jump to navigation

Thoughts on Iceland and the EU April 29, 2009

Posted by WorldbyStorm in Communist Party of Ireland, International Politics.

Many thanks to Eugene McCartan of the Communist Party of Ireland for letting us carry the following taken from Socialist Voice (you can find the current issue by clicking on the link below):

Below are two articles from the current issue of Socialist Voice. They were written by left activists from Iceland and give a different perspective on event in that country and the background to the growing economic crisis. A perspective not carried in any of the establishment new coverage of the economic crisis in Iceland.

EU membership for Iceland still a toss-up

by Gösta Torstensson

The financial crisis and popular protests have given Iceland a new government, a coalition of Social Democrats and the Red-Green Movement. The protests led to the conservative prime minister, Geir Haarde, dissolving his government.

Iceland, with its population of 320,000, has been the hardest-hit of all countries by the financial crisis. The main explanation is that the capital markets were deregulated and the banking system privatised as part of adapting to the European Union’s internal market, which paved the way for a number of risky investments abroad.

Since 1994 Iceland has been a member of the European Economic Area and therefore part of the internal market, in which there is free movement of capital. Last autumn Icelandic banks had debts that were nine times the country’s GNP.

When the crisis arose, in October, the state was forced to take over responsibility for the three largest banks. The Icelandic crown has lost 45 per cent of its value since the beginning of 2008.

According to a recent prognosis, the GNP is expected to drop by 9.6 per cent this year, and unemployment will increase to 7.8 per cent and reach 9 per cent in 2010. The Central Bank has decided to maintain its interest rate at 18 per cent, in order to reduce inflation. The inflation rate in December was 18 per cent, an increase from 17 per cent in November. The economy has stabilised with a loan of 17 billion crowns from the International Monetary Fund and nearly 520 billion crowns from other countries, including Sweden.

The financial crisis and the collapse of the banks have put the question of membership of the European Union on the political agenda again. At the beginning of October 2008 opinion polls put support for membership at 70 per cent. Since then enthusiasm has diminished considerably: an opinion poll carried out by the daily Morgunblaðið and published on 23 January showed that 38.3 per cent are against membership and 37.7 per cent in favour.

Several days later an opinion poll in the daily Fréttablaðið showed that 60 per cent were against membership and 40 per cent in favour. (In that opinion poll there was no alternative for those unsure of their opinion.)

In his New Year’s speech the prime minister, Geir Haarde, said that Icelanders would be voting on membership this spring.

With the new government and new election, the plans of the establishment have been moved along. The chairperson of Heimssýn (Iceland’s “No to EU” movement), Ragnar Arnalds, says that the situation in Iceland regarding membership of the European Union is still a toss-up. “The bank collapse and the free fall of the Iceland crown have weakened support for EU opposition, but this, hopefully, is only temporary,” he said. “The demand for a new and more stable currency is the strongest argument for membership.”

Ragnar Arnalds sat in the Alþingi, the Icelandic parliament, for thirty-five years for the party that preceded today’s Left-Green Movement and is a former Minister for Finance. Today he is a member of the supervisory council of the Central Bank.

The leadership of the Independence Party has put the question of membership of the European Union on the agenda when the party holds its national meeting in March. Up to now it has been clearly opposed.

According to the latest opinion poll, in the daily Fréttablaðið, 70 per cent of the members of the Independence Party are opposed to membership. The general secretary of Heimssýn, Hjörtur Guðmundsson, who is active in the Independence Party, says that the question has been discussed thoroughly before the coming national meeting.

The new red-green government is divided on the issue of membership. The Left-Green Movement says no, while the Social Democrats have continually supported membership.

The chairperson of the Social Democrats has said that she wants a referendum on membership at the same time as the new elections in April. The Progressive Party opened its national meeting in January by calling for application for membership. However, this party is divided and also insists on very strict demands that, according to experts, would mean that the European Union could not consider the application. Among these demands are that Iceland retain sovereignty over fishing and agriculture.

The new government has announced that a parliamentary committee will be appointed to investigate and analyse eventual membership. This committee will present its results on 15 April.

The chairperson of the Left-Green Movement, Steingrímur Sigfússon, who is the new Minister for Finance, Fishing, and Agriculture, said that his party will not allow itself to be swept along with the euphoria for the European Union. He excludes a referendum under all circumstances during the period of the present government.

