sent to the foreign participants before the conference, to point out the discrepancies between the government’s claims and reality. They also lit red warning flares in front of the building where the conference was to take place.
“The present state of Iceland's economy is clearly much different from that envisaged at the beginning of the IMF program for economic stabilization and reconstruction in the fourth quarter of 2008. Foreign debt at the end of 2010 was almost double the target level under the program, while public sector debt, unemployment and inflation were all significantly higher than projected.
Before the Icelandic banking crisis in 2008, the debt of the state treasury was 26% of GDP. According to official numbers the debt has risen to 111% of GDP, but the gross national debt is officially placed at 280% of GDP. Net treasury balance has deteriorated by 140 billion Kroner or 26% of GDP between the second quarter of 2010 and the second quarter of 2011. We estimate that since the banking crisis started, Iceland has borrowed up to around 100% of GDP. This does not include substantial foreign exchange reserve loans provided under the IMF program. Interest payments on government debt now stand at 20% of government revenue.
At the end of 2010, municipal liabilities were up to 586 billion Kroner. By excluding the Reykjavík Energy company‘s public guarantees of close to 300 billion Kroner and 47 billion of unfunded public pension liabilities, gross municipal debt remains at approx. 310 billion. This is equivalent to 20 % of GDP or 154% of municipal revenue.
The cost of resurrecting the Icelandic banking system in late 2008 has been estimated at 64% of GDP, a world record. Domes-tic assets, mostly loans to productive Icelandic companies and individuals, were transferred to the new banks at 45-65% of their value. Yet bank customers are still being charged for full repayment to a failed credit regime, resulting in massive bankruptcies, foreclosures, asset stripping and job losses.
At this moment at least 20% of Icelandic families are unable to repay their loans in full, and around 40% are in devastating circumstances. Only 10% of all homes are able to meet the repayments on their alleged liabilities.
Personal income after taxes has been down 27.4% for the past 3 years while prices have risen 40%, resulting in sharply reduced consumption and demand. Increasing numbers of Icelanders are eligible for food handouts although public figures are hard to come by and not necessarily accurate. Breadlines are longer and municipal welfare expenses have risen by 62% since the start of the banking crisis.
According to last year‘s tax returns, private property and real estate values have gone down while debt has gone up for Icelandic homeowners. Families in positive equity are 8.1% fewer, while the number of families in negative equity has increased by 12.1% since the preceding year.
Officially, unemployment is now 6.7%, an optimistic number, since many have signed up as students in order to get student loans rather than unemployment benefits. Close to 5,600 people, almost 2% of the population, or more than one family every day have left the country to seek work and a better quality of life elsewhere. A considerable number are without benefits and therefore counted. From public reports in 2010, the jobs lost can be estimated closer to 22,500 or a 8.2%.
The main reason for the Icelandic financial crisis was a grossly oversized banking sector. The public finds it odd that the government should be enthusiastically attempting to rebuild a failed system instead of promoting growth in the real economy. While the burden of the systemic banking catastrophe has been imposed primarily on the common people, instead of mandating general debt relief, the government is allowing the banks to decide on a case by case basis basis, how individual problems are handled. This approach is designed to maximize repayment rather than providing any semblance of compensation for the widespread embezzlement of citizens.
These policies have fueled inequality. People are outraged that high-level executives and owners of failed businesses are receiving massive debt write-offs while keeping ill-gotten profits, and continuing their operations while the public takes the consequences. Elected representatives defending the interests of the financial sector at the expense of the public, have become a real threat to social stability in Iceland.
The financial elite has transferred its exposures and liabilities to the public balance sheet just as they have in Greece, Ireland, Portugal and elsewhere The primary victims of the financial crisis have been democracy and the rule of law.”
One of my Icelandic correspondents put the situation more succinctly: “Social benefits are unchanged in kronas, but due to inflation, higher taxes and other outside influences, purchasing power has dropped around 40% - the government calls that preservation!”
Two progressive American economists, Joseph Stieglitz and Paul Krugman, spoke at the conference, and both, more or less directly, criticized the austerity measures imposed on the people of Iceland, who had nothing to do with the 2008 crash.
While the self-congratulatory ritual was taking place in Reykyavik, meanwhile, the people of Athens were picking up the torch of rebellion. Unlike the Europeans, who understandably want to preserve the Euro, their common currency, the people of Iceland think the Greek Prime Minister, George Papandreou, did the right thing by inviting his countrymen to vote on the ‘rescue’ package being offered them. One Icelandic blogger noted with glee that this is the first time a population is invited to vote on the common currency. If it is defeated, it is understood that Greece would have to leave the Euro, endangering the entire financial system.
This situation constitutes a major world crisis, and the underlying reason for it is that whether in the tundra or by a warm blue sea, the people are demanding to rule.