Tuesday, 4 December 2012

The Country With People Power

The country is Iceland - the butt of politicians sarcastic comments since the bankers pulled the UK and more of the financial world into the deepest recession since the 1930s. 

Prior to the collapse of the banks Iceland was often mentioned as part of an 'arc of prosperity' (along with Norway and Eire) by Alex Salmond, but since 2008 the opposition parties in the Scottish government have been scathing about the First Minister's judgement of prosperity.

No more though.  The opposition have been silenced.  Iceland has now returned to strong growth and has spared its population many of the austerity measures seen here in the UK and throughout Europe.

Iceland was thought a basket case when it refused to placate international investors and bail out its banks and make its people pay the price.  It let the banks go bust and expanded its social safety net.

This week it has been announced that Iceland is not returning the money invested by UK local authorities - although I'll never understand why these authorities were permitted to invest so much in another country, when they could have invested in UK banks. Greed appears to have been the motivator as the Icelandic banks offered a higher interest rate.

It can't have been easy for the Icelanders in the past few years, but with the majority of the population agreeing the methodology, they are now in a position which is the envy of many countries who allowed - and still do - banks to push them around.  It pushed losses onto bondholders instead of taxpayers and the safeguarding of the welfare system shielded the unemployed from desperate poverty.

Now world-reknowned economists and even the IMF are praising this small country's recovery as 'impressive', although praise from Westminster has not been forthcoming.

I remember Gordon Brown, in one of his 'saviour of the world' speeches saying bank bailouts were the only resolution and Iceland's only chance of survival was to join the EU as soon as possible.  Now the Icelanders are reconsidering their plans about being a full member of the EU.  Sensible indeed.

Of course Iceland got it right. As one commenter said, 'You have to chop the head off the beast and not just change its diet as we did.'

And it was all done by people power.  The people sacked the government, prosecuted the bankers and bought some time in which to make their decisions.  Their first loyalty was to each other and not to outside opportunists.

That's true democracy.


JimS said...

And do you really want to emulate a people who default on their debts?

This isn't 'democracy'; it's the irresponsibility of the mob; "He's Spartacus, no he's Spartacus..."

William said...

That's my thoughts, Jim.

Iceland has done some things right and it has retained an element of flexiblity which will have helped. But it has stuck two fingers up at foreign creditors, its currency has been devalued dramatically and it has seen a huge cut in its financial sector.

As we saw with the Cod Wars, Icelanders do tend to think they can do whatever they like. There is something to be admired in that, in a way, but I'm not sure their model can be applied to Scotland or the UK. And I never thought it did even in their good years.

Crinkly & Ragged Arsed Philosophers said...

Iceland did not default on 'its' debts merely refused 'its' banks the privilege of transferral of their debts to the sovereign balance sheet.

Then got on with reforming its democratic purpose. Unlike Norway which, to its shame, is using it oil fund in order to profit from the actions of private buccaneers and squeezed sovereign funds.

So yes, I'm all for emulating actions where the sense of morality and the common good prevails.

Joe Public said...

"I'll never understand why these authorities were permitted to invest so much in another country, when they could have invested in UK banks. Greed appears to have been the motivator as the Icelandic banks offered a higher interest rate."

Not "greed", Rosie; it was the pressure from our national government to maximise revenue.

PS I suspect a lot of Scots would reduce their envy of the Icelandic economic model when they realise the cost of alcohol up there. Treble / Quadruple the UK's proposed "Minimum Unit Pricing" and you'll still be miles off.

Anon said...

Scotland should copy Iceland and Switzerland.

- Aangirfan

Lord Monty said...

I think people are mixing up the Icelandic govt with the Icelandic banks and assuming they're the same thing.
Like in the UK, the Icelandic banks were private companies so when they went bust the Icelandic govt ( via a people's referendum ) told them to go swivel.
In the UK, contrary to the 'rules of capitalism', the govt used our money to bail out private banks when they went bust. Using the too big to fail lies. The banks are now emboldened and are back to carrying on as usual. Even using the govt copper bottom guarantee to lure in investors from throughout the EU.

Councils invested in Icelandic banks years after private investors had got out of Dodge ( well the one's with brains) because the Icelandic banks were on authorised lists from the FSA etc and so the funds were covered. The fact that the investments were basket cases is neither here nor there when someone else will pick up the tab if it all goes wrong.

Elby the Beserk said...

Local authorities were clearly warned of the dangers of investing in Icelandic banks. Somerset CC, where we live, lost £25 million. Rather, WE lost £25 million.

I wrote to them asking the date of the public enquiry that would of course take place to establish who was responsible for risking our money when they had been warned of the dangers.

