It's been a while since I did a diary on the state of Iceland, and today I noticed several comments repeating the common fairytale myths about how Iceland dealt with the financial crisis. And then, this evening, an article showed up, written by none other than Jóhanna Sigurðardóttir - our former prime minister - talking about where we are now and how we got there. In English, too - I don't even have to translate.
So, without further ado, let's have a read.
She begins by describing the background of the financial crisis, including:
Iceland’s economic collapse was not least the result of the crony-capitalistic privatisation of the nation’s banking system and the bubble economy, both of which occurred during the reign of the Independence and Progressive parties; a period that was characterised by continuous economic mismanagement, corruption, greed and a growing income gap. Low-interest loans from abroad were used to inflate worthless stock in the banking system, which had in the end, at the time of the collapse, blown up to being ten times the size of Iceland’s GNP. The entire banking system was slowly transformed to a structure fuelled entirely by greed, for instance through the use of incentives for big business and corporations under the auspices of the newly privatised banks—which were used to inflate the profits of corporate executives, which in turn lead to a gross increase in the nation’s income gap and general social inequality
She then goes into the scale of the crisis, which includes the near dissolution of the Icelandic stock market, a 19% inflation rate, 18% interest rates, and the collapse in the value of the króna by 50% - meaning not only the collapse of everyone's assets when a large number of people had just lost their jobs, but the doubling of what people owed on their loans due to most loans being indexed in foreign currency.
She goes on to describe some of the measures taken to try to stabilize the economy. Here in Iceland, many people criticized her government for not pulling us out of our recession, but given the scale of the crisis, it's understandable. Indeed, we're far from recovered, saddled with new debts, and some of our biggest time bombs were "solved" simply by changing the clock on them. Nonetheless, I think she has every right to boast of what was successfully achieved.
The Social Democratic Alliance and Left Green coalition accomplished restoring the economy, deflating the inflation from 19% to 3.5%, lowering interest rates from 18% to 6% and cutting unemployment numbers in half. Icelanders’ spending powers had at the end of last year increased by nearly 8% from the low-point of the depression ... we managed to instigate greater economic growth than what most of the nations we compare ourselves to .. Household and business debt decreased to the count of two times the GNP in three years, ... debts of households and businesses have gone down almost 50% compared to the GNP ... Over 200 billion krónur have been written off or discounted from household loans ... State interest subsidies to households were also more than doubled ... the government diverted more than 100 billion krónur towards household interest relief and child benefits
Etc. But of all of the changes, what does she view as the most important?
What’s most important is that the inequality in our society’s income distribution has been completely turned around. Iceland is now one of the European nations that can boast of the greatest equality. Furthermore, international surveys reveal that Iceland was the world’s most gender equal nation four years in a row.
This is, of course, where most of the stories circulating in the liberal blogosphere end. However, the actual story in Iceland continues.
We did, however, fail to anticipate the weight and fury with which certain interest groups organized themselves in active opposition to our government and its goals of restoration, equality and transparency. The Constitutional Committee was stifled and road blocked by Iceland’s Supreme Court amongst others. Fishery owners and fishing quota magnates fought fishing fees and changes in the quota system tooth and nail. Capital controls and a ruined króna created a growing problem that has now started running companies out of the country. A few members of the government caved under the immense weight of the relentless propaganda, which caused us further problems. We were accused of neglecting the problem of household debt, despite the decisive actions recounted above.
One could add to the list the capital controls simply postponing a massive exodus of capital out of the country (the walls of which are starting to break down), the impending home loan fund crisis, and so on.
Contrary to popular misconceptions overseas, few bankers were prosecuted, the prior prime minister got off with a slap on the wrist, the new constitution was (as mentioned above) derailed, we never went bankrupt and continued to honor our debts (even private debts like Icesave is being repaid), we took out massive loans, and became the IMF's new poster child that they (up until the storm clouds started gathering again) held up as an example of their successes, and so forth.
Upset with a perceived lack of progress, and the horribly divided left during the last election, a new right-wing coalition of the Independence and Progress parties took control of the government, with promises of "household debt relief" while at the same time playing Santa Claus with the wealthy.
I recently met an old Progressive Party MP and asked what he thought might happen if his party failed to meet its campaign promises to instate the largest debt correction in the world for Iceland’s households. “Then, we’ll be dead,” the former MP replied.
...
Now that the new coalition government of the Independence and Progressive parties has been in power for five months, it is apparent that those in power are both perplexed and overwhelmed by the tasks at hand. The main emphasis seems to be relieving 20 billion krónur worth of taxes from fishery owners and the wealthiest of our community. The current government’s priorities could not be more different from the ones honoured by the last one. Inequality is once again rearing its ugly head, and the sharp knife of austerity has been turned towards the welfare system—all to benefit society’s wealthiest and best-off.
Once more, the wheels of greed are spinning.
Ouch. Sadly, I have to agree with her. Watching extremely popular, progressive legislation like the fishing bill get rolled back really hurt, and it just keeps going.
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Okay, I don't want to leave you on a downer like that. Have some Icelandic ponies: