The President of Iceland, Olafur Grimmson, describes, in a very engaging manner, how he and his country challenged economic orthodoxy of the day putting democratic, social and political concerns ahead of the financial markets . Now Iceland, three years later, is performing well. A fascinating story and one with insight for the Occupy Movement and those exploring alternatives to a global economic model run amuck. President Grimmson states:
” I was left with the fundamental choice between what was interpreted as the paramount financial interests of the financial market in Europe with respect to Iceland and on the other hand the democratic will of my people. And I came to the conclusion that our society, like Europe or the Western world, is more about democracy than it is about the financial market. If we start sacrificing democratic elements of our societies for financial expediencies we have, in my opinion, entered a very dangerous journey. “
See also two other pertinent references below the transcript. The second reference by Michael Scott-Moore in “Truthout” concludes:
“But maybe the main lesson from Iceland is that brave behavior by political leaders can start from below. After the bank collapse in 2008, thousands took to the streets of Reykjavik to protest a deal by the sitting government, led by former Prime Minister Geir Haarde, to save foreign creditors and impose austerity measures. By January 2009, Haarde was gone. President Grimsson now sees those Facebook-organized protests as forerunners of Occupy Wall Street and the Arab Spring. “Iceland, in a nutshell, has become a case of what you’re now seeing in the United States,” Grimsson said recently to CNN. I have even concluded that this so-called social media has now transformed our democracies in such a way … that I can’t see any chance for the traditional, formal institutions of our democratic systems to keep up.”
CBC Radio Sunday Edition Michael Enright Interview with the President of Iceland Olafur Grimmson.
Transcript by Janet M Eaton, Dec 11th
Michael Enright (ME) It has been a difficult three years for the small northern nation of Iceland- In fact as the country’s President put it recently if you were to try to create the perfect laboratory experiment to test the resilience of a nation you could hardly do better than Iceland.
The country was the first to be hit by the financial global upheaval; the failure of its banks led to a complete economic collapse. One year later a volcano with an almost unprounceable name erupted covering the country in ash- then six months later came a second massive eruption. As President Olafur Grimmson put it – it was a sobering experience and that is an understatement
So it is no small achievement that three years after it all began Iceland appears to be emerging from the worst of the crisis; unemployment is down to levels other European nations would envy, investment is returning and the economy is projected to grow by as
much as 3% this year. What makes it all the more remarkable is the way Iceland has done it. Instead of following the standard formula of severe austerity and debt repayment Iceland did pretty much the opposite.
Olafur Grimmson is the President of Iceland. this morning he’s in a
studio in Reykjavik.
ME- you have said that the financial collapse in your country
threatened your entire democratic and social system. How so?
President Olafur Grimmson (OG) - It was an extraordinary experience to
witness how the collapse of the banks – their financial crisis seemed to be in process of breaking up the very strong social cohesion which has characterized Iceland for centuries -In our country this led to continuous protests in the streets even in the height of winter; . Riots in front of the parliament and PMs office and from one way to another as we came into January of 2009 what I feared every morning when I woke up was not that we wouldn’t be able to deal with the economic consequence but whether what was happening to our political and social and democratic system would completely split part and we wouldn’t be able to put it together again
ME : How afar away from the collapse of that social coherence do you think the country actually was?
