So it was bound to happen sooner or later.  Naomi Klein finally bought into the myth that's been circulating about how Iceland dealt with its monetary crisis -- even on a rec-listed diary here on Daily Kos.  Oh sure, she eventually retracted after it was pointed out to her that this story is full of errors -- but not before being retweeted to heck and back, spreading this yarn further across the internet.

While I've often done my best to try to eliminate this myth, probably the best voices trying to set the record straight are coming from within Iceland itself.  So without further ado, let's see what the Reykjavík Grapevine has to say.

(Content of article reposted with the permission of the Reykjavík Grapevine.  Pictures added by me as a visual tour of this incredible country, in contrast to the downer that is the kreppa that they're still mired in.  If the photos are distracting to you, simply read the Grapevine's article on its original site.)

So here it is, a deconstruction of that error-ridden article, “Iceland’s On-going Revolution,” which is unfortunately making rounds in the Twitter-sphere.

In the first paragraph, the article states: “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.”

There are two errors there. One is obvious. Namely, Iceland is not a member of the European Union. The other one is perhaps less obvious, but it is nonetheless an important point. That is, Iceland did not go bankrupt. This factual error was heavily criticised in 2008 when Iceland’s banks collapsed and news spread that Iceland, the country, had gone bankrupt. This is as wrong today as it was then.

(Above: Iceland's bright colors are a throwback to its history as the poorest country in Europe, which meant that most construction was with sheet metal, needing to be protected by paint, which was commonly acquired as surplus from the ship yards)

Then there’s this statement: “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.”

These numbers are wildly inaccurate (and not to be too pedantic here, but sticking to a multiplier or percent would be helpful when making such a comparison). To set this straight, Iceland’s debt (as in The Central Bank) was equal to 57% of the GDP in 2003 and fell to 43% of the GDP in 2007, according to World Bank statistics. In 2009, that percentage reached 104%.

Now, if by Iceland the author meant Iceland’s banks, then it’s true that the banks’ debt was pretty big—astronomical really—and by 2007, Iceland’s banks did in fact reach 9 times the GDP, though that’s GDP not GNP.

(Above: Harpa, a concert hall in Reykjavík built during the spending boom of the late '00s.)

Then there’s this: “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.”

Again the statement, “At the end of the year Iceland declared bankruptcy” is wrong. And the Icelandic krónur lost more like 50% of its value compared to the Euro any way you look at it.

(Above: Reykjavík has a thriving graffiti art culture, often encouraged or even financed by local businesses.)

Moving on to the next paragraph: “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.”

It’s true; we had a referendum to elect a Constitutional Assembly—a group of twenty-five people tasked with writing a new Constitution. But there were 500 plus candidates to choose from, and the results were nullified because proper election procedures weren’t followed. Rather than hold another referendum, those individuals were ‘appointed’ to a Constitutional Committee. They have now submitted a ‘proposal’ for draft of our new Constitution, but we by no means have a new Constitution yet! This is definitely jumping the gun. Our old one still reigns supreme.

(Above: Iceland's first parliament (debatably the oldest in the world) met here at Þingvellir, where the mid-Atlantic ridge rises above the water.)

Then it says: “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.”

Okay, come on now. It’s the IMF, not FMI. Furthermore, Geir Haarde is from the right-wing Independence Party, which had a coalition with the Social Democrats.

(Above: The Hallgrímskirkja, formerly the tallest building in Reykjavík, has since been surpassed by a large office building built during the boom.)

Back to the Constitution: “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.”

Apparently the author was confused about whether or not we had a new Constitution when she started writing and then did some more research toward the end to realise that yes, it is still a draft with a number of hoops to go through.

The idea that the Constitution was ‘crowdsourced’, as the international media has been keen on reporting, is at best half true. But accepting suggestions via Facebook and an Internet submission form is hardly the same as the Constitution being “written on the internet”. It sounds cool though.

