Lessons From Iceland

[Part two of a three-part series on the ECB/IMF bailout and its consequences.]

On May 4 last, a friend of mine was amongst a group of parents of special needs children invited into the Dáil by People Before Profit TDs, Joan Collins and Richard Boyd Barrett. The visit was timed to coincide with questions being put to the Minister for Education, Ruairí Quinn, on the cap which has been introduced on the number of special needs assistants in our classrooms.

In defence of a measure that will cause untold hardship to parents and children alike, Quinn said that the decision to deny educational support to special needs kids was essentially out of his hands. He told the Dáil that the country is now ‘in receivership’, and that we’ve lost our ‘sovereignty’.
What does this mean in practical terms? Let me explain. As part of their deal for lending us tens of billions at an exorbitant rate of interest – so that we can pay off the debts foisted on the Irish people by a small number of financial speculators – the EU-IMF is insisting on a review of the numbers employed in education in Ireland. The target is to further reduce the workforce.
Also, very alarmingly, the EU-IMF lenders are demanding a review of the labour legislation that protects the basic rights of workers in Ireland.
These are just specific examples of a wide-ranging assault on the lives and interests of ordinary citizens here, that are being mimicked in other parts of Europe. No wonder there is a growing sense of moral outrage across the continent about the transfer of wealth – through public spending cuts, tax hikes and permanent austerity – from ordinary families to the coffers of insolvent States and banks. The feeling that a grave injustice is being perpetrated has never been stronger.

MORGAN KELLY’S INTERVENTION
In Ireland, psychologically, we seem to be recovering slightly from the initial shock of the hit. More and more, we are learning how the mechanism of debt burden and the EU-IMF bailout is facilitating a wholescale theft of resources from ordinary people, with devastating long-term consequences for our society.
Economist Morgan Kelly, who is Professor of Economics at UCD, made a dramatic intervention in the debate recently, claiming that Ireland should immediately withdraw from the EU-IMF deal, or face complete financial meldown.
His doomsday rhetoric has raised the bar in the debate, not least because he has also argued for a radical tackling of our budget deficit of €18 billion, which would require huge reductions in Government expenditure.
Whereas, a few months ago, you’d have been considered little more than a crackpot to suggest ending the bank bailout and repudiating the debt, this very move is now being widely touted as our only real option.
On the face of it, the choice is this: Should we lie dying under the boulder of debt for years to come, suffering ongoing austerity and cuts, and stand by helplessly as our national resources and assets are extorted by private interests in the name of repayment?
Or should we wrench ourselves painfully out from under the boulder, shake off the loan sharks, and in the process face properly up to the fact that the exchequer is currently spending per annum €18 billion more than it is generating?
It is quite clear that the Fine Gael/Labour government is under fierce pressure from the EU-IMF to ensure that the current status quo prevails. Among opponents of the Government strategy, there is an increasing feeling that the blatant scaremongering of the propaganda launched in the wake of Morgan Kelly’s call to break free from the bailout was an attempt to suppress informed democratic debate.
So what did they say? The Government immediately warned that defaulting on our debt would result overnight in the hacking of nurses’ and gardaí’s pay, drastic social welfare cuts, and so on. Meanwhile, we’d get into big trouble legally with the German and British banks that are among the bondholders who lent money to the Irish banks.
This is really just more of the same line we’ve been fed since the banking crisis erupted. We’ve been sold the lie that Ireland, Greece and Portugal – the three EU countries that have so far been hit by major liquidity crises – needed a momentary infusion of capital, after which everything would return to normal. But this has proven to be a false hope. The ‘recovery plan’ we’ve been forced to accept, alongside the ‘bailout’, simply isn’t working – in fact, it’s steadily ruining our economy. The private financial speculators have got their money. Meanwhile our debts to the ECB are mounting. In an article condemning bailouts in The Wall Street Journal on May 9 last, the Finnish politician Timo Soini excoriates “the Brussels-Frankfurt extortion racket.” Now we know first hand what he meant.
In the light of the extraordinary lies we’ve been sold, it is crucial that we examine closely our government’s threats – and those advanced by their supporting economists – as to the likely consequences of insisting on a repudiation of the bailout and its impossibly punitive terms. So are these threats of total meltdown and a resulting financial chaos that would cause widespread ruination empty or real?