Pres. OG: Well it is difficult to say – we had the moment in the middle of the night in January where there was a big crowd outside the PMs office demonstrating and the police was guarding the PM’s office with shields- and the crowd started throwing rocks at the policemen- and then it seemed that perhaps the PMs office would be invaded but -then all of a sudden a small group came out of the crowd of demonstrators and put themselves in front of the police force so the stones that were being thrown would hit fellow protesters – many of us believed that if these individuals ,15 or 20 or so, had not decided that enough was enough- no body could have predicted what would have happened
ME: And nothing like this has ever happened in Iceland before-
Pres. OG: No no, never ever, never ever - As I’ve said to many financial leaders and political leaders in other countries what all of this demonstrated is that banks, financial institutions, those who operate in the financial markets, both nationally and globally, they carry an enormous political and democratic and social responsibility because their actions on their own can break down our democratic and political system so the theory which was very popular from 1980s onwards so that somehow the market was supreme and if you allowed the market to go ahead full force- the rest of the society and political system would somehow take care of itself. What we witnessed in Iceland that this was turned on its head- that the failure in the market threatened the breakdown of our entire democratic and political system and that is a very important lesson for those who have advocated the superiority of the market forces without taking into consideration the consequences that we are now witnessing- Fortunately for us in Iceland we were wise enough somehow early on perhaps due to these events that I’ve described – to realize that this challenge, this crisis, was not just an economic crisis – it was also a fundamental democratic and political challenge- and I think one of reasons why many European countries and perhaps even the United States and Britain are still facing these challenges we are seeing every day, every week, and every month – is that it’s only recently that their leaders of Europe and US have squarely faced it that this is also a profound political and democratic challenge.
ME: Mr. President- let’s talk about the remedies that Iceland undertook. The economic orthodoxy of the day says that the standard prescription for economies in trouble facing the challenges you did was – was severe austerity, slashing government spending, bail outs if necessary of financial institutions- how much of that did Iceland do- or did you reject all of that ?
Pres. OG: I think it is illustrative to divide the Icelandic response or Icelandic way into three different there dimensions-
1) The first was as I have just described was that we have defined the challenge not just as an economic challenge but also as a profound social, political and democratic challenge so we instigated various measures to deal with this political challenge. We established a commission to examine the failure of the banks, the corporations and political institutions in our country. We appointed a special prosecutors office which became the largest judicial entity in our country. We even set in motion examination of our constitution as well as various other legislative reforms that were enacted following the financial collapse – so the first dimension is to treat as a profound challenge to the political system and society.
2) The second dimension is that in various financial and economic measures we went as you mention against the prevailing orthodoxies- we e.g. did not pump public money into these banks. These were private banks so we let them fail- those who lent money to these banks had to take responsibility of operating in the free market. We let our currency, the croner, be devaluated strongly. We instituted budgetary measures that tried to shield those who are the poorest or who faced the biggest difficulties because of their social status- – and we enacted many other measures that were contrary to the traditional recommendations by experts of international institutions. And it is very interesting that at a recent - conference held in Reykjavik – because the IMF program is over -IMF has now left Iceland has left Iceland because of our success of our recovery – The IMF leadership which participated in this conference acknowledged that dealing with Iceland had been a very interesting and fundamental learning process for the IMF.
ME Interjection: But Mr. President the IMF at the time warned Iceland that you would never again be able to borrow if you didn’t bail out the banks and politicians in Europe said the same thing – the rating agencies demanded that the government honour the debts of the banks.
Pres. OG: All o f this is true- with respect to the rating agencies – I have to tell you that I still think they have a lot to answer for – because when we look back at why we didn’t take measures in 2006, 2007, or early 2008 when some experts were warning us about the banking system. The rating agencies all of them Moody’s, Standard and Poor, etc all gave the Icelandic banks a clean bill of health- even an excellent certificate- so the fundamental question with respect to the rating agencies - is if they were so wrong in years leading up to the banking crises why are they suddenly right now. But you are right we did not follow these traditional measures that are in fact still these very days are being posed in various European countries.
3) And that came out very squarely in what I call the third response. in this very difficult dispute with Britain and the Netherlands where they demanded that the people of Iceland should be formally responsible for the debt of a private Icelandic bank that operated in Britain and the Netherlands- I decide, following a strong national demand, to put that to a referendum, to let the democratic will of the people be superior to the financial interests of the market. And when I took that decision, in the beginning of 2010, it went against not only the majority in my own parliament and what the government had decided, but every government in Europe was telling me that was wrong- that the financial markets should be supreme in confrontation with the democratic will of the people- but I decided to go the other way – there were a lot of people who predicted that that would be the downfall of Iceland, we would be isolated in the world , we would become the Cuba of the north- but the fact of the matter is the people of Iceland twice were able to exercise their democratic will and now Iceland is coming out of its crisis and establishing recovery
earlier more effectively than other European countries.
ME: There are two elements about that- first of all there was a bill passed -you refused to sign it didn’t you and you decided to go to the people in a referendum OF Yes ME Even though Gordon Brown in the UK threatened to freeze Iceland’s assets in that country- He’s not a very popular man if he ever decides to turn up in Reykjavik
Pres. OG Well Gordon Brown, God bless his political memory, will be long remembered in Iceland after he has been forgotten in Britain because we have a long historical memory [ we still remember those Vikings who traveled toward what's now Canada a thousand years ago]. But you are right – they organized extraordinary measures against Iceland. They even invoked terrorist legislation, against Iceland – put Iceland on the list with the Taliban and Al Qaeda even though we were a founding member of NATO, paid out of the banks without asking us and then decided to send the bill to Iceland and if we didn’t pay they tried to use their position within th IMF Board to block the IMF program for Iceland- It was an extraordinary display throughout 2009 of using sheer force against our country.
ME: Mr. President what was it in your feeling, in your gut actually, that told you that you could not sign a bill bailing out the banks- Why did you find that so repugnant?
Pres. OG- There were really two fundamental strands in my analysis- i) One was that the European financial system was based on allowing private banks to operate all over Europe- and if we suddenly started to introduce the rule that if they failed they could send the bill to ordinary people, fishermen , farmers, doctors and nurses and others- it would be tantamount to privatizing the profits and letting the bankers become extremely rich if they were successful, but … if they failed they could send the bill back to ordinary people- and that was not only fundamentally unfair but it would also be contrary to the fundamental principles of the free market. And then in addition to that the financial burdens that were involved in that first agreement threatened the very economic sovereignty of my country in the coming decades but in addition to that and that perhaps was the core of it – you could analyze it backwards and forwards, as many people did but when all the complicated analyses had been swept away, I was left with the fundamental choice between what was interpreted as the paramount financial interests of the financial market in Europe with respect to Iceland and on the other the democratic will of my people. And I came to the conclusion that our society, like Europe or the Western world, is more about democracy than it is about the financial market. If we start saying that financial markets are more important than democracy -we are in my opinion entering into a very risky journey with respect to western values and what we are all about.
And looking at Europe these very days where the interests of the financial markets have been deemed to be supreme, I think people have forgotten that Europe’s most important contribution to the world is not the free market economy – it is democracy and human rights. We have countries in Asia and other parts of the world that are excellent in market economies but they have little democracy.
ME: One of the more striking things that you’ve talked about is that while western governments, western democracies were pressuring you to pay off the debts of those private banks the one country with which you were able to have a constructive dialogue was China. How do you explain that?
Pres. OG: That’s a very interesting case. In those first months in October of 2008 November and December and into January 2009- we were faced with a situation that all the European Union counties had come together to support Britain and the Netherlands- and their request that Iceland would shoulder these extraordinary debt burden of a single private bank, a debt burden of the scale, to give you an example, because many people do not realize this, a debt responsibility of scale that if you take into account the relative
size of the British and Icelandic economy would have been equal to the people of Britain shouldering the responsibility for almost a trillion dollars- because of the operation of one bank. That is almost the complete size of the European emergency fund that people have been talking about in recent weeks. So we faced a unified front of European countries, with small exceptions like the Faroe Islands, and our friends in Poland, who were pressuring us to bow to the claims from Britain and Europe. And with respect to US which had been a traditional ally of Iceland for a long time, we simply faced a situation that they didn’t care- they described in private conversation that they were sorry but there was nothing they could do.
So where could we turn? So I started, in co-operation with the Prime Minister of the time and our Foreign Minister of the time to instigate a dialogue, through a letter and then discussions, a letter to the President of China and discussions with their ambassador. and what followed was an extraordinary sophisticated dialogue that we conducted with Chinese leadership for the following four or five months- which ultimately led to an agreement between the central bank of Iceland and the central bank of China – and a very high level delegation by one of the major Chinese leaders to Iceland where they expressed support in terms of investment and loans and so on and so forth. And as an observer of politics-for many decades – I´m a former Professor- I found it remarkable the level of sophistication that the Chinese leadership showed in this dialogue when all our traditional friends and allies were not interested or showed strong
ME: I’m wondering in the fall out of this- Iceland’s position today, with a projected growth rate of 3%. How difficult is it for your government to go into the market to finance debt on the International markets. Are investors turning away from Iceland ?
Pres. OG: No No, No – you could even say that our problem has been too much interest in investing in Iceland. And with respect to the financial markets we had the great success earlier this year when Iceland authorities raised money in the international financial markets- so all the indicators in the financial markets in the last year or year and a half have been very positive- Rio Tinto is now investing in Iceland for a half billions dollars- it was in fact the first investment Rio Tinto decided to invest in after the financial crisis. Similarly foreign companies are investing in data storage- and the reason is that throughout this crisis the country and nation has demonstrated considerable capability to return to a successful economy in the long run and to show the responsibility that foreign investors appreciate. Beyond that the strong natural resources of Iceland, the clean energy, the water, the ocean resources as swell as the extraordinary nature that Iceland has to offer- all of this has helped us together with the IT sector and high tech sector to strengthen our exports in a formidable way- and that is one of reasons why we are coming out of this crisis in relatively short time And let me mention something else -your listeners might find interesting. After the banks collapsed we suddenly realized that these big Icelandic banks, like banks in American and Europe, are no longer traditional. They have in fact become-high tech companies hiring engineers, mathematicians, computer scientists and many others and when they collapsed there was certainly a wealth of talent
available in the market – so IT companies and high tech companies that had great growth potential but couldn’t realize it before because the banks were outbidding them for these qualified people could suddenly now hire engineers, computer scientists, mathematicians and designers and programmers and so on. So almost the entire IT and high tech sector in Iceland has in the last two years or so had a more successful period than in the years leading up to the banking crisis. So the lesson of that is if your nation wants to be competitive in the creative sectors of the 21 century economy, IT and high tech and so on, a big banking sector, even a very successful banking sector, is in fact bad news for the creative sectors of our economies.
ME: Mr. President you’ve said that Iceland is an integrated society, it is politically coherent and cohesive. It is a small nation. Do you think what Iceland did in the crisis and coming out of it is applicable in places such as Greece, Italy Ireland, Spain. Would what you did work within the Eurozone?
Pres. OG It depends how you look at it. The difference is we had our own currency. We still have whereas they are bound by the framework of the Euro. Additionally we decided to go against the many of the financial orthodoxies that are still prevailing within the Eurozone- It’s right Iceland is a small country- we are not a big nation but we are a highly advanced Western society and I don’t accept the argument that because Iceland is so small it was possible for us to recover after the crisis earlier than others. – On contrary you can look at Iceland as a kind of laboratory where some of these conflicts of the challenges and the measures and the recovery policies come out more clearly and in a more transparent way than in a more complicated society. So what has succeeded in Iceland should also be successful in other countries- But I’ve consistently had the position that I’m not going to offer other countries concrete advice but I can describe what we have done in Iceland, what are the lessons we have drawn, what are the primary elements in our difficult journey- and it has been difficult, no doubt about it, especially in past three years and then other people have to draw conclusion for their countries.
ME: let me ask you finally Mr. President – we live in an era of market dominance where capital is preferred over labour- where financial workings are more important than productivity it seems. Do you think the world is going to come around and turn away fro that way of thinking.
Pres. OG: Well I hope so – We have learned many lessons- from these difficult experience here in Iceland. All these lessons point in the direction that you have just described. But this crisis, as I’ve tried to describe to you, has also brought out a fundamental dilemma for our Western societies and that is this – is democracy more important for us than the financial markets and this is perhaps the core of the challenge that you are witnessing these very days in Europe. It’s also a strong element in the difficult situation in that the US still finds itself. We still somehow have to find a way where democracy can prevail even if we have to take our societies out of a profound financial crisis. If we start sacrificing democratic elements of our societies for financial expediencies we have in my opinion entered a very dangerous journey.
ME: Mr. President thank you very much in deed for joining us this
Why Iceland Should Be in the News, But Is Not 10-28-2011 01:24 AM By Deena Stryker