The Icelandic Volcano Erupts: A New Era of People Power in the Streets?

By Rebecca Solnit, Tomdispatch.com. Posted February 10, 2009.

Icelanders also ate a lot of American-style arguments in favor of deregulation and privatization, or looked the other way while their leaders did. Kolbrún Halldórsdóttir, then an opposition Left-Green parliamentarian, now Minister of the Environment in the new government, didn't. She told me last summer, "The nation was not asked if the nation wanted to privatize the banks." They were not asked, but they did not ask enough either.

Fortune magazine blamed one man, David Oddsson, prime minister from 1991 to 2004, for much of this privatization.

"It was Oddsson who engineered Iceland's biggest move since [joining] NATO: its 1994 membership in a free-trade zone called the European Economic Area. Oddsson then put in place a comprehensive economic-transformation program that included tax cuts, large-scale privatization, and a big leap into international finance He deregulated the state-dominated banking sector in the mid-1990s, and in 2001 he changed currency policy to allow the krona to float freely rather than have it fixed against a basket of currencies including the dollar. In 2002 he privatized the banks."

In 2004, he was replaced as Prime Minister, but in 2005 he took over the Central Bank. By the mid-1990s Iceland had, through dicey financing and lots of debt, launched itself on a journey to become one of the world's most affluent societies. Fortune continues:

"But the principal fuel for Iceland's boom was finance and, above all, leverage. The country became a giant hedge fund, and once-restrained Icelandic households amassed debts exceeding 220% of disposable income -- almost twice the proportion of American consumers."

Throwing Eggs at the Bank

The first of the hedge-fund-cum-nation's three main banks, Glitnir, collapsed on September 29, 2008. A week later, the value of the króna fell by nearly a third. Landsbanki and Kaupthing, the other two banking giants, collapsed later that week. Britain snarled when Landsbanki froze the massive Internet savings accounts of British citizens and turned to anti-terrorism laws to seize the Icelandic bank's assets, incidentally reclassifying the island as a terrorist nation and pushing its economy into a faster tailspin.

Not so surprisingly, Icelanders began to get angry -- at Britain, but even more at their own government. The crashing country, however, developed one growth industry: bodyguards for politicians in a country where every pop star and prime minister had once roamed freely in public. An Icelandic friend wrote me, "Eggs were being thrown at the Central Bank. Such emotional protests have not been seen since the early part of the twentieth century, although then people were too poor to throw eggs." Soon eggs were also being heaved at Prime Minister Geir Haarde, whose policies were an extension of Oddsson's.

A dormant civil society erupted into weekly protests that didn't stop even when the government collapsed, since Icelanders were also demanding that the board of governors at the central bank be suspended. One of Prime Minister Jóhanna Sigurdardóttir's first acts was to ask for their resignations. So far they have not cooperated.

Andri Snaer Magnason, whose scathingly funny critique of his country's politics and society, Dreamland: A Self-Help Guide for a Frightened Nation, was a huge bestseller in this bookish country a few years back, told me this week:

"In economics, they talk about the invisible hand that regulates the market. In Iceland, the free market became so wild that it was not fixed by an invisible hand, but an invisible guillotine. So, in one weekend, the whole class of our newly rich masters of the universe lost their heads (reputation, power, and money), and all the power and debt of the newly privatized companies fell into the hands of the people again.

"So we have a very uncertain feeling about the future. At the same time, there is power in all the political debate and lots of political and social energy -- endless [political] parties popping up, Facebook groups, cells and idealists, and possibly a new constitution (not that we have read the old one), and people are speaking up. So, economic fear, political courage, shaking economy, and search for new values -- we need profound change… Now, businesspeople are losing their jobs, and they are scratching their heads and thinking that maybe politics do affect one's life. We need less professional politics and more participation of the people. I hope people will not give up now just because one government fell."

The economic fate of Iceland is uncertain and troubling. One friend there tells me that the already bankrupted banks may go bankrupt again, because their debt is so colossal. The billions in new loans from abroad are terrifying large for a country whose population is a thousandth the size of ours, and the Icelandic currency, the króna, is probably doomed.

The obvious solution is for Iceland to join the European Union (EU), and the April elections include a referendum on that question. Doing so, however, would involve letting the EU manage the country's fishing waters, its traditional and genuine source of wealth. That, in turn, would presumably open those waters up to all European fishermen and to a bureaucracy whose interests and ability to manage Icelandic fisheries is dubious. Iceland fought the Cod Wars with England in the 1970s to protect just those waters from outside fishing, and even in the years when everyone seemed focused on technology and finance, fish still accounted for about 40% of the country's exports.

See more stories tagged with: hedge funds, iceland, economic crisis

Rebecca Solnit is a contributing editor to Harper's Magazine and a Tomdispatch.com regular. Her book on disaster and civil society, A Paradise Built in Hell, will be out later this year.

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