Iceland has rejected once more to pay for the mistakes of its banks in a referendum that took place on Sunday 9. Citizens have decided that it is NOT up to them to pay the compensation of 4,000 million euros that was required by Britainand the Netherlands following the bankruptcy of Icesave. “This is a unique performance of people who experience a crisis”, explaines Drifa Snaedal, former secretary general of the Left Green Movement Party.

Imagine that your government asks you and your family to make the sacrifice of paying 50 000 euros because your national bank went on bankruptcy. It would seem a peculiar situation but not in the current times.

Workers from many countries are nowadays suffering huge cuts in their salaries and pensions and increasing contributions, loosing, at the same time, many of the social rights that were acquired in the last 40 years. The governmental institutions emphasize that “we don’t have an alternative and if we don’t do it, the situation can only go worse”. But the case of Iceland shows that there is an alternative and the word of the people is still the most valuable.

The sixty per cent of Icelandic citizens that voted against the payment of the financial institutions debt has been interpreted as a triumph for all of those who believe that Europeans should not be vassals of the Brussels and ECB wave of austerity and draconian measures. 

“It is always easier to be silent than say his opinion when that opinion is not likely to gain popularity. People should fight for their convictions. There are no clear objective lines both in the EU, Icesave, changes in government or compromises of those sitting in government”, defends Drifa Snaedal, former secretary general of the Icelandic Left Green movement.

The referendum was called two months ago by Icelandic President Olafur Ragnar Grímsson, who refused to sign a Parliament act which stipulated the terms of agreement: a payment with an interest of 3% for 37 years. The President, who had already called for a similar consultation when in December 2009 he refused to sign a law requiring the paid back money with an interest of 5.5% for 15 years, believes that "the old payment terms were very unfair: the new are better, but if the Icelanders will have to pay a debt of banks it should be up to them to decide. Iceland is a democracy, not a financial system," said Grímsson to media a few days ago.

“I really find the Icelandic society will look back to this time and think that actually the situation in Icelandic politics will now be healthier than previously. The views of politicians and the public are more discussed - it's a lively discussion without a majority in parliament to force decisions - reconciliation and compromise define a healthier state, whilst, in my opinion, the majority represents the suppression of democracy”, added Drifa Snaedal. The former secretary general has though regretted that most media are “still stuck in the old constraints and need to force a new reality in the old organizational structure”.

“Privatization and the massacre of welfare schemes cuts are in ecstasy, as it is seen in the conditions that the EU has imposed to Greece and Portugal. Icelandic government has taken the right decision to protect the welfare and the institutions of our anti-privatization and increased equality in society through taxation. This is a unique performance of people who experience a crisis”, Drifa Snaedal defends.

Background information on the Icesave dispute:

The dispute dates back to 2008 when the retail creditors of the Icelandic bank Landsbanki offered online savings accounts under the "Icesave" brand. The bank was placed into receivership by the Icelandic Financial Supervisory Authority (FME) on October 2008. As a result, more than 400,000 depositors with Icesave accounts in the UK and the Netherlands were unable to access their money for at least 6 to 8 weeks, while waiting for payout from the Deposit Guarantee Schemes in these countries. Much of the public controversy arose around the UK's use of the "anti-terrorism legislation" against Iceland: freeze all funds. The banks were indebted (assets accounted for 12 times the GDP), and that decision, together with the international crisis, led to bankruptcy. The State did not rescue them. It let them fall, and has later nationalized it and injected money to continue operating, but only in Iceland.London and Amsterdam paid to depositors of Icesave (300,000 people) 100% of the amounts and from then they claim the money: 4,000 million, which may not seem a very high figure, but represents a third of the Icelandic GDP.

Iceland is still in a difficult situation following the events that ended in the collapse of the banking system and the IMF imposed measures, but is now presenting growth indicators. The recovery plan proved to be sustainable, as macroeconomic imbalances have been reduced significantly. Icelandic GDP is expected to grow around 3-4% y/y in the coming two to three years, but growth could surprise on the upside if certainty about the Icelandic funding situation increases. Inflation is likely to continue to ease and should stay below the Icelandic central bank’s inflation target of 2.5% through 2011-13. Like Ireland and Greece, Iceland has taken a large dose of austerity measures to rebuild its economy. Unlike Ireland and Greece, however, Iceland allowed private banks to fail, and to devalue its currency, the krona.

Excluding the financial system, the real economy is doing well, Arsaell Valfells, a professor of business and finance at the University of Icelandsaid in an interview to the Guardian. “Retail spending was still shrinking, but the export sector, consisting mainly of fish, aluminum and tourism, was improving”.

Iceland’s experience, he said, offered a lesson for the euro zone as it grappled with its own crisis: “This is the proper process. If you go through a bubble economy and you need to correct it, the answer is not to convert private debt into public debt. Rather it is to restructure the debt to the level of the assets.”