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The reverse pyramid

Not so long ago Iceland was a model economy, but in autumn 2008 the country was on the verge of national bankruptcy and only an IMF loan of 1.7 billion euros averted disaster. Now the people are calling for a new Iceland as an EU member?

As one economy after another falls victim to the worldwide financial crisis, Iceland has been among the worst hit – with nationalised banks, a failed currency, a hefty IMF bailout loan, a collapsed government and overwhelming unemployment across several sectors. In addition to daily coverage of the crisis' far-reaching impact on Icelandic politics, business and society, a discussion about who is to blame has unfolded in the press since the financial meltdown in the fall of 2008.

Swift fall from grace

The Icelandic press asked how Iceland could fall from its once enviable position. "Just a couple of years ago, Iceland had so much to be proud of. ... Business was booming and Reykjavík was a popular travel destination for the rich. ... Now the currency has collapsed ... life savings have vanished. ... Food and petrol costs are constantly rising and with interest rates nearing 20 percent, domestic mortgages are becoming impossible to handle," the daily newspaper Morgunblaðið quoted the British Independent on January 26. Publishing articles translated from foreign newspapers has become an established practice among Iceland's media.

Protesters have dumped potatoes in front of the parliament building in Reykjavik as a symbol of Iceland's looming penury, Saturday, November 2008. Photo: AP/Brynjar Gunnarsson

Because the Icelandic government continued to guarantee the nation's banks, even as their massive acquisitions grew far beyond the scope of the nation's minuscule infrastructure, many have blamed the political and economic leaders for the country's financial meltdown and criticised the avarice of the three largest Icelandic banks. In October 2008, their total assets were estimated at over ten times the nation's GDP: "The first mistake was made when the banks were privatized in the beginning of the millennium without any ground rules being laid. The happy bankers were given free reign and they took loans and grew out of proportion with merely numbers on paper to support their conglomerates. Once the international credit crunch knocked on the door and loans stopped flowing in, they collapsed ... as a reverse pyramid," the web editor of Iceland Review wrote on October 17.

The government fails
 
As conditions worsened, the outrage of Iceland's small population grew. "Our government played a game of Russian roulette and ruined the reputation of a whole nation. ...They [the British government] used anti-terrorism legislation against us, and now we are in the company of the shadiest nations in the world," noted writer Einar Már Guðmundsson in his opening address at the first in a series of public rallies in Reykjavík on October 27. He was referring to a 2001 antiterrorism act the British government invoked to freeze an Icelandic bank's assets in Britain. Morgunblaðið published a video on its website.

Around 2000 demonstrators demand the resignation of those thought to be responsible for the country's economic collapse, Reykjavik, December 2008. Photo: AP/Brynjar Gunnarsson

Growing public protests increasingly targeted individual officials. The battle cries of protesters gathering in front of the Icelandic parliament and the Central Bank building calling for resignations ("Resign, David!”) were echoed in the headlines of popular papers such as the daily DV. Radio station RUV described the ongoing and increasingly violent demonstrations of the public as a turning point in Icelandic history: "It is safe to say that the future of Icelandic politics is now uncertain."
On January 17, some 4,000 people protested the government's handling of the economic crisis in Reykjavík, Morgunblaðið reported. Considering how small Iceland's population is (320,000), it was a significant turnout. On January 26, 2009, the Icelandic government collapsed, the first government to fall victim to the global financial crisis. "The age of neolibertarianism is over" ran Morgunblaðið's headline when a new interim government consisting of Social Democrats and members of the Left-Green Movement (Vinstri hreyfing-Grænt framboð) was announced on February 2. The newspaper concluded that "everyone agrees that difficult times lie ahead... and matters need to be resolved quickly and efficiently."

A new Iceland
 
Despite the disastrous political and economical implications of the crisis, the loss of their good international reputation seemed to hurt Icelanders most. "We need to stand together and … reach a consensus for restoration. … we must reclaim our self-respect and the self-discipline of a nation that respects and appreciates the country, history, language and culture that make it a nation among nations” said Bishop Karl Sigurbjörnsson, head of the Icelandic church, in his New Year's speech in Reykjavík on January 1. Morgunblaðið published the video of the speech on its website.

Some Icelanders believe that the beginning of a new Iceland should be marked by an application for full membership in the European Union. Pop singer Björk said that "under these circumstances, it seems to be the right thing to do", Morgunblaðið wrote on November 6. The advantages (for example improved economic stability) and disadvantages (for example limited control over agricultural and fiscal policy) have become an increasingly heated subject of debate in the Icelandic press in recent months. On January 28, Bændablaðið, the newspaper of the Farmer's Association, published a feature story on the drawbacks of EU membership, warning that agriculture in Iceland would suffer considerably if the country were to join the European Union. Because of the abolishment of tariffs on foodstuffs, the number of working farms would dwindle; the dairy industry would find itself struggling to survive; complicated EU legislation would not suit Iceland and its small agricultural enterprises: "We would have to adapt laws made for countries with millions of inhabitants to suit a nation with only 300,000", the president of the Farmer's Association Haraldur Benediktsson said in an interview with Morgunblaðið on January 6.

What has caused even greater concern is the EU Common Fisheries Policy, under which all fishermen have equal access to the waters of other member states. In fact, the CFP is one of the main reasons why Iceland - a member of NATO, EFTA, the EEA and the Schengen Area – has stayed out of the European Union so far. The Icelandic fishing industry accounts for the majority of the country's export income, and Iceland has always been keen on protecting its rich fishing grounds.

EU supporters argue that Iceland simply has no other choice in the financial crisis but to enter the European Union, yet it might be able to negotiate significant opt-outs or special solutions in its accession agreement to suit its own interests. And according to Gylfi Magnússon, Iceland's nonpartisan minister of commerce, joining the EU and adopting the euro would be the best way to restore credibility to Iceland's economy and get the troubled nation back on track: "If we want a trustworthy currency," said Magnússon, "switching to the euro seems to be the logical choice… [It] would send out a clear message and presumably calm down the market", Morgunblaðið reported on February 12.

Still, the major concern of many Icelanders is that the needs and wants of the larger states in the eurozone will always come before the needs and wants of tiny Iceland. A poll published in Morgunblaðið on January 26 revealed that the majority of Icelanders (59. 8 %) oppose the entry of their country into the European Union. The political parties, as well as the temporary coalition government, are divided on EU membership. It will thus be one of the crucial campaign issues in the upcoming government election in April.  

Katharina Schneider

Katharina Schneider, born in 1980 in Leonberg, lives in Reykjavík. She is the director of the municipal library in Blönduós in northern Iceland and works ...
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Further articles on the subject » Domestic Policy, » Fiscal Policy
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