Link to this page: https://www.socialistparty.org.uk/issue/553/6529
Iceland: A victim of the casino economy
ITS THREE main banks have collapsed and the currency has effectively ceased trading. And with debts totalling ten times the national income of the country, an Icelandic delegation went cap in hand to Moscow last week to negotiate a €4 billion loan. Earlier this month, Per-Ake Westerlund (Rattvisepartiet Socialisterna - CWI in Sweden) reported on the causes and consequences of this financial catastrophe.
Despite its geographical location, Iceland is not an isolated island economically. Its bankers and politicians gained everything they could from capitalist globalisation, leading the country to bankruptcy. The Icelandic currency, the krona, is no longer traded by foreign banks. Pensioners have lost billions, and the government is in conflict with Gordon Brown over British savings accounts.
Iceland's banks were only privatised in the early 2000s. However, they quickly adapted to the global casino economy. Their shopping rounds, buying into companies in Scandinavia and Britain, were financed by loans, and a credit bubble that, seemingly, guaranteed ever-increasing wealth. Last year, their combined assets were ten times the country's GDP.
Over the last weeks, all of Iceland's three biggest banks have been nationalised - first Glitnir, then Landsbanki and finally the biggest, Kaupthing. As late as 8 October, however, the chief economist of Kaupthing, Asgeir Jonsson, told the Swedish daily, Svenska Dagbladet, the bank would stay in private hands. Already by then, the Swedish central bank had de facto taken over Kaupthing in Sweden, through a loan of 5 billion Swedish krone (500 million euros).
The nationalisation of the banks makes their shares worthless. 10% of the Icelandic population - 30,000 out of 300,000 - owned bank shares. Most pension funds were also heavily involved, as were more than 100 local councils in Britain, with investments of more than £920 million in Iceland's banks. Britain's prime minister Gordon Brown has accused Iceland of acting "illegally", and used an anti-terrorist law to freeze British assets in Landsbanki.
Iceland's prime minister, Geir Haarde, warned of the threat of "national bankruptcy" in his TV speech on 6 October. He ended the speech, which was delayed for five hours because of behind-the-scenes discussions among bankers and politicians, by saying: "God bless Iceland". The following day, "God bless Iceland" was on many placards at the first demonstration against the government's handling of the crisis, with around one thousand people participating.
The anger of people in Iceland is directed at both the bankers and the government, who acted hand in hand. Luxury cars became a familiar sight on the streets of Reykjavik, and at the B5 club, bankers could enjoy their champagne in a specially designed bank vault. Many of the newly rich employed housemaids from Eastern Europe.
Many commentators now say it was only "20-30 people" who caused this extreme crisis. That in itself is a verdict of the undemocratic nature of capitalist economies, but it also says a lot about those trade union leaders, and others who did not fight against this trend. Capitalism seemed to be the answer to everything.
But that is now long gone. On 9 October, stock market trading was suspended, and will not re-open until 13 October. Trade in finance companies had already been stopped on 6 October.
The government also completely failed to stabilise the krona at 131 to the euro. A year ago, it was 85 krona to 1 euro, but last week it fell to 160. On Thursday 9 October, the complete collapse came, with the krona trading at 340 to the euro before trading was entirely stopped. "No bank wants to trade in the Icelandic Krona", said Elisabeth Gruie, currency expert at BNP Paribas.
This is a catastrophe for the people of Iceland. 30,000 people have their car and house loans in other currencies. There are also thousands of Polish workers in the fishing industry and service jobs, whose savings are shrinking to nothing.
On top of this, inflation is approaching 20-25%, and interest rates are the highest in Europe, [the central bank, in an act of desperation, has cut interest rates from 15.5% to 12%].
Sales of cars, houses and capital goods have collapsed. Some people have emptied their bank accounts, and others have started to store food. Worst hit are the pensioners, yet the government is proposing pension cuts that it has not yet dared to present figures for.
The capitalists are playing with different 'solutions' - a big loan from Russia, a deal with the International Monetary Fund, or joining the euro. Even the most pro-independence politicians, including prime minister Haarde, are considering joining the European Union. However, joining the euro, or pegging the krona to the euro, would probably be impossible since Iceland has very limited reserve funds.
Whatever the outcome of these talks, they will be followed by severe attacks on conditions for workers, especially in the public sector. The IMF and the EU, or Russia, will put forward very strong demands for budget cuts.
In Sweden, mass media portray the crisis as something typically "Icelandic". But they did not complain when Iceland's banks helped to push up Swedish shares and finance businesses. Neither did Gordon Brown, whose hypocrisy is limitless.
The casino economy has had devastating effects for Iceland. What is now needed is a mass movement against local and global capitalists and politicians, linking up with struggles in other countries, for an international solution to the crisis.
All account books should be opened; the entire Icelandic economy should be planned, and controlled by committees of workers and ordinary people, as a step towards a real solution: democratic socialism.
In The Socialist 22 October 2008:
Ford workers strike
Socialist Party editorial
Socialist Party campaigns
Socialist Party workplace news
International socialist news and analysis
Socialist Party review