Global Economic Crisis

Article first published as <a href=’http://blogcritics.org/politics/article/iceland-voters-reject-foreign-depositors-bailout/’>Iceland Voters Reject Foreign Depositors Bailout At Their Expense For A Second Time</a> on Blogcritics.

The politicians in Iceland, pressured by the British and Dutch governments, apparently believe that if at first you don’t succeed, try again. Already the Icelandic voters rejected an earlier referendum on repaying $5.8 billion borrowed by the governments of the UK and the Netherlands to repay Dutch and British citizens who lost their deposits at the privately-owned  Landsbanki. This Icelandic bank had 340,000 depositors in the United Kingdom and Holland, swayed by its “Icesave” high interest rates. When Landsbanki became insolvent, London and the Hague decided to make those 340,000 depositors whole by covering their losses, and then decreed that the citizens of the sovereign state of Iceland were financially responsible for paying back those two foreign governments.

The Icelandic politicians agreed, for the most part, with their colleagues in the UK and the Netherlands. However, they did not take into account the courageous president of Iceland, Olafur Ragnar Grimsson.  He used his presidential  powers to insist that Iceland’s voters  have the opportunity to decide on the scheme to cover the British and Dutch governments’ expenses in the bailout of private depositors whose funds lay in a privately-run ban. In the first referendum, the people of Iceland overwhelmingly rejected the bailout plan. Panicked but undaunted, the politicians in Reykjavik repackaged the taxpayer-funded bank depositors bailout scheme, and mounted a massive propaganda campaign to convince the citizens of the tiny country that taking on massive personal indebtedness to compensate foreign governments in a private commercial matter was a “good” idea, while rejecting the plan  would spell economic ruin for Iceland. Again, the voters turned down their scheme, though by a smaller margin. Nevertheless, the 58 percent “no” vote makes it clear even to the politicians in Iceland that the scheme is dead, and there will not likely be  a third referendum.

It is believed that the assets of the Landsbanki are worth approximately $5 billion, and would cover the vast majority of the compensation paid out by the UK and Dutch governments. That, however, does not seem to be the point. Ever since the global financial disasters of 2008, politicians throughout the Western world have been insistent on their collective view that public taxpayers must cover all losses  incurred by the private banking sector, and assume responsibility for massive quantities of private debt, irrespective of the will of the voters. The firm decision by the people of Iceland and their president provides a glimmer of hope that democracy has not yet been totally demolished  by the private banking interests and their obsequious political servants.

An extraordinary development is occurring in the tiny island nation of Iceland. The first sovereign casualty of the financial Tsunami that occurred during the onset of the global economic crisis in 2008,  Iceland underwent a fiscal meltdown and currency collapse when its 3 largest banks became insolvent. A neo-liberal government allowed Iceland’s financial industry to go global amid an environment of deregulation. The result was that  Icelandic banks held more deposits from foreigners than from the nation’s citizens.  When the global economy went into a nosedive, the three banks were rendered utterly insolvent, with liabilities exceeding the GDP of Iceland by a multiple of ten.

The national currency, the krona, collapsed. The government was forced to nationalize the three banks, go to the IMF for emergency loans, then resign as the population of Iceland erupted in a massive display of civil disobedience. A new government came to power, seeking to responsibly cope with the profound financial disaster that has engulfed Iceland. However, the governments of the UK and the Netherlands, which had reimbursed citizens who lost their deposits in the Landsbanki, which had enticed them with above market interest rates through a program known as Icesave, demanded that Iceland  assume full financial liability  and pay back those governments. Desperate to enter the European Union and receive additional IMF help, the government in Reykjavik felt it had no choice but to a agree to compensate London and the Hague, to the tune of  $6 billion, payable over 15 years. This would mean that every one of Iceland’s 300,000 souls would be responsible for paying the British and Dutch governments $20,000. The Icelandic government has told its citizens that there is no choice; either abide by the agreement or accept isolation from the global financial system, junk bond status in sovereign debt markets and a termination in loans from the IMF.

The citizens of Iceland have reacted with a petition containing  the names of 25% of the nation’s registered voters, opposing the agreement. In response, Icelandic President Ólafur Ragnar Grímsson announced that he would not sign the agreement as approved by the nation’s parliament, and would instead call for a national referendum. Current projections are that 70% of the voters would reject the agreement.

What is now occurring in Iceland is a foretaste of what may become more common throughout the developed world. Taxpayers have been told by policymakers that they must bear the financial costs of failed decisions made by private business, no matter how steep the price, or accept even more horrendous economic consequences. For the first time, an aroused public in at least one country has rejected the dictates being imposed by the political establishment. No wonder that the Dutch and British governments reacted so swiftly with a condemnation of Iceland’s citizens for having the audacity to think they have the right to exercise their democratic rights in deciding for themselves what is in the best economic interests of their nation.

As the global economic crisis continues, leading to more private business failures and demands by policymakers that taxpayers fund ever-larger bailouts, look for other aroused publics following in the footsteps of Iceland’s angry citizenry.