The true story of how Iceland beat the Credit Crunch
Iceland is a funny old country. A place mainly famous for its hot springs, icy landscapes and lack of population. However, this all changed with the first gentle wave of the global economic downturn. Resolutely stiff upper-lipped as always, the Brits initially christened the financial troubles as a mere ‘Credit Crunch’, the Americans avoided the dirty D word so popular in the early part of the 20th century and talked about a ‘recession’, while France and Southern Europe resigned themselves to the true nature of things and described the crisis as, well, ‘la crisis’. Iceland’s reaction, on the other hand, was basically to turf out the bankers, the government in power and just started over. Pretty cool, eh?
Unfortunately, as this story was completely at odds with the rest of the Western World and it only directly affected Iceland’s 350,000 inhabitants, it didn’t make it into many British papers or garner too much UK television coverage. Yet now, three years and counting since the start of the economic meltdown, Iceland is ranked fourth most productive country in the world per capita by the UN, and 17th most developed country in the world by the Human Development Index. So what happened?
In 2008, Iceland was in turmoil. There was a systematic failure of its three main commercial banks. The Economist called the collapse the largest suffered by any country in history, relative to Iceland’s population size. In response to what was seen as government inertia, protests began to take place from around October of that year. However, the real fun began in January 2009. As one Icelandic blogger wrote, ‘On January 20th , the Icelandic coalition government of the Independence Party and the Social Democratic Alliance reconvened in parliament after their three-week Christmas break. The agenda for their first day back included issues that obviously are crucial when you’ve got a collapsed economy on your hands: discussing smoking areas in restaurants and whether or not to sell alcohol in shops.’
Alda Sigmundsdóttir, writer of the Iceland Weather Report blog, goes on to explain ‘It was the final straw and showed more clearly than anything else the immense gulf that was between the politicians and the people of [Iceland]. The anger had been seething among ordinary citizens for weeks. By and large we had been extremely well-behaved. We got together at our appointed times on Saturday afternoons to listen to rousing speeches and shout a few slogans; some threw eggs and toilet paper at the parliament building. And nothing changed. The government operated behind closed doors and, when confronted, exhibited outrageous arrogance towards the people of [Iceland]. But mostly they made sure they weren’t in a position to be confronted.’
So on the 20th January demonstrators decided to meet on the day of the government meeting with ‘anything they could bang together that would make a noise’. What had started out as tens of people quickly turned to hundreds, then thousands, all clanging saucepans and pots together every day to distract the politicians that had let them down until eventually the ruling right-wing coalition resigned. This became known in Iceland as the Kitchenware Revolution.
The new left-wing government quickly passed a string of emergency measures to prevent Iceland itself becoming bankrupt. The domestic arms of Iceland’s major banks were nationalised, while the private international operations were left to run themselves into ruin. A series of austerity measures were put in place and unemployment, after initially rising dramatically, has now stabilised and even began falling midway through this year. A criminal investigation, likely to take two to three years, was instigated in April 2009 and is concerned with bringing corrupt politicians and bankers to justice. A number of questionable business practices have emerged that may cause the perpetrators to answer to the law. Almost half of all loans made by Icelandic banks before the crash were given to holding companies that were effectively subsidiaries of the banks themselves. On 9th March of this year two arrests were made by the UK Serious Fraud Office in conjunction with Iceland’s state prosecutor.
Former Icelandic Minister for Justic, Bjorn Bjarnson, spoke out in the Telegraph in April 2009; “I have written a lot about problems in the business sector over the last 14 years, and I can only compare some parts of it to Enron…Here companies have been playing a game, using the media and publishing to make themselves look good. We only hope that the foreign media will soon begin to understand what has been going on.”
Iceland has also applied for membership of the EU, despite mixed support from the population, but even if the application is never accepted, the influence of Iceland’s Kitchenware Revolution is already being cited in Spain, during protests in Madrid, and compared to the civil unrest in Greece and much of Eastern Europe.
While Icelanders will be the first to admit that things are far from perfect, natives like Sigmundsdóttir are proud of such a paradigm shift in the Icelandic political arena occurring in such a short time with such positive consequences thus far. Whether there are any lessons that can be learned by the rest of the world affected by the crash remains to be seen.