Iceland in its crises

The work Iceland’s Financial Crisis: The Politics of Blame, Protest and Reconstructionedited by Valur Ingimundarson, Philippe Urfalino and Irma Erlingsdóttir, constitutes a particularly rich collection and an important milestone in the readings offered of the Icelandic crisis. Composed of 14 articles, it gives voice to economists as well as sociologists, political scientists, philosophers and activists, and thus offers a diversity of points of view which, far from causing a chaotic mass, allows on the contrary to grasp the multiplicity of interpretations of a crisis which has become the international symbol of the failure of financial capitalism, and whose social and political repercussions are still alive on the island.

In what ways can macroeconomics, social sciences or moral philosophy help us move beyond explanations that limit the Icelandic crisis to individual failings or national specificities? And more ambitiously, what can this Icelandic crisis teach us about our own economic and political systems?

The narratives, the ways of telling, of writing the Icelandic crisis remain a political and academic battlefield, whether it is a question of developing memories and a history of the crisis, or of responding to questions raised both locally and globally. The pluralist approach of this work, trusting in the reader’s capacity for judgment, remains in these conditions the most relevant.

Appoint a person in charge

By proposing to revisit the causes of the Icelandic financial crisis, Gylfi Zoega, Guðrun Johnsen and Stefan Ólafsson offer us a series of salutary explanations, as it shows that the Icelandic bankruptcy does not result only or primarily from an international situation, but from a series of serious internal political and technical failures. The neoliberal turn taken by the political elites of the Independence Party and the Progress Party in the 1990s led them to carry out a process of privatization of the major Icelandic banks, in order to transform the country into an international financial center in the long term. By mobilizing Minsky’s neo-Keynesian analyses, Stefán Ólafsson recalls that this progressive financialization of the Icelandic economy was accompanied by a significant increase in inequalities, camouflaged by the call for credit.

The Icelandic specificity becomes quite apparent in the remarkable disproportion between the volumes of speculation and the weakness of the original capital, which reaches up to 10 times the GDP national on the eve of the fall of October 2008. These distortions, and the multiplication of credits in foreign currency to take advantage of favorable exchange rates, will, in finereducing the Central Bank of Iceland to impotence since it can only act on the Icelandic krona, the national currency, while the control bodies remain understaffed and incapable of controlling overly complex financial products. But the most striking is still what Guðrun Johnsen reports of the behavior of the Icelandic political and economic elites during the first alarm signals, sent in February 2006 by a report from Danske Bank. Not only did the government and bank officials turn a deaf ear, but the Icelandic Chamber of Commerce went so far as to order counter-reports from recognized economists, such as Fredrick Mishkin and Richard Portes, in order to produce a competing discourse. Faced with these avoidance and counter-fire tactics, the reader is led to question the production of expertise in a democratic regime, and the contribution made by academics to these counter-offensives.

Political and economic reactions

Stefan Ólafsson has written a particularly interesting article on the redistribution strategies of Jóhanna Sigurðardóttir’s government, and is very valuable because of the set of data it uses. He outlines the features of a typically Icelandic model for emerging from the crisis, far removed from the austerity policies adopted by other European countries. Iceland is not immune to a general reduction in its budgets, but it is combining this with an increase in resource transfers and an increase in professional reintegration programs. Combined with the very strong devaluation of the Icelandic krona, this policy allows for a revival of exports: this approach, possible in Iceland, was not conceivable for European countries forced by their membership of the eurozone to follow the decisions of the European Central Bank.

The explosion of real estate debts contracted in foreign currencies by Icelandic households will also be a cause for concern for the Green and Social Democratic government, which will allow itself to be overtaken in 2013 by the opposition’s promises to reduce them by up to 20%, a reduction which will in truth benefit, above all, middle-class and wealthy households by its criteria.