(Above: Despite 1/3 of the population living in remote areas, Iceland has the highest broadband penetration rate in the world.)

While nearly every paragraph in this article is riddled with factual errors, the concluding message is also misleading: “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.”

First of all, it’s naive to think that Iceland was able to stand up to the IMF. In his article, ‘New York Times Reporting Misses the Mark on Iceland, Prints Neoliberal Line’ on www.truth-out.org, Sam Knight makes some good points: “Why Iceland is pursuing its welfare-for-the-elite policies is anyone's guess,” he says, “but with the IMF providing emergency currency support, it has had influence in diverting Icelandic resources back toward the financial sector.”

He adds: “If Iceland had refused to share the IMF's worldview, it could have been denied funds necessary to implement capital controls and stop the Krona's tailspin. Failure to adhere to the IMF's demands could have also caused Iceland's sovereign credit rating to drop significantly, which could have isolated Iceland from international capital markets (despite the fact that credit ratings agencies, in the wake of 2008, are in need of urgent reform).”

(Above: Iceland is highly dependent on both imports and tourism of its incredible landscapes for its economy.  The weak Króna has boosted tourism but dramatically reduced the buying power of the country's citizens.)

Whether or not influenced by the IMF, one might note that two of the three banks that Iceland “let fail” because it couldn’t bail them out (they were nine times the country’s GDP), have been re-privatised and there is currently a debate about privatising the third.

Not to mention, there’s the case of HS Orka, in which 98 percent of a publically owned geothermal energy company was sold to Canadian company Magma Energy (now called ‘Alterra Power’), giving it access to geothermal energy in the Reykjanesbær peninsula for 65 years with a renewal option for another 65. This erupted in controversy with Björk leading the crusade against Magma Energy. Alas, it was without success.

The case might as well feature in Naomi Klein’s book, ‘The Shock Doctrine’.

(Above: A highly geothermally-active country, Iceland not only generates nearly all of its power from renewable resources, but pipes the waste heat into homes as a dirt-cheap hot water utility rather than throwing it away into rivers as we do in America)

Furthermore, while Iceland may seem like a symbol of sticking it to the financial institutions that brought about the financial collapse, the people really haven’t escaped the burden. To quote respected political commentator Egill Helgason in an article that will print in The Grapevine on Friday: “According to an OECD report Iceland has put more money into its failed financial institutions than any other country except Ireland. So in this way Iceland is not a model—the people in Spain need not wave Icelandic flags.”

To the contrary of the message put forth in this article, “Iceland’s On-going Revolution,”  and the notion that Iceland was able to resist the shock doctrine, he says: “The political debate in Iceland has gotten horribly stale and repetitive. In some places Iceland is held up as being a model of how to survive an economic crisis and rebuild society. For most Icelanders this seems totally wrong. Some politicians, including our President, like to flaunt this view when they go abroad, but this is definitely not the feeling in Iceland.”

So, @NaomiAKlein have we crushed the hopes of millions? As a publication we strive to practice good journalism, though we have to say that a part of us is reluctant to correct these kinds of articles, as it is nice to see citizens of other nations, like Spain and Portugal, being inspired by our story. Hope has to come from somewhere.

(Above: The black columnar basalt beaches near Vík í Mýrdal were carved by the action of rogue waves travelling unobstructed from as far away as Antarctica)

Anna could have continued on, mentioning the countless other mistakes, such as getting wrong the percentages on the last referendum, the details of the legal battle with the UK and the Netherlands, or the year Iceland gained it's independence... but there's only so far you can kick a dead horse.  As much as we may want some perfect symbol of a country "standing up to the man", a nation that supposedly did what we're asking other countries to do, Iceland is not that nation.  But don't let that detract from all that Iceland is, has been, and will be in the future.

I'll leave you with a couple more shots of the country.

(Yeah, it's really all that and more)

Originally posted to Rei on Wed Aug 24, 2011 at 06:04 PM PDT.

Also republished by EconKos.

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