What will happen after the new elections on 25 April is an open question. In the meantime there are positive signals from Brussels concerning eventual membership for Iceland. If Iceland were to apply in the near future, and negotiations were quickly carried out, Iceland could join the European Union in 2011, at the same time as Croatia, according to the Commissioner for Expansion, Olli Rhen, in a statement to the Guardian.

The Treaty on the European Economic Area has forced Iceland to adapt to EU legislation in many areas. According to the professor of political science at Bifröst University, Eirikur Bergmann, Iceland has already adopted 80 per cent of all EU legislation.

Nevertheless, the question of EU membership is very controversial in Iceland. The leadership of the Icelandic Employers’ Association had decided to actively support membership; however, a survey among members of the association showing that they are equally divided forced the association to withdraw from participation in this debate.

Fishing is one of the main reasons why Iceland has chosen to remain outside the European Union. Nearly 30 per cent of all Iceland’s exports are fish. The export of fish and fish products provided 15 billion crowns in foreign currency. Iceland has no desire to see all the European Union’s fishing fleets in its waters. Fishermen have not changed their opinion. So, despite the friendlier climate for the European Union in Iceland, it is probable that fishing will have a decisive influence on whether Iceland says yes or no to membership.

“The new year will be very exciting for those of us who struggle against Iceland’s membership of the EU,” says Ragnar Arnalds.

The crisis in Iceland and the pressure for EU membership

by Thorvaldur Thorvaldsson

The capitalist crisis in Iceland exposed itself quite sharply at the beginning of October last year with the collapse of the three main banks. Suddenly the world press focused on Iceland. Deep corruption has been unmasked, and Iceland is not popular on the world scene. As we know, the crisis is developing fast in all the capitalist world and hits hardest where the finance sector is relatively biggest. But why did the crisis emerge so differently in Iceland, that is to say by the collapse of all three main banks but not in the basis of the economy?

For decades the Icelandic economy has been marked by fluctuations and inflation. Fishing has been one of the most important natural resource of Iceland, being between 65 and 70 per cent of exports until recently. During the 80s neo-liberalism was an increasing factor in Icelandic government policy.

The banks were free to decide interest rates on loans from 1983. In 1984 a quota system was established in fishing. Since 1991 the fishing quotas could be sold and bought in the market like any other commodity, giving fishing companies de facto ownership of the fishing stocks. The quota prices rose rapidly, and big capital was taken out of the fishing sector, which step by step was drowned in debts. The capital market flourished and finance capital was, so to speak, emerging on the scene as a stratum within the bourgeoisie. A stock market was opened in Reykjavík in the late 1980s, at the same time as the productive sectors were more tied up.

At the same time pressure increased for privatisation, first in the productive sectors, then also in health, education, and other welfare sectors. In 1991 a government headed by the conservative Independence Party came to power; then the general and almost total privatisation of state property came to the top of the agenda. A special administration was formed for this task, and state properties were sold in all fields: first factories, then services, such as computer service, telecommunications, etc. The culmination of this process was the privatisation of both state-owned banks in 2002.

In the beginning the idea was to sell the banks to a spread ownership, but in the middle of the process the plan was changed entirely to selling the majority of each bank to concentrated groups connected to the different parties in government, the Independence Party and the centrist Progress Party. The Landsbanki was sold to Björgólfur Guðmundsson and his son Björgólfur Thor Björgólfsson for a token price. They had suspiciously rapidly made a fortune by beer production in St Petersburg (Leningrad). Later the Landsbanki was accused of laundering money for the Russian mafia. The other state bank, now known as Kaupþing, was given to a group of investors connected to the Progress Party.

The third bank, Glitnir, was taken over by a group of investors with the Baugur Group at its centre.

The activity of the Icelandic banks increased a lot. In the years 2003–07 they borrowed a lot of money while it was abundant on the international market. They absorbed the savings of Icelanders and most of the value from the productive economy. They made huge investments in other countries, and many of them have apparently not been so stable. In a country where most people own their own apartment, the banks began to lend up to 100 per cent of the market price for forty years. Some of these loans were financed with short-term loans from abroad.

The leading staff members in the banks were paid high bonuses on top of huge salaries, according to short-term results and the stock prices of the banks. The banks increasingly gave special service to the companies of their owners and lost amounts on efforts to keep up artificial stock prices on certain companies, such as Sterling airlines. The banks became the centre of an oligarchy with a large and hardly traceable network of companies in many countries, most of them in tax havens, where they could hide their fortunes and keep them safe when their pile of mess fell on the people. This oligarchy very soon had increasing direct influence on the state power and dominated cultural life. In 2007, when it became more difficult to get new loans on the international market in order to refinance the banks, Landsbanki opened the notorious Icesave accounts on the internet, concentrating on customers in Britain and the Netherlands.

