Still paying after all these years

Here is a piece I wrote for this month's Socialist Review magazine on the Icelandic government's latest debt relief scheme, the newest way for ordinary people to pay for capitalism's crisis.

Iceland's Tories, the Independence Party, apparently had good reason to feel satisfied with the last year as they announced a new debt relief plan last month. They presided over Iceland's spectacular financial collapse in 2008 but still returned last May. Despite only receiving a slight increase in their vote, and being forced into coalition with the liberal Progressive Party, they won the finance ministry for their leader Bjarni Benediktsson. Cancellation of housing mortgage debt was Progressive Party prime minister Sigmundur David Gunnlaugsson's big election promise. It is supposed to be "the launch pad for Icelandic society to begin a new era of growth". The plan is to cancel mortgage debt of up to 4 million Icelandic krona - almost £21,000 for each affected household - from summer 2014, although it won't be automatic as each mortgage owner will have to apply to their lender for the relief. It will cost about £790 million over the next four years and the government said it will "collect increased revenues" - taxes on financial institutions and the "winding-up committees" of the collapsed banks - to cover £419 million. But the assets of the banks that collapsed in 2008 own chunks of current banks Arion and Islandsbanki so it is also possible that the cost of these taxes will be passed onto ordinary account holders. And it will not help those who have already had their house repossessed. For the rest, there will be income tax relief of up to 6 percent to repay mortgage debt for three years. And workers will be allowed to transfer £400 million of their own pension money to pay off housing debt that ballooned because of a financial crisis which they didn't cause. But the Tories were banking on this good news translating into a pre-Christmas boost for the economy. Ordinary people were supposed to respond to money promised for next summer with celebratory shopping. So it wasn't great for the Tories to hear that three days after the new debt relief scheme was announced 66 percent of people polled for conservative newspaper Morgunbladid said its impact would be small or negligible. Iceland is frequently hailed as a model response to the financial crisis where the bankers, rather than ordinary people, paid the price. Only last month four bankers from the bankrupt investment bank, Kaupthing, were sentenced to between three and five and a half years in jail for fraud. They were responsible for a cheap loan of £31 million to a Qatari owned offshore trading company to buy 5 percent of the bank's shares in a desperate attempt to disguise Kaupthing's true value two weeks before it finally collapsed in 2008. But it is a myth built on slashed pensions and lost savings. The unemployment rate may be down to just over 5 percent, but this is because so many have left to work abroad. The latest poll said only 8 percent of medical students planned to stay in Iceland after graduation and more jobs are going from state universities and the national broadcaster. The October 2013 budget amounted to a package of cuts worth 12 billion krona including cuts to the health service. Bjorn Zoega, boss of Iceland's national hospital, resigned over the cuts. Staff morale in the main hospital is reportedly very low as wages are eaten into by inflation and price rises. Projects such as a new nursing home for the elderly in the capital, Reykjavik, have been postponed and operation waiting times are growing. Working class families are struggling with food prices that have risen by at least 15 percent in three years though meat prices have gone up by 30 percent. Rents in some areas have doubled and there are around 200 homeless people in Reykjavik this winter where the homeless shelter cannot cope. The Social Democrat and Left Green Alliance coalition government voted out in May actually cancelled more debt than the Tories are now proposing and brought in schemes such as a guaranteed council job for those unemployed for over three years. Those schemes were not renewed at the end of December so now the long-term unemployed will only get their benefits cut. And at the end of the year the government was considering cutting child benefits as well. The level of resistance in 2013 was low but in December 10,000 people signed a petition against cuts to the state broadcaster and there were some protests at the job losses announced. Iceland's Tories are as vicious as our own and hiding behind their mantra of paying off the debt while Iceland's working class pays. But they are also weak and unpopular and would struggle to survive any organised resistance.

Iceland's Tories are back

Here's an article I wrote in this month's Socialist Review about the return of the Icelandic Independence Party, Sjálfstæðisflokkurin  

Iceland's Tories are back in power just five years after their spectacular disgrace. Though their vote only increased by 3 percent, the conservative Independence Party has returned to government in coalition with the liberal Progressive Party.