If we confine ourselves to Ólafsson’s strongly economic analysis, it remains difficult to understand the reasons for the defeat of Jóhanna Sigurðardóttir’s government. It is the article by Helga Hallgrimsdóttir and Emmanuel Brunet-Jailly that partly allows us to answer this turnaround by returning to the major episode of the Icesave referendums, where the population twice refused by referendum the reimbursement by the Icelandic State of British and Dutch savers of this subsidiary of Landsbanki that had gone bankrupt. Born from local mobilizations and petitions, the InDefense movement, which supports the no to reimbursement, resonates with the patriotic speeches defending the sovereignty of a country trapped by the international crisis and supragovernmental institutions for a debt seen as unjust and immoral in the eyes of the vast majority of the local population. The Icesave referendums also benefited the opposition, then made up of the Independence Party and the Progress Party, who saw this as an opportunity to produce a new critical discourse against the government led by the Social Democratic Alliance. This dynamic benefited Sigmundur Davíð Gunnlaugsson, leader of the InDefence movement and chairman of the Progress Party, for a time: he thus became Prime Minister in May 2013. But he himself was disavowed and forced to resign in April 2016 following revelations in the Panama Papers, for having concealed the ownership of an offshore company in the British Virgin Islands. He therefore found himself dismissed in the name of the same demand for transparency that he had made himself the spokesperson for.

Towards a second republic?

The reports of the Special Investigation Commission and its Ethics Committee on the financial crash, the increase in protests and the emergence of new political parties also shifted the debate on the economic crisis towards a resolute criticism of the institutions of the Icelandic Republic. The rewriting of the constitution is a refrain of local political life, which has its roots since the beginning of the island’s independence in 1944 and the adoption by referendum of the current constitution. The text, inspired by Danish institutions, was already harshly judged, notably by the president of the time, Sveinn Björnsson, who considered that it was “from another time and made for another country”. The idea of ​​a constitutional amendment was not only based on the idea of ​​a profound transformation of the institutions, an aspect very present in the mind of Jóhanna Sigurðardóttir who considered that they favoured conservatives, but also on the desire for a national reconstruction, for the reconciliation of Icelanders around common values. But the weakness of national support for the development of a new text, then the scepticism and abandonment by the Social Democratic Alliance itself, the party of Jóhanna Sigurðardóttir, do not allow to go to the end of a process which remains exceptional in several respects.

Þorvaldur Gylfason is particularly critical of the definition of the tasks of the Constituent Assembly and the obstacles that will be put in its way. The group, made up of 25 elected and then appointed personalities who work for four months on the development of a new text, faces a succession of institutional blockages. The invalidation of their election by the Supreme Court, then the behavior of the parliamentarians, who abandon the project out of hand, remains striking, as do the actions of the President of the Parliament, who skirt the limits of legality by preventing the proposals for amendments for the adoption of the new text.

But Þorvaldur Gylfason’s writings quickly lose depth when it comes to discussing potential flaws in the Constituent Assembly itself, which is hardly surprising since he was the member elected with the greatest number of votes. Gylfason thus seems to lock himself into the recurring call for an abstract and total legitimacy of the group to which he belonged. By constantly recalling that the Constituent Assembly is linked to the people and therefore benefits from greater legitimacy than Parliament, he tends to avoid the question of the means of action that it could have mobilized. It is not enough to say that one is within one’s rights; one would still have to give oneself the political means, in the Machiavellian sense, to assert it. In a similar vein, Salvör Nordal displays a strong legalism, and her criticism of the Austurvöllur Square movements of 2008-2009 may partly explain why the Constituent Assembly of which she was president did not seek to benefit from greater support from Icelandic society. It is also notable and surprising that Salvör Nordal never explicitly refers to her own experience as president in her article, as if her analysis floated in the world of ideas.

New horizons

This collective work offers a valuable panorama of current readings of the Icelandic crisis, and as many new avenues of exploration for a subject that is still far from being exhausted. A reading of Icelandic partisan developments and their links with the ideological developments of neoliberalism or social democracy on a more general scale would be particularly welcome and would make it possible to reduce the recurrence of appeals to morality and political virtue that several of these articles launch, often erasing the fundamentally political dimension of the conflicts observed in Icelandic society. A greater number of international comparisons, which J. Elster has already attempted here, a study of the key role of the Icelandic media, but also of political communication in such a limited environment, would also make it possible to distinguish island specificities and generalizable elements.

Finally, the role of local academics, often mentioned in passing, seems major in such processes, whether it is to support the neoliberal opening of the country or to conduct constitutional reforms. The position of the academy, which could coldly analyze Icelandic social developments without being affected by them, is particularly called into question here, as we know how much the relations between academic actors and political and economic actors remain inevitable in such a small environment.

In any case, this set of articles raises a set of particularly fascinating questions for the social and economic sciences, about a country that still remains the source of many fantasies. Once its internal dynamics are distinguished, Iceland can indeed be approached as a political and social laboratory.