Authors: George Lakey
A few activists organized small demonstrations at the Parliament building, across the lawn from where six years later Hørdur Torfason and I sat in the sun drinking coffee. Hørdur told me that key activists came to him, acknowledging that they didn’t really know how to orchestrate a movement. They asked him to accept the leadership. He warned them that he was a performer, not a community organizer committed to democratic process, so his leadership style would be highly personal. They accepted his terms, and a team formed around him.
In mid-October, Hørdur stood across the street from the parliament building with an open microphone, inviting passersby to speak. People gathered in the park, next to an old memorial rock that, fittingly enough, has an inscription celebrating civil disobedience.
Icelanders responded strongly to Hørdur’s leadership, each week increasing in numbers while tactics evolved and creativity reigned. Three collective demands emerged: the government must resign and hold an election, the heads of the Central Bank and financial supervisory authority must be fired, and Iceland’s political economy must be reformed, for example by writing a new constitution.
In his book, Eirikur describes what happened next:
Initially the government tried to dismiss the protesters as frustrated wannabe politicians and disillusioned youngsters who did not understand the complexity of the situation. But when our grandmothers put down their knitting needles, strapped their boots on and took to the streets shouting for an election we saw that the disgust was almost universal.
When Parliament recessed for the Christmas holiday, the people also took a much-needed break. It was a cold winter for demonstrating. When Parliament went back into session on January 20, 2009, a mass of people returned.
As Eirikur describes it:
The protesters put forward a clear demand for an early election. Ignoring them, the ministers and parliamentarians tried to sit out the protest, hiding inside the old building in central Reykjavik. This time it didn’t work. The protests grew and the people kept warm by burning torches in front of the building. They were going nowhere. The Parliament remained under siege well into this dark night in Iceland’s history, and the vigil resumed the following morning.
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The crowds grew to thousands, then to more than ten thousand. In a population of 330,000, that is over 3 percent. (In the United States, that would be like over 10 million people hitting the streets.)
Hørdur told me that the tactic that gave the movement its name in history came from a security guard inside Parliament. One of Hørdur’s strategies was always to talk with everyone, and he made a point of seeking conversations with the whole political spectrum from ardent allies to strident opponents. He paid extra attention to people whose role it was to maintain safety, like police and security, and who might be commanded to repress the increasing thousands who were taking to the streets.
A security guard who worked inside the deliberation chamber of the Parliament building told him that sometimes, when the crowd outside was singing or chanting, it was difficult for the members of Parliament to hear one another. Hørdur therefore put out the word that at the next demonstration the people were to bring cooking pots, frying pans, and utensils. At a signal the din began. Sure enough, it brought Parliamentary work to a halt.
Prime Minister Geir H. Haarde announced that he and his cabinet would resign and new elections would be held. On February 1, 2009, the government was replaced by a caretaker government
composed of the Social Democratic Alliance (SDA) in coalition with the Left Green Movement, a party to the left of the SDA.
The new parliamentary leader was Johanna Sigurdardottir, a well-known social activist and a leader of the SDA. She became Iceland’s first female prime minister, and the first openly gay prime minister in the world.
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Three major officials of the Central Bank were immediately replaced, and the director and board of the financial regulatory agency were fired.
As had earlier happened in Norway and Sweden, the Social Democrats allowed the three largest banks to fail rather than bailing them out. It made sure that domestic depositors got their money back and gave debt relief to struggling homeowners. For businesses facing bankruptcy but having a positive cash flow, debts were forgiven. Instead of trying to pacify international investors, Iceland created controls on the movement of capital.
Because Iceland controlled its own currency, it could devalue it in order to support its important export market. The government began the process of developing tough regulations for the restarted financial sector.
In spring the election was held as demanded by the movement. The Social Democratic Alliance won and formed a government with the Left Green Movement—the first left wing government ever to lead Iceland.
The obvious recourse for help in getting Iceland’s financial sector back on its feet was the International Monetary Fund, but Icelandic
socialists and the IMF understandably had difficulty seeing eye to eye.
The IMF famously believes in austerity, bailing out the owning class at the expense of the majority of the people, while the new government insisted on its own strategy: increase taxes on the rich, reduce taxes on the working class, force banks to write off mortgages for householders under water. Alarmingly, from the IMF’s point of view, the government even wanted to strengthen the social safety net!
Health economist David Stuckler was called in by the Icelandic government for consultation. Officials knew that Stuckler’s statistical studies showed that economic depression triggers psychological depression, predictably increasing numbers of heart attacks, suicides, and other symptoms.
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The IMF argued that, in order to receive its rescue package, the Icelandic government should cut its health-care funding by 30 percent, defining health care as a “luxury good.”
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Thirty percent would be twice IMF’s proposed cut for the military.
Iceland’s health minister resigned, refusing to make the cuts.
Consultant Stuckler knew that the IMF wanted to shrink Icelandic government services because the IMF believed that governmental spending hurts the economy. Checking the IMF’s numbers, he learned that the IMF didn’t use hard data in determining the multiplier effect of government spending, relying instead on incorrect theoretical modeling. By using actual data, Stuckler’s team showed that government spending on health care and education had a high multiplier effect, and would therefore help the economy recover from the crash as well as save lives.
Iceland’s leftists held firm in their negotiations with the IMF and at the same time sought unilateral aid from other potential
lenders, like the United States, Norway, and Sweden. The governments of those countries urged Iceland to work it out with the IMF instead.
The situation intensified. Norwegians at the grassroots became aware of the plight of their Viking cousins and pressured their government to break ranks with the IMF and help the people.