This is a dramatic turn of events. In 2008, as the shockwaves of the global financial crisis hit Iceland's economy, the then Tory prime minster Geir Haarde had to announce, "There is a real danger that the Icelandic economy could be sucked with the banks into the whirlpool and the result could be national bankruptcy."

The Tories, particularly under Davið Oddson, who served first as prime minister and then as governor of the Central Bank, were responsible for deregulating and privatising the banks. They had turned Iceland into a giant hedge fund and when Lehman Brothers, the fourth largest investment bank in America, went bust it almost took Iceland with it. Around 10 percent of the population took part in the protests that drove Haarde's government out.

Their replacements were Social Democrats (SD) in coalition with the Left/Green Alliance (LGA) and which initially enjoyed serious support. They had a reputation for honesty - especially Social Democrat Jóhanna Sigurðardóttir who became the new prime minister and who had refused to work with the Tories even before they were disgraced. The Left-Green Alliance represented a more radical left than the mainstream Social Democrats. They wanted the American airbase out of Iceland, called for greater environmental protection, and raised demands for a new constitution written by ordinary people selected by a lottery.

The myth about Iceland since the crash is that it has taken a different path from the road of relentless austerity taken everywhere else in Europe, with the IMF thrown out, banks allowed to fail and people protected from the destruction of society wrought on Greece. The reality has been more like a war of attrition against ordinary Icelanders presided over by the ruling left coalition of the SD/LGA.

In the immediate wake of the crisis pensions were slashed, interest rates shot up, and the value of the Iceland krona plummeted. Unemployment reached 10 percent. Since then interest rates and unemployment have fallen and tourism has boomed but so have prices and household debt. Homes have been lost and mortgages on ordinary family houses bought in the boom years have gone up by the equivalent of tens of thousands of pounds. Rents have risen by over 50 percent in the capital, Reykjavik, and its surrounding sprawl. Staple foods such as buttermilk, rye bread, flour, vegetables and fruit have gone up by between 61 and 233 percent. A cinema ticket that was 800 kr in 2008 is now 1,350 kr. Public services have been cut, including the health service, and wages are stagnant.

While absolute unemployment has fallen, underemployment has not. Tens of thousands rely on benefits and government support in various ways but unemployment benefit runs out after 42 months. A new work programme, set up in January this year to provide "2200 new temporary jobs for long-term jobseekers" is the latest government funded scheme. These jobs are supposed to be created mostly in the private sector. In fact employers will be paid the rate of unemployment benefit for six months to create a job. By this time if it isn't a real job the worker will be entitled to unemployment benefit again. It's depressing thinking about it, let alone living it.

There were near riots in 2009-10 but the unions signed up to austerity practically before Haarde had finished his announcement. This explains why the recent nurses' dispute was a threat of mass resignations, not a strike.

The lack of resistance has worn people down and allowed the Tories to regroup. The lowest turnout in any general election since Iceland's independence from Denmark was a reflection of this.

Promises by the Independence Party and the Progressive Party to deliver jobs and debt relief, in contrast to the austerity delivered by the ruling left coalition, allowed them to return to office.

The Social Democrats, Samfylkingin and Left-Green Alliance combined lost 27.7 percent of their vote - the biggest swing in the country's history, while the Progressive Party's election promises included a 20 percent mortgage write-off. Their vote went up 10 percent and two new parties emerged: Bright Future - liberal democrats - and the local wing of the Pirate Party. Between them they took 8.3 percent and nine seats in the parliament.

The leadership of the Left-Green Alliance clearly have no idea why they only got 9 percent, down from nearly 22 percent. Steingrímur Sigfússon, a founder of LGA and finance minister in the post-crash government, wrote last month in the Financial Times. He said they lost the election, "despite guiding the country through a difficult but impressive recovery...can any politician meet the unrealistic expectations of Europe's voters?"

In Steingrímur's world view there is no alternative to being forever at the mercy of the markets - austerity cannot be fought so it must be endured. The election results suggest more of a quiet desperation and the lack of a clear left alternative.