When all collapsed at the beginning of October 2008, the foreign debt of the Icelandic banks was about 12–15 trillion Icelandic crowns, roughly ten times the GNP of Iceland. Because of a state insurance, the banks, and their debts with them, were taken over by the state.

The situation has been changed entirely for the people. The exchange rate of the Icelandic crown has fallen about 40 per cent, and for more than a year inflation has been about 18 per cent a year. Unemployment within half a year has increased from less than 1 per cent to about 10 per cent. The income of those who have a job has also fallen dramatically.

As Iceland is the only European country to tie interest rates on loans to inflation rates, the loans of average households have risen dramatically. Along with falling real estate prices, this has made a great deal of the population effectually bankrupt. Almost half the Icelandic families are thought to face bankruptcy in the near future if nothing is done to avoid that, and so far the government is not doing much.

After big demonstrations this winter, and a constant demonstration outside the Parliament, lasting a whole week, starting on 20 January, the conservative-social-democratic coalition government fell.

The Social-Democratic Alliance and the Left-Green Movement formed a minority government until he elections take place on 25 April. There are no signs of any radical changes from the government in favour of the people.

The discussion on Icelandic membership of the European Union started in the late 80s, after Spain, Portugal and Greece entered the Union. In the beginning this idea had few supporters, mostly because of the fishing policy. In Iceland there is a law that permits only Icelandic citizens to own companies in the fishing industry. This is not in accordance with EU policy, where the fishing branch is administered from Brussels.

Another argument against EU membership is the situation of agriculture. Icelandic agriculture would have a hard time competing with cheap imports from EU countries. Because of its geographical isolation, local animal stocks are vulnerable to diseases, and Iceland has therefore long been opposed to the import of meat.

The debate on a closer relationship with the European Union continued and resulted in Iceland becoming a partner to the EEA agreement in 1994. This means that the so-called “four freedoms” became law in Iceland. In fact it means, first and foremost, more freedom for capital.

So Icelandic capital began to move. In the beginning productive capital was moved to countries with lower salaries, while at the same time foreign contractors came to Iceland, for example for construction projects. That was also used as pressure for social dumping in Iceland.

At the turn of the century the movement of capital began to increase, especially after the privatisation of the former state banks, and restrictions on finance activities were almost wiped out, one after the other, allegedly in accordance with the EEA agreement.

At the same time the debate on EU membership became more active. The Social-Democratic Alliance took a stand for membership and for the last few years has placed an emphasis on this question. It tries to manipulate the debate into being about a simple economic matter and mainly an easy solution to a weak currency by entering the euro zone.

But the weakness of the currency is not only because of how small the economy is but because too small a part of the economy is creative and productive.

In general, there has been a minority in favour of EU membership in Iceland, with some few exceptions. One of them was just after the collapse of the banks in October; then, for a short time, more than 60 per cent were in favour.

People were shocked, and after listening repeatedly to “If we were members of the European Union this would not have happened” many of them were ready for an easy solution. But EU membership is a big political question, neither a matter of weak or stable currency nor a matter that can be rushed through.

Among Icelanders there is a growing consciousness of the importance of national independence, also as a fundamental of democracy. If we can’t trust our own leaders who have endangered our independence with the adventurous neo-liberal policy, why should we trust Brussels, which follows the same political line? And why should the big powers of Europe even give a thought to the interests of a small nation in the north?

EU membership would mean that natural resources would be privatised and put on the “free” market, not only fishing stocks but also the country’s rich energy sources, water, etc. Now there is a broad popular demand for a change in the constitution to confirm the collective national ownership of all natural resources in Iceland.

The last opinion poll on support for EU membership, made in February, resulted in about 40 per cent in favour. It is possible that we will have a referendum on this matter anyway. Then it will become obvious that Brussels wants to take over our resources. That’s not negotiable.

As the European Union is striving for more integration and the concentration of its power into a great state power, a small people like us would have no possibility of deciding about its own life. Therefore we must unite and vote against any effort to bring Iceland into the European Union.


1. Maddog Wilson - April 29, 2009

Was’nt the Left Green Movement formed from the original Icelandic Communist Party? and Iceland the only NATO country that had communist ministers in a coalition government? Iceland would be better off doing a Norway.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: