29.12.2010

A REPUBLIC AT CROSSROADS

Haukur Magnússon, the editor of GRAPEVINE, an English language publication in Reykjavík (published in 25.000 copies) asked me to review the first decade of the 21st century in Iceland from a political perspective. I spent the quiet Christmas days composing the following piece for Grapevine. I take note of the fact that the editor and I are both from Ísafjörður. Actually we are distant relatives and can trace our familyties to Ögur in Ísafjarðadjúp. The editor´s mother is a former student of mine at MÍ. And once upon a time Bryndís and I lived in the same house, where the editor´s parents are now living in Ísafjörður. Remarkable!

The First Decade of the 21st Century in Retrospect

Will October 6th 2008 (the day Iceland´s luckless PM Mr. Haarde, asked God to help his poor nation since he himself couldn´t) live on in our collective memory as a “day of infamy” – a sort of Iceland´s Pearl Harbour?

Pearl Harbour is today remembered by Americans because of Japan´s aerial bombardment on the US naval station. And because it led to the Americans´ involvement in the second world war. Wars are inevitably both destabilizing and devastating. People not only lose their property – but their lives.

In our case, Iceland´s economic collapse (hrunið) may yet claim a few lives, but in most cases the losses are less tangible. Many have lost their jobs, their property, their savings for old age. Some have even lost their hope. Then there are those who have already voted with their feet – and emigrated.

Some say our greatest loss is our reputation as an honest and trustworthy people. Because in our case we did not suffer an attack from an outside enemy. In our case the enemy came from within. That is what makes it all the more painful. And it explains, partly at least, why so many find it almost unbearable to face the truth: we have only ourselves to blame - and no one else.

THE THREE WISE MEN

The best thing that has happened to us after the crash is the truth-commission-report by the three wise men. Nine volumes and almost three thousand pages, including appended documents on the web. The truth and nothing but the truth. They were asked to tell us the truth about the causes of the collapse and to find out who were those responsible. And they did just that – fairly and squarely. They spelled it all out in painstaking detail.

The collapse was caused by a combination of fraudulent business schemes and irresponsible politicians. And by the way: the majority of Icelandic voters cannot be acquitted either. Time and again they voted for parties and politicians, who did not deserve the trust put in them. Again and again. And the nouveaux riche buffoons – flaunting their ill-begotten wealth – were extolled as the nation´s best sons. How many times did the President of Iceland, Mr. Grimsson – the hyper-active chef-de-protocol of the plutocrats – accord them serimoniously the highest decorations of state, making it impossible for honest people to accept such commendations in the future? The critics´ voices were simply drowned and the warning signals – and there were plenty of them – were ignored.

No wonder how many are simply unable to face the truth: out of 147 individuals in leading positions in government, political parties, the Central Bank, the civil service and banks and business corporations etc., questioned by the truth-commission, not a single one admitted any responsibility at all, not to mention expressing a sense of guilt or regret. “Not my department” was the standard refrain of those haughty elitists. This seems to be a nation where the blind lead the deaf.

But ours was not only the lethal cocktail of dishonest business and incompetent politics. Iceland was by design meant to become a shining example of the neo-conservative utopia; a tax-haven for the super-rich with minimum government interference in the free play of market forces. If something were to go astray, the market forces could be trusted to correct it by themselves – or so they believed. This was not only the professed ideology of the Independence Party (IP) leadership, it was the declared policy of the IP-led governments that steered us, slowly but surely, into the crash.

Iceland´s fall in 2008 was the direct consequence of this pre-meditated policy. It was not the failure of capitalism as such. Capitalism cannot function at all without direction, legislation and constant supervision by the state. It was the US-style predatory type of capitalism, let loose without proper democratic control, that failed here as elsewhere. The biggest lesson to be learned from this catastrophic experiment is simply this: never again. Never again should we let the selfish, greedy and short-sighted have a chance to play whimsically with our fortune. Now, my countrymen must find their way back to the Nordic family of nations, with their democratic and egalitarian way of life, or else face social disintegration.