The IMF finally accepted Iceland’s refusal to adopt austerity. A deal was made that included major funding from Norway, Sweden, and Poland, along with the IMF.
I asked Thorvaldur what broke the stalemate between the IMF and the Icelandic government. I understood that the Icelandic government represented a massive people’s movement ready to go into the streets at any moment—the people had their government’s back. The growth of Norwegian solidarity at the grassroots also mattered. Because Norway is a democracy, its government would likely follow the will of the people, and the IMF might worry about the loss of its hegemony on these matters.
Thorvaldur added another piece of the puzzle. The IMF has been so roundly criticized on five continents for its austerity programs and the misery it has caused that it decided it needed a public-relations win. “Being cuddly with Iceland,” he said, “could provide a welcome change in image.”
The Icelandic government did lose on one major point in the negotiations. In the Icesave program, UK and Dutch citizens had deposited billions of dollars through online subsidiaries of Icelandic banks. The Dutch and British governments naturally expected Iceland to repay their citizens, many of them seniors who had sunk their life savings into Icelandic banks. The Icelandic government argued that it was the banks’ idea to offer outlandish interest rates that couldn’t be made good on, and the banks’ decision to Gamble
on (among other things) U.S.–created mortgage default swaps. The banks were privately owned. The Icelandic public had no responsibility in the matter.
The IMF said if the government didn’t accept responsibility, there would be no deal.
The pressure aroused fierce indignation within Iceland against foreign meddling with Iceland’s sovereignty, exacerbated when Britain invoked antiterror legislation against Iceland. Nevertheless, because the Icelandic government saw no other option in its desperate situation, it acceded to the IMF demand. Ironically, that one governmental concession, deemed a betrayal by many Icelanders, later played a major role in sinking the fortunes of the Social Democrats and Green Socialists in the election of 2013. A majority of voters did not forgive the left’s acceptance of the IMF’s demand for Icesave repayments, even though no viable alternative existed.
Not entirely acquiescing to the IMF, the government did bring the matter to an international tribunal even while knowing that the tribunal would take years to rule on it. The tribunal did eventually rule in Iceland’s favor, asserting that the people as a whole do not have responsibility for the debts incurred by private bank owners.
In the meantime, the government agreed, reluctantly, to repay the Icesave depositors. Escalating, the people launched another initiative. Before the government could actually implement the Icesave deal, the people demanded, and got, a referendum on the question—its first referendum since the vote on independence in 1944.
In March 2010, 93 percent of the participants voted “Nei”—a refusal to repay the lenders. Stock markets reacted negatively to the vote.
Iceland’s 1 percent pushed for a second referendum on the question, arguing fiercely that a “Ja” was essential for Iceland’s credibility in the world. Once again the citizens repudiated the debt.
The move sent shudders through the international financial world. Ordinary Icelanders were refusing to accept responsibility for the frenzied behavior of their bankers.
Despite a banking collapse that makes the United States’ and most of Europe’s 2008 troubles look modest, Iceland moved briskly toward recovery. People continued to live in their homes. The unemployment rate marched steadily downward.
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Observing the upbeat Icelandic atmosphere during my May 2014 visit, I thought of the trend in schools back home in the United States, where hundreds of thousands of teachers have been laid off and teachers still employed in hard-hit districts buy school supplies personally, accept cuts in pay or benefits, and manage without school librarians, nurses, counselors, and extracurricular activities that motivate and stimulate their students.
Nobel Prize–winning economist Paul Krugman contrasted Iceland’s approach with that of the United States, the UK, and most European countries after 2008. “Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net.”
By June 2015, the Icelandic unemployment rate declined to 3.2 percent.
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Prime Minister Sigmundur D. Gunnlaugsson had announced
an unemployment goal of 2 percent, which
Bloomberg
believed realistic.
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The OECD predicted economic growth.
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The government repaid many of its international loans early.
Health economists David Stuckler and Sanjay Basu continued to track the data to see whether Icelanders took a public-health hit similar to those felt in the countries choosing austerity, such as the staggering health impacts in Greece and Spain. The team checked their typical measures of heart attacks, suicides, mental health problems, and others, and they learned that Icelanders’ health did not suffer.
To the contrary, many Icelanders reported an uptick in their sense of well-being, and in the first UN World Happiness Report in 2012, Iceland came in at number one in the world.
When I read that statistic, I remembered a study of several U.S. cities during the 1960s civil rights movement. The researchers found that in communities where African Americans waged campaigns there were decreased symptoms of pathology, as compared with communities where they did not wage campaigns. I wondered: perhaps ordinary Icelanders taking charge of their country gained the health rewards that go with empowerment.
Journalist Ben Chu, writing in
The Independent
, points out how extraordinarily self-respecting the Icelanders were. Ever since the 2008 international crisis, both European politicians and ratings agencies “have demanded that national governments honor the debts of their banking sectors, protect their exchange rates, eschew capital movement restrictions, and impose massive austerity to earn back the confidence of bond markets.”
Had they taken that road, up to one-third of Icelanders might have fallen into poverty. Instead, the people of Iceland refused to be victims, and ignored the neoliberal demands.
Interestingly, the international financial world did not shun them as a result. In fact, when Iceland’s government issued $1 billion in sovereign debt at 6 percent interest in June 2011, investors oversubscribed the offering!
Nobel Prize–winning economist Joseph Stiglitz said, “What Iceland did was right. It would have been wrong to burden future generations with the mistakes of the financial system.”