We're still waiting. The council leaders salaries are still rising way above the rate of inflation. My wife, who owns the house, is still seeing one third of her council tax going to council pensions. She, on the other hand, does not earn enough to save for a pension for herself, but does earn enough to save for council workers' pensions.

Sometimes, I think the dole bludgers are the smartest of us all. I may have to join them.

Elby the Beserk said...

Lord Monty is quite right. The Icelandic government were too, in their decisions to let their banks go to the wall.

Demetrius said...

Thorfinn Skullsplitter rules OK.

Anonymous said...

Bravo Iceland.

It's a wonderful country with wonderful people and I hope it stays outside the EU rather than being changed into just another European country. As it was Gordon Brown who said it should join, I say it was probably very bad advice. What he knows about economics you could write on the back of a stamp.

I seriously wish I were Icelandic. Their common sense and pragmatism are things I could be proud of.

Instead I'm stuck being deeply ashamed of being British.

Of course they shouldn't pay back the money. These councils were investing in British branches of Icelandic banks, and they should have been regulated by the Fundamentally Supine Authority (FSA), but of course they were too busy taking lunch.

One day hopefully Scotland can be more like Iceland. I saw some excellent indicators that we will be in the way that Alex Salmond refused to be cowed by the US Senate, or indeed presidency over Al Megrahi.

Anonymous said...

By the way, Joe, not every Scot determines everything in life by the cost of alcohol.

In any case, everything is comparative, and although we find the price of their, and other Scandinavian countries' alcohol to be prohibitive, they don't.

William said...

Yes, the release the biggest mass murderer in Scotland was Salmond's finest hour.

It doesn't say much for everything else he's done, mind you.

pa_broon74 said...

Scotland's biggest mass-murderer according to whom and by what measure of law and justice?

Which is digressing.

I was reading over at GolemXV earlier about vulture funds and whatnot, it seems what Iceland did was the right thing, just because something is written in law, doesn't mean that morality can be bypassed, it still counts.

I mean if you had the choice.

A) perpetuate an untenable financial arrangement because the law says so or
B) tell the Icelandic banks to ram it because morally its not the Icelandic people's responsibility?

Its a no brainer, obviously its not applicable for glorious team GB because the level of debt and the depths to which our establishment has been infiltrated by banking flunkies means we'll never be free from this excessive usury.

If I'm being honest, I'd rather pay £8 for pint if it meant the smug self-serving bankers and casino con-artists were all slung out on their collective ears.

There is a perallel here, you mention Nordic economic stability and some nutter will chuck an £8 pint in you're face (figuratevely speaking.) When you talk about greater self determination for Scotland some gonk throws control over pop guns and speed limits on the table.

Because that makes everything so much better right enough.

William said...

Biggest mass murderer according to Scots Law.

Anonymous said...

Scots law, huh? Which just so happened to be in the capable hands of Labour in Scotland at the time of the trial. And labour in Scotland was and is controlled lock stock and stinking barrel by Labour in England, which, as we all know is a wholly owned subsidiary of America, ie George W Bush and Darth Vader Cheney.

Pretty much a waste of our time and money. There had to be someone to hate, and to punish otherwise the Americans would have been cross and Blair might not have got his congressional medal

Quad Erat Demonstrandum...

Of course that has little to do with Iceland having the common sense to look after its people. Unlike this tip which looks after its ruling classes and the banking classes (which are pretty much the same people).

JRB said...

Much credit must go to Iceland and to her government in how they have managed to turn round their economy after such a crisis.

But please, let us loose the rose tinted spectacles - and rather ask ourselves how have the Icelandic politicians achieved such financial savings other than simply letting the commercial banks go under?

The answer is simple – it is the man-in-the-street of Reykjavik that is bearing the financial burden.

The Icelandic government’s first action was a 50% depreciation of the Krona, which for the average family means everything now costs twice as much.

This has been a disaster for many small businesses not involved in either fishing or tourism and Iceland has seen a seven-fold increase in unemployment, and household debt levels now exceeding 200% of income.

So unless we want to end up like an average Icelandic family, let us be very careful of what we wish for.

Anonymous said...

None of my Icelandic fans is complaining about the situation.

And let's face it we have had to make life utterly unbearable for our poor and our sick so that the bankers didn't lose a brass farthing.

We even have sick people doing slave labour. Mind you we've not had to give up our nuclear deterrent, and not one of the royal family has had to bunk up so that we could sell one of the six palaces that they live in. So it's not all bad.

And there is to be even more cutting, most of it from the poor and the sick, so probably it will be the old next.

So on balance although life in Iceland is not perfect, at least it better than this. It's been a hard time, but they've been in it together...all of them, and now they are coming out of it.

Brian said...

I found this Icelandic report on the banks very helpful. The local authorities relied on the agencies' credit ratings for the banks and put their balances on deposit there to make taxpayers' money work harder. It was a fair assumption that the state would act as the backstop should the banks not be able to meet their obligations. After all, it was happy enough to spend the money from privatising the banks and the corporate tax paid by the banks in the good years.
Using the drink metaphor, Iceland has bought a drink for everyone in the bar and then told the barmaid it's come out without its wallet. They are relying on their creditors not behaving like Vikings. Sir Walter Scott is a better example to follow.

cynicalHighlander said...

Someone should show Osborne this.

J. R. Tomlin said...

Excellent post that is well worth a read AND a hard think.

Allan said...

If memory serves, it wasn't the Icelandic government that has got them to the position that they enjoy now, more the Iclandic people and their determination to vote for people not prepared to follow the policies that so many of the rest of the West were preparing to take. Any politician who proposed austerity imediately found themselves given the cold shoulder by the Iclandic electorate. Regardless to say that the Iclandic government that took them to the abyss are enjoying their enforced retirement... not!

It's interesting as well the attitude to the IMF here as well, given that they were incrediably critical of the path Iceland laid out when they forciably divested themselves of the guilty parties from positions of power. It's a great pity we didn't take the hint and reject the 30 years of Thatcherite economics that took us to that particular precipice.

BTW, William The biggest mass murderer may be hiding somewhere in Syria (if he is still alive), but he is certainly not the Libyian patsy. Sadly both Salmond & MacAskill fell for the US/UK line on that one hook line & sinker

subrosa said...

They didn't default on their debts Jim. They made the shareholders pay instead of the taxpayers.

I know quite a bit about it because a close friend was involved in the Kaupthing bank collapse.

In fact the behaviour of Gordon Brown and his banking cronies did far more harm to UK citizens than the Icelandics did.

Alec said...

Iceland has a relatively benign private to public sector ratio, not to mention a generous chunk of the north east Atlantic fishing zone and massive asset of geothermal possibilities against a population little more than urban Aberdeen situated in areas little larger than urban Aberdeen serving an area half the size of France.

So, nothing much like Scotland.


subrosa said...

See my reply to Jim William.

We should have made the banks' shareholders pay. If that had been the case they would have been far more astute in where they invested and how their investment was dealt with by bankers.

The cod wars were shocking but there's still a lesson there.

subrosa said...

Eloquently explained Crinkly. Thank you.

I'm surprised folk still don't know that Iceland continues to pay their debts.

subrosa said...

It is an expensive country in which to live Joe but that's down to choice. Obviously the Icelanders there consider it worthwhile to pay that amount for alcohol. In Norway alcohol is 3 or 4 times as expensive as here too. Does that make it a bad place in which to live?

subrosa said...

Well said Aangirfan. International economists are now saying that too, after they spent years slating Iceland.

subrosa said...

Another excellent explanation Lord Monty. I'm surprised how many folk don't know the details already, that's why I didn't go into it in the post.

subrosa said...

Elby, I heard on the news on Monday that Icelandic banks have started to pay back councils.

You'll see, if you google it, that they started some time ago.

subrosa said...

Aye he does Demetrius. He was on a TV pogramme not so long ago. Think there's a clip on Youtube.

subrosa said...

I've never been to Iceland Tris but I have a couple of Scottish friends who visit every year without fail and bring back endless tales of their experiences.

Pity Eck doesn't refused to be cowed by the EU though.

subrosa said...

Thanks pa-broon and I too would pay for the same reason.

The financial laws are against the common people and designed for the super-wealthy.

subrosa said...

William I'm not going to discuss Megrahi. I've written about it often enough.

subrosa said...

True Tris, but the man in the street will have a good end product once the economy really thrives once more and it will have a government which instills confidence.

We too in this country have suffered as you said previously but we won't gain any benefits. Banks will go on as usual - but with a little more caution.

subrosa said...

JRB, I was just thinking about you earlier and hoping you were 'doing away'. Hadn't heard from you for a couple of days.

Oops, the above comment should have been addressed to you not tris. My apologies.

subrosa said...

That shows it was a grand scam more or less doesn't it Brian?

Indeed they're relying on others behaving patiently at least. So are the British taxpayers and we won't see more than a small fraction repaid.

subrosa said...

Very interesting graph CH. Will try to find out the source of it and publish it in a separate post. Many thanks.

subrosa said...

It does require a think Jeanne. There's plenty updated information and opinions online.

subrosa said...

Indeed Allan, it was the people. They rid themselves of what they thought was corrupt government etc.

Alec said...

See my reply to Jim William.

Assuming that's in response to me, I have no complaint with heaping oppobrium on Brown.

My argument against the applicability of anything Icelandic to Scotland (apart from being a sour medley of Scandinavians, Northern Scots and off-course Irish monks) has limited appeal.


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