Reflections on Iceland and the financial crisis - Part 8
By Peter Ewart & Dawn Hemingway
Tuesday, November 08, 2011 03:45 AM
Emergency flares light up the night
Part 8 - The president makes a decision
By Peter Ewart & Dawn Hemingway
(Click here for previous article in series)
The North Atlantic ocean is rich in its bounty of fish, but it is a cold, often cruel, body of water that grants few second chances. In storms and long dark winter nights, emergency distress signals are vital for fishing boats that brave the frigid waters. Indeed, the intense light of a red flare, a pinpoint in the gloom, may be the only thing standing between life and death for a fishing boat crew.
So it was highly symbolic when, in early January of 2010, hundreds of Icelanders and their families surrounded Bessastadir, the President of Iceland's official residence, holding incandescent flares in their hands, creating a glow that could be seen many kilometres away (see above photo).
It was not a protest. These supporters of the non-partisan InDefence group, were there to present a petition to the President calling upon him to veto the Icesave legislation, which had been put forward by the Icelandic parliament. Such a presidential veto would clear the way for a national referendum.
For Icelanders, the country, like a small boat bobbing in a vast ocean, was facing a national emergency that threatened its financial and economic survival. Britain and the Netherlands were demanding that the Icelandic government give them a state guarantee for the debts of "Icesave", a privately-owned Icelandic banking service that had branches in both those countries. Caving in to this demand and the other onerous demands would drown Iceland in billions of dollars of debt to foreign creditors, and reduce it to the level of a vassal state for decades, if not forever.
But, despite the pressure, the mood of the Icelandic people was defiant. They were not intimidated by the blackmail tactics of the British and Dutch governments to force Iceland into accepting a devastating economic burden for, as InDefence put it, "the sins of a privately owned bank and the defective banking regulations of the European Union."
InDefence had organized the petition in just over a month and had gathered the signatures of over 56,000 Icelanders, about 1 in 4 eligible voters, to support it. The petition called upon the President of Iceland, Olafur Grimsson, not to sign the Icesave bailout agreement which the newly-elected Icelandic government had reached with British and Dutch officials.
Under Iceland's republican form of government, the president is elected directly by voters. He stands separate from the parliament, which has its own prime minister. Under a section of the Icelandic Constitution that had only been used once before, if the president did not sign the agreement, the government then would be forced to put it to a vote in a national referendum.
The "flare" ceremony in early January outside the President's official residence, which had been organized by InDefence, began with the singing of the Icelandic patriotic song "Island farsaelda fron". Then the flares were lit signifying "a call of emergency to the international community for a fair solution to the Icesave dispute between Iceland and the UK and Netherlands." Afterwards, Eirikur Svavarsson and other representatives of InDefence were invited in to the residence to meet with the president and present the petition.
InDefence members were optimistic but, at the same time, conscious they had "crossed a line" of no return. President Grimsson had been part of the political and economic leadership of Iceland that had presided over and supported the Icelandic banking "bubble", both at home and abroad. For him to agree to the petition's request would send shockwaves throughout Iceland's establishment, as well as internationally, where other countries were under enormous pressure to bail out their own distressed and crumbling banks.
Iceland would be going its own way - against the international current - at least on the question of the Icesave agreement. Other countries, like U.S., Britain, and Ireland, were ramming through legislation to bail out their own banks, in effect, saying that it is up to government to decide such matters, not the people. If President Grimsson went along with InDefence's petition request, he would be saying the opposite - that it is the people of the country who must make the decision on such an important matter.
A day passed, then several more. Finally, the President's decision was announced. He had agreed with the request of InDefence and the 56,000 petitioners - he would not be putting his signature to the Icesave agreement negotiated with Britain and the Netherlands. Iceland was heading towards a national referendum of historic proportions.
In his decision, the President declared that, under the Icelandic constitution passed at the time of the country's formal independence in 1944, the people of Iceland were "the supreme judge of the validity of the law". Furthermore, he affirmed that power rested with them, and that it was his responsibility to ensure that the nation could exercise this right of decision-making. The involvement of the whole nation in the final decision was the "prerequisite for a successful solution, reconciliation and recovery."
The decision hit like a thunder clap. Critics cried out, within Iceland and abroad, predicting doom and gloom, and financial disaster, if Icelanders dared to vote down the Icesave agreement. A great debate took place across the nation. InDefence and other opponents of the Icesave agreement had spent many hours and days analyzing the facts and putting together coherent and convincing arguments in a manner that was accessible to the broadest section of Icelanders. Surprisingly, as time went on, they got support from various international quarters, including some media pundits and economic experts in Britain.
It should be noted that InDefence, and Icelanders in general, were not against reaching an agreement that would impose some burden on Iceland. Indeed, the crisis had already inflicted a heavy cost on the entire country. But they were insisting that this burden also be shared by Britain and the Netherlands for their substantial role in the whole affair, especially the fact that these two countries, and the European Union itself, had been grossly negligent in regulating Icesave banking operations within their own borders. Furthermore, InDefence argued that the resolution of the dispute should "take into account the unprecedented difficult situation of Iceland and therefore the necessity of finding arrangements that allow Iceland to restore its financial system and its economy."
In the end, the referendum vote was a complete and utter rout. The Icesave agreement was overwhelmingly voted down, with almost all Icelanders, 93%, against it. The people had spoken. Contrary to what the critics had been warning, the economy did not collapse and the sky did not fall in on the country. Yes, times were tough, and the government's IMF instigated austerity program was making things difficult for people. But life continued on.
The defeat of the Icesave agreement meant that Britain and the Netherlands had to sit down again with the Icelandic government and negotiate a new one, which is what happened in the months that followed. Once more, Icelanders mobilized, and the President caused the tentative agreement to be put to another referendum in April of 2011. Although, the terms were improved somewhat, a heavy financial penalty was still being imposed on Iceland. But this time there was even more national and international pressure to accept the terms. Nonetheless, Icelanders did not buckle; and, in the vote, decisively shot down the new agreement. 59% of Icelanders were against and only 41% voted for.
The emergency flares - lit on that cold January day in 2010 - had pierced the gloom, at least for the time being.
Next instalment in series – Part 9 – Interview with President Grimsson
Peter Ewart (peter.ewart@shaw.ca ) and Dawn Hemingway (hemingwa@unbc.ca ) are columnists and writers based in Prince George, British Columbia.
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Posted by: socredible on November 9 2011 8:41 PM
IMO the EU is a failure by and for the private central banks. Its about control of society for them, and not about building a better society. Today more and more people are beginning to realize this...