THE NEO-CON UTOPIA

The three wise men, in their voluminous investigative report, amassed unassailable evidence for how the mistaken policies of the IP-led governments after the 1999 elections gradually brought Iceland towards the brink of the abyss. It all began with the practice – contrary to the law of the land – to allow a selected group of ship-owners to sell or rent their fish quotas (allowable catch), which had been alloted to them by the state – for free. Thus the most valuable natural resource of the nation, actually a national property under the law, was in practice privatised. It was handed out to politically favoured groups of ship-owners - for free. This was very much in the same way as Russia´s rich resources of oil and gas were given to a favoured few, in return for political support. This sort of blatant abuse of power could never have been thinkable in a decent democratic state like e.g. Norway, with its enormous oil wealth.

The privatisation of the state-owned banks to politically favoured groups of businessmen was pushed through in much the same way by the leaders of the IP and their partners. In a few years time, those traditional commercial banks, which had tended to the needs of the local community, had been turned into international investment banks (some say more like aggressive hedge-funds), amassing mountains of foreign-currency denominated debt, through easy cedit abroad. In four years (2003 – 2006) they had piled up debt to the tune of ten times Iceland´s GDP. Behind it, for ultimate support if need be, were the meagre foreign currency reserves of the Icelandic Central Bank and ultimately Iceland´s tax-payer base of 220 thousand individuals (less than a common small town anywhere in Europe). This was financial madness. In the end Iceland´s nouveaux riche banksters proved the truth of William Black´s dictum: “The best way to rob a bank is to own a bank”. This ideologically conceived and utterly reckless experiment with the fate of a nation was doomed from the start.

Why didn´t the government act in time to avert a forseeable calamity? The simple answer is: In the thinking of the IP-leaders and their cohorts, this was not a mistake to be corrected. On the contrary this was declared policy to be promoted. As late as 2007 it was written into the IP-Alliances´ coalition government´s policy statement, to enhance the financial sector´s position as Iceland´s engine of growth.

According to the evidence presented in the investigative report, the IP-lead governments (1999 – 2009) turned out to be amazingly incompetent. Instead of restraining the banks´ expansion and lending capacity, they enhanced it, ending in a classical real-estate bubble. Instead of applying the brakes, to rein in debt-based overspending, the government stepped on the accelerator, by drastic tax-cuts for the benefit of the rich. The Central Bank´s monitary policy was, according to the report, both misconceived and ineffective. Because of Iceland´s automatic indexing of long-term loans (with a fixed rate of interest) to the CPI (consumer price index); and because of the easy access to cheap credit abroad, steep rises in the rate of interest were not only ineffective but counter-productive.

It attracted speculative capital, seeking quick profits from interest-rate differentials, with disastrous consequences. It strengthened the krona, enhanced imports, pushed the trade deficit into world record figures and helped pile up unsustainable debt. Long before the fall, Iceland´s economy had spiralled out of control and was heading helplessly for a harsh landing. The US-originated financial crisis was just the spark that ignited the flame. In the words of the renowned financial expert, Willem Buiter, Iceland´s fall was “not a question of if – only when”.

When ultimately Iceland met its fate, this once egalitarian nordic nation had, by the impact of grisly ideology and short-sighted and irresponsible politics, been turned into a caricature of US-style casino capitalism. Thus Iceland, which was meant to be a shining example of the neo-con model´s superiority, became the first victim of its ultimate failure globally. The intellectual legacy of Reagan-Thatcher and their deciples has by now been relegated to the “dustbin of history”. Unfortunately, that is also Iceland´s place in the world – for the time being.

BROKEN TOOLS

Who is to come to the rescue? How are we to find our way back to normalcy (after this mad ride as the “sorcerer´s apprentice”?). That´s the point. We are broke (as a nation) and by definition unable to help ourselves. We need outside help. And willingly or not, we have now been placed under the tutelage of the IMF – the first “developed” nation since the UK in 1976 to be given that treatment.

The IMF is the watchdog of American capitalism. It is there to see to it that the interests of interational capital are duly taken into account, when nation states threaten to default. Since we are broke and aleady over our head in debt, we don´t have the option of pumping public money into the economy to stimulate economic activity. Therefore we have no choice but to accept the bitter pill of the imposed austerity program. We must cut our budgetary expenditure on welfare and raise taxes to save enough money to pay our debt. We must claw our way back out of the debt prison. Can we do it? That is the question.

To tell the truth, the prospects don´t look too bright. He who is unable to admit his mistakes is by the same token unable to correct them. He is therefore doomed to repeat them. That seems to be the most likely outcome for the time being. When it comes to political solutions – learning from our mistakes – the only tools (the political parties)we have for the job, are broken. Three of the parties (The IP, the awkwardly named Alliance- for what?) and the so called Progressives, are all to a varying degree, discredited by their past and compromised by their inabilty to admit their failure of leadership. Who can trust them? And if they can´t be trusted – who can replace them? Do we need another bout of the “pots and pans” revolution?

The Left Green, although innocent of any responsibility for the crash and called upon to clean up the mess left there by the others, are caught unprepared for the task of chartering any future course for the nation. Their misconceived antipathy for the European Union and general economic illiteracy – despite the heroic stamina of their chairman, turned finance minister – makes the party an awkward and unreliable coalition partner. So, the question remains unanswered: Who can ride in for the rescue and stake out the road to salvation?

Althought the three wise men, in their investigative report, gave convincing evidence for Althingi to indict the leaders of the IP and the Alliance for gross mistakes and neglect of public duty (along with the Central Bank directors and a few smaller fish), Althingi failed spectacularily to follow through on the matter to its logical conclusion. The haphazard outcome was that Althingi only indicted the hapless former PM, Mr. Haarde. In doing so Althingi fortfeited what little trust there was left in that battered bastion. This calls to mind the Nobel laureate Laxness´ famous adage from “Iceland´s Bell”: “Cruel is their injustice, but worse still is their justice”.

CULPRITS-IN-CHIEF

The evidence presented in the investigative report overwhelmingly shows that the Godfathers of Iceland´s fall, were in fact the leaders of the twin-parties, the IP and their junior coalition partner, the socalled Progressives. Those gentlemen, Mr. Oddsson and Mr. Ásgrímsson, were sitting jointly at the helm of coalition governments for three consecutive electoral terms, or twelve years, administering the policies that led up to the fall.

They were directly responsible for the corrupting influence of the quota system; also for the privatisation of the banks á la Russe; and they were directly responsible for the lack of coordinated macro-economic management of the Icelandic economy, which gave free rein to the fraudulent business practices that brought down the entire financial system of the country. In addition Mr. Oddsson, in his capacity as Central Bank Director (appointed by himself in 2005) is responsible for not only the fall of the banks but also the collapse of the national currency and the bankruptcy of the Central Bank to boot.

The least Althingi should have done, apart from indicting Mr. Haarde and his accomplices, was to adopt a motion of censure condemning those culprits- in-chief of the economic ruin they left behind. That would have sufficed to bar those individuals from public office ever again. And it should have made it mandatory for their respective political parties to crically examine and reject their legacies. Only having done so can those political parties ask to be given another opportunity to be trusted with public office ever again.Trust can not be taken for granted. It must be earned.

Instead the public has to suffer the indignity of hearing Mr. Oddsson, in his capacity as editor of the conservative daily, Morgunblaðið, holding up a seaceless tirade, blaming everybody else but himself for the misfortune he, more than anyone else, is responsible for having brought upon his people. Through his daily falsification of history, this de facto leader of the IP is doing his nation even a greater disservice by scaring the rank and file of IP-loyalists from coming to grips with the party´s disreputable past. He who does not acknowledge his mistakes and blames everybody else for his own faults, is not going to learn from those same mistakes. He is doomed to repeat them. Sorry.

