Iceland’s On-going Revolution August 6, 2011Posted by rogerhollander in Europe, Oregon, Revolution.
Tags: deena stryker, default, democracy, Economic Crisis, financial crisis, iceland, iceland constitution, IMF, neoliberal, revolution, roger hollander
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Democracy 2.0: Iceland crowdsources new constitution
by Jérôme E. Roos on June 11, 2011
just three years, Iceland went from collapse to revolution and back to
growth. What can Spain and Greece learn from the Icelandic experience
and its embrace of direct democracy?
Just two or three years after its economy and government collapsed, Iceland is bouncing back with remarkable strength. This week, the small island nation earned praise
from foreign investors despite allowing its banks to collapse and
refusing to pay back some of its debt — belying the dominant idea among
Europe’s ruling class that bank failures and defaults necessarily engender disastrous economic consequences.
in an historically unprecedented move, the government has decided to
draft a new constitution with the online input of its citizens —
the creation of Iceland’s real democracy. Rather than just involving
voters at the end of the process through a referendum, the Icelanders
have an opportunity, through social media, to be directly involved in
the writing process. It’s the ultimate affirmation of participatory
democracy. It’s Democracy 2.0.
How did Iceland get from there to here? And what are the lessons for Europe’s troubled periphery?
Back in 2009, months after the greatest banking collapse in economic history, the people of Iceland took to the streets en masse to
denounce the reckless bankers who had caused the crisis and the
clueless politicians who had allowed it to develop. Quietly, as the
world was busy watching the inauguration of President Obama, the people
of Iceland overthrew their government and demanded a referendum on the country’s debt.
the referendum, the Icelanders decided not to repay foreign creditors —
Great Britain and the Netherlands — who had so foolishly deposited
their savings in one of the world’s most over-leveraged banks, Icesave.
In fact, the President had already vetoed
the deal, so the referendum was largely symbolic, but still, the
outcome of the vote (93 percent against repayment) was a watershed in
the epic battle between people power and foreign financial interests.
what’s really interesting about the Icelandic case is not just the
referendum, but the fact that the consequences of the outcome were far
from being as disastrous
as Europe’s self-proclaimed economic ‘experts’ had predicted. In fact,
within just two years of the collapse of its government, Iceland is
bouncing back rapidly, and is actually being rewarded for it by foreign
investors. As the Wall Street Journal reported yesterday:
first international bond offering since its spectacular economic and
banking collapse late in 2008 has been snapped up by investors. The
five-year $1 billion deal, yielding just under 5%, is a milestone in
rebuilding confidence internationally and follows a turnaround in the
economy, forecast to grow 2.25% this year.
So it’s no surprise that Iceland became a rallying point for the ‘indignados‘
in Spain during the mass protests that broke out there last month.
Spanish demonstrators could be seen carrying placards reading “Iceland
is my goal” and “I think of Iceland.” The Icelandic model has also come
to inspire the indignant protest movement in Greece, which is rapidly picking up steam. So what are Iceland’s main lessons for Europe’s troubled periphery?
First of all, make sure to read this excellent piece
by Robert Wade, my former Professor at the London School of Economics,
to understand how Iceland’s mistakes in the lead-up to the crisis were
just an extreme version of what we did on the continent: capital account
liberalization combined with financial deregulation and unprecedented
political disinterest in the face of an epic bubble blowing up right in
front of our eyes.
Wade helps us understand what not to do. But perhaps at this stage, it’s more interesting to find out what we should do. In
this respect, one overwhelming lesson jumps out: while letting banks
collapse and refusing to pay back foreign lenders certainly has negative
consequences in the short run, those consequences are born largely by
the reckless bankers who instigated the crisis in the first place.
of socializing the losses of the banks, making ordinary people pay for a
crisis they never caused, the Icelandic model forced the bankers to pay
for their own stupidity. During the Icelandic crisis, all three of the
country’s largest banks collapsed. The government didn’t save them.
Secondly, Iceland actually went after
those responsible — both to enact justice and to set a precedent that
this type of reckless speculation on the livelihoods of real people will
simply not be tolerated in the future. Key figures in the banking
sector have been arrested and a former prime minister has been formally charged. Treating reckless speculation as a crime is a crucial first step towards real democracy.
Thirdly, Iceland did what no one is supposed to be doing according to neoliberal dogma: just like Malaysia did — to the dismay of the IMF — during the East-Asian crisis of 1997-’98, the Icelandic government instituted capital controls
to stem the outflow of hot money from the country in the wake of its
banking collapse. The EU should have done the same (and can still do the
same) to stem the outflow of capital from the periphery.
Fourthly, and this is obviously the most crucial lesson of all, the people of Iceland managed to sever the neoliberal straitjacket
that had kept their politicians enthralled to the interests of the
financial sector for so long. Through mass mobilization, the people
toppled the government and instituted a radically new form of political
participation. The crowdsourcing of the constitution is the most
powerful symbol this new, real democracy.
As a result, the Icelandic people are now slowly but surely beginning to recover
from the worst ever economic collapse of any country during
peacetime. By contrast, countries like Greece, Spain, Ireland and
Portugal are still struggling — and likely to remain mired in deep
recession, if not outright depression, for years to come.
Untold suffering and hardship
will fall on millions of people as the ECB, IMF and Germany continue to
expect full repayment while imposing draconian (and ultimately
counterproductive) austerity measures. A lost generation
will flee these countries in a desperate search for opportunity.
Countless lives, businesses, families and dreams will be destroyed. And
for what? A handful of bankers who refuse to take a haircut?
What Iceland teaches us is that it need not be that way. The Atlantic currents and Arab winds have already reached
the European periphery. It’s just a matter of time before the first
government on the continent will be toppled by its people. Democracy 2.0
is on its way. No one can stop it now.