Recent revelations have reopened an angry debate about Icelandic democracy and the links between economic and political recovery
Although it has been nearly eight years since Iceland’s financial crash and the ensuing ‘Pots and Pans revolution,’ protesters in recent demonstrations prompted by the Panama Papers have chanted and carried signs with the same slogans: ‘vanhæf ríkisstjórn’ (‘unfit government’) or ‘stjórnvöld óskast’ (‘government wanted’). This is no coincidence. The Panama Papers revealed that the (now former) Prime Minister Sigmundur Davið Gunnlaugsson had a stake (since transferred to his wife) in an offshore company involved in claims against the failed Icelandic banks. In other words, as Gunnlaugsson was involved in the banks’ winding up proceedings, he sat at both sides of the table.
To understand the current degree of anger in Iceland (two insightful commentaries can be found here and here) requires examining the widely held belief that Iceland had recovered from its financial collapse. In this post, I discuss the Panama Papers in Iceland from the perspective of crisis, recovery, and democracy, arguing that the Panama Papers show that economic recovery alone cannot compensate for a much-needed political recovery.
In 2011, after Iceland began to post GDP growth, Paul Krugman dubbed it ‘the path not taken,’ drawing a contrast between Iceland’s rapid economic recovery and crisis-afflicted countries in the Eurozone, whose economies were continuing to ail under Troika-imposed austerity conditions. Yet economic analyses of Iceland’s recovery ignore that this was just as much a crisis of democracy as it was a crisis of economics. While the latter might appear to have been resolved by the return to growth, the former languished. The Panama Papers leak has catapulted the legacy of the 2008 financial crisis and the status of democracy in Iceland (and perhaps democracy beyond Iceland) back into the national and international spotlight and disrupted the conventional narrative of Iceland’s exemplary recovery.
The 2008 Icelandic financial crisis was very quickly rearticulated as a crisis of democracy, provoking popular demands for the resignation of the implicated authorities, including the Central Bank governor Davið Oddsson (a former Prime Minister), incumbent Prime Minister Geir Haarde, and eventually the entire government. Later, those demands were expanded to a new constitution. This latter demand did not emerge out of nowhere; Iceland’s extant constitution was inherited from Denmark and the Althing, Iceland’s parliament, has included a standing Constitutional Committee since Iceland gained independence from Denmark in 1944.
The ‘Icelandic Revolution’ would later serve as inspiration for the various uprisings that emerged in 2011 and became the subject of activist memes which were heavily circulated in social and alternative media. The typical narrative was: Iceland let its banks fail, protesters forced the whole government to resign, bankers were brought to justice and jailed, and Icelanders ‘crowdsourced’ a new constitution which enshrined direct democratic values. One such meme featured President Ólafur Ragnar Grímsson declaring that Iceland ‘bailed out the people and imprisoned the banksters, the opposite of what America and the rest of Europe did.’ For an international audience interested in reform, Iceland held out the possibility of handling the financial crisis and Great Recession differently.
None of these claims were entirely untrue, but many Icelanders are perplexed by them and critical of the heroic narrative they appear to add up to. Iceland ‘let’ its banks fail in the sense that the Deposit Guarantee Scheme ran out, the Central Bank could not bail out all three of the major banks, and other countries did not want to save the Icelandic banks. Some bankers were jailed, but their sentences were often viewed as a slap on the wrist; indeed just a week after the Panama Papers leak, the Althing passed legislation which released several of them to serve the rest of their sentences via electronic monitoring. Finally, and perhaps most significantly, while the 2009-2013 government did sponsor a constitutional project which featured citizen involvement, the project’s existence was not well circulated within Iceland. Although a 2012 referendum approved the new draft constitution, voter turnout was low, the referendum was non-binding, and the Althing declined to vote on ratifying it in anticipation of a change of government in the April 2013 elections.
The Panama Papers have now revived the constitutional project, which has taken on the question of who can hold a sitting government to account, and under what circumstances. As it stands, the direct decision to dissolve parliament formally falls on the president, traditionally a ceremonial role. Grímsson has been Iceland’s president for five consecutive terms, amounting to twenty years in office. In the early 2000s, Grímsson effectively acted as the chief marketing officer for Icelandic banks during their period of expansion, yet after the crash he transformed his position. He responded to a petition, signed by more than 10 per cent of Iceland’s population, to veto legislation which would have struck deals with the United Kingdom and Netherlands to compensate savers who lost deposits due to the Icesave failure. His veto on two rounds of Icesave legislation triggered referenda, both of which resulted in rejection of the legislation. Yet while petitions of similar size have since been circulated, for example regarding fisheries quotas, the president has declined to take up these issues. Grímsson is the only Icelandic president to have ever used his veto power.
All of this leaves the role of the Icelandic president increasingly troubled and raises questions about whether Grímsson is overextending his reach. As one constitutional activist described it to me, when the Icelandic republic was established, ‘it was like they just changed the work ‘king’ for ‘president’ in the constitution.’ On April 18, Grímsson announced he will seek a sixth term as president, reversing his previous commitment to retire and claiming that he would provide ‘stability‘ as Iceland grapples with yet another turbulent political moment.
The draft constitution contains measures not only to clarify the role of the president and introduce term limits, it also proposes mechanisms for triggering referenda on legislation based on citizen petitions and formal nationalisation of natural resources (that is, those that are not already private property). All of these speak to challenges which have resurfaced in the Panama Papers by promoting avenues for ordinary citizens to claim an active role in political decision-making and to recover Icelandic democracy from outsize (financial) elite influence. Perhaps not surprisingly, Iceland’s Pirate Party, which expresses unequivocal support for implementing a new constitution, has received strong support in recent opinion polls.
Although Gunnlaugsson resigned as Prime Minister, the coalition government he led remains in power, and he is still an MP, albeit on ‘indefinite leave.’ The question of whether and when early parliamentary elections will be held remains unsettled. However, what is certain is that in June, Icelanders will vote in a presidential election to decide whether to give Grímsson a sixth term (polls show he has considerable support). In the coming weeks, much about democracy in Iceland will be back on the table for public discussion. The Panama Papers show that recovery is as much a political project as it is an economic one.