THE ENEMIES WITHIN

In two new major works of historical scholarship, the authors, historians Guðni Th. Jóhannesson and Þór Whitehead, cast the searchlight on deeprooted and longstanding weaknesses of the politcal institutions of Iceland, since it came into existence as a soverign nation in 1918. In the case of Mr. Johannesson´s masterly biography of Dr. Gunnar Thoroddsen ( a former IP- leader and PM) he reveals new sources for the widespread, corrupt practices of the IP (and its reflection within the other dominant party, the Progressives).Those two political parties, which between them were leading coalition governments most of the time during the last century, were both under the thumb of special interests and systematically abused their position of power and on the boards of publicly owned banks and funds to grant subsidies and loans on favourable terms and hand out priviledged patronage (such as jobs, both in the public and private sectors) to their clientele – in return for financial support.

In the IP-case they systematically bought votes through direct bribes and used their longstanding control over City Hall in Reykjavík to build up a vast system of patronage to maintain the party´s grip on power at all costs. Favouritism, nepotism, crony-capitalism - all those political vices that we normally identify with the mafia and undermine the basic foundations of the rule of law – were widespread and contaminating, long before the latterday banksters came to the fore and ruined the country.

In the case of Dr. Whitehead´s book (“Soviet-Iceland: An Unfinished Revolution) the author emphasizes the vulnerability and inherent weakness of the Icelandic state, in this case in the face of a possible communist insurgency during the troubled times of the great depression. With no army and unarmed police the embryonic Icelandic state was in fact unable to defend itself against any well organized and armed group, determined to overthrow it.

The fall of 2008 has mercilessly disclosed the underlying weaknesses of the young Icelandic republic. Not only is it still today unable to defend itself against potential aggressors from outside. But what about enemies from within? It is e.g. highly doubtful if the (politically appointed) judiciary system is able to deal with cases of international fraud, such as those that have shaken the republic to its foundation, or to bring fraudulent businessmen and corrupt politicians to justice. Not a single one of the oligarchs, who robbed the Icelandic banks from within, have so far been brought to justice. Many of them still retain control of their companies. Many have even been granted generous debt-relief by the new banks (under state supervision) under the disguise of financial restructuring.

The Icelandic state, heavily indebted and having lost its creditworthiness, is utterly dependent on outside help.We need such outside help in negotiating the terms for our repayment of debt; also for rescheduling our debt; and to secure access to financial markets on managable terms. And we need help in restoring our national currency to a modicum of functionality, after it has lost all credibility, domestically as well as abroad. And we need foreign direct investment to harness our valuable resources of clean and renewable energy to generate income to pay our debts and restore our economy back to health.

DO WE DARE?

Looking towards the future, the keyword in formulating any solution is cooperation – cooperation with friendly neighbours in order to get us out of the black hole into which we have fallen. We are not alone in this. Other nations, considerably more numerous than we are, also find themselves in such dire straits that they need temporary help to overcome their difficulties.

But in our case we have not yet answered the basic question: Do we, despite our setback, have the self-confidence not only to learn from our mistakes, but to enter into international cooperation as a fully fledged sovereign state, with both rights and obligations? Or are we going to continue blaming others for our misfortune, looking inwards in sulking anger, cultivating self-imposed martyrdom, suspicious of our neighbours and glorifying in our “heroic” standing alone against all comers? This is what I have called the “Serbia syndrom”. Is that really the example we want to follow?

This is what the E.U.-issue – to join or not to join – is all about. It is primarily about ourselves. Do we have full confidence in our ability to cooperate with our Nordic neighbours on an equal basis and within the structures of European democracy, where we belong? Or don´t we dare?

Jón Baldvin Hannibalsson The author was leader of the Icelandic Social-Democratic Party 1984-96 and minister of finance and minister for foreign affairs and external trade 1987-95. He is an honorary citizen of Vilnius, Lithuania