THE ICELANDIC REVOLUTION
When the IMF bailed Iceland out of its liquidity crisis in 2008 with a high-interest rate loan similar to that given to Ireland, the two main conditions were that (1) The country was to implement the IMF’s economic plan (stipulating how to cut the national deficit and manage monetary policy); and (2) They would have to solve the dispute with the IceSave Bank. As with people here in Ireland, ordinary Icelandic citizens were being forced to pay for a massive private bankers’ debt that they were not responsible for creating.
When a small group of Icelandic socialist politicians and economists studied the small print, they realised that the IceSave deal would enslave the country in debt and result in savage and unbearable cuts to the welfare State. Lilya Mósesdóttir, a left-wing Icelandic MP and economist who recently visited Ireland, was one of the first to raise the alarm.
“People thought in the beginning that it was quite good that the IMF – somebody – wanted to help us,” she says. “But some of us knew also what this would imply. I and other economists were saying that, in the long run, it may not be so good to get IMF in. If we look at the experiences of countries in South America and South East Asia, the IMF’s programme has always made the crisis worse. In South East Asia, for example, they demanded that Korea cut its deficit and turn it into surplus within one year. That was a disaster, because the State had to lay off masses of people.
“When we first started trying to warn people of the implications of the IceSave Bank bailout, all of the media and the academics went against us,” Mósesdóttir recalls. “But we managed to swing people around by begging them to look closely into the agreement. In that way, we eventually convinced the general public that it was a really bad agreement that would destroy our welfare State. To the Nordic people, a good welfare State – good childcare, healthcare etc. – is very important. It’s part of our culture to have these services.”
The Icelandic Government was put under massive public pressure to call a referendum on the bank bailout. But unlike a country such as France, with its long tradition of protest, the experience of public protest was new to most people in Iceland.
“It was quite funny,” laughs Mósesdóttir, “because at first we were just standing there looking at each other asking, how do you protest? What do you do? And it took a couple of weeks. We met every Saturday, and listened to some speeches, and we were very quiet and we looked down, and we felt a little bit ashamed, because it’s a small country and everybody knows each other.
“But as we started to really feel the recession, we started to become very angry,” she adds. “Our argument was that it was not our legal obligation to take on private debt and make it public. It became a grassroots movement that it was morally unacceptable to cut jobs and services to make good the mistakes of private companies.”
The protests gained momentum. Emulating protesters in Argentina – who brought about the repudiation of that country’s national debt in 2001 – Icelanders hit pots and pans with metal spoons outside their House of Parliament, and successfully gathered thousands of signatures, calling for a referendum on the issue of whether or not the public should be forced to pay what were private debts. Finally, the referendum was granted.
The vote took place in March 2010, and 93 percent of the voters said ‘no’. A lower interest rate on the debt was negotiated, but this didn’t satisfy the Icelandic people. Last month, in another referendum, the citizens voted to default on the debt altogether.

DID THE SKY FALL IN?
Mósesdóttir recounts how during the lead-up to these referenda, the Government issued dire warnings of terrible consequences if Icelanders refused to bail out the IceSave Bank, and take on massive indebtedness in the process.
“They said that everybody internationally would think badly of us because we didn’t honour our obligations,” Mósesdóttir explains. “And that the British and the Dutch bondholders would take us to court. But nothing negative has happened as a result of refusing to take on the private debt. The British and Dutch bondholders haven’t said anything about a court case against us.
“We were warned that our international rating would be lowered, and it hasn’t been. And there were threats that we would not get any loans from abroad – but one of our big energy companies got a loan from a foreign bank shortly after we rejected the IceSave deal.
“None of the difficulties which they were threatening the population with have come true,” she says.
“It’s amazing, because there were all these scare-stories about how the world would just fall apart if we repudiated the debt. That the sky would fall on our heads! Similar things I also heard in Ireland. You are being fed with the same stories about the horrible things that will happen to you if you don’t do what the bondholders want to you do. Or if you don’t agree to putting your pension funds into the banking sector, or curb state expenditures to be able to put more money into the banking sector.”
As an economist, what is Mósesdóttir’s advice to the Irish public right now?
“You have to become knowledgeable about what’s happening,” she says. “And you have to care about the way the IMF is bailing you out. Because you will have to take the burden.
“You will see services – which are very necessary for your children and for the elderly – being cut. You will have to pay greater taxes. You will see your wages being lowered. All because of the way your banking sector is being bailed out, which is what the IMF is telling you to do.
“The bailout is all about asking ordinary people to take on the burden, and there is no way you can turn your face away from it. It will have catastrophic effects if it goes ahead. That’s why you have to prevent private debt being put on the shoulders of ordinary people.
“If you decide not to do anything, or not to care, you will be put in a very bad position for many, many years. In Iceland we often used to say with the IceSave deal, you are actually taking the fight for your children. Because they are the future tax-payers, who will have to pay a much higher tax system for much less services.”
I asked Mósesdóttir would she recommend that we back the call for a referendum on the IMF deal?
“Oh yes,” stresses Mósesdóttir. “Because IMF, EU, ECB – they’re all on the side of the capital owners, the bondholders. And you also need to back up your politicians. They are in a very weak position, as Irish politicians were responsible for some of the mistakes that led up to the financial crisis. So you need to back them up, so they can say to IMF and ECB, ‘I’m sorry, but the people will turn against us if we are not firm on this’. Your Government has already reneged on much of what they promised in the run-up to the elections, and it’s not very long since you had the elections. Which shows me how weak their position is, and how much they need the back-up of taxpayers to say: ‘We won’t accept the bailout’.”
I ask Mósesdóttir how Icelanders are faring economically at the moment.
“It’s still very tough,” she says, “but if we hadn’t rejected the debt, it would be much, much worse. We would have had to close down hospitals to
finance it.”
Say we manage, through people power, to throw the debt burden off our shoulders like the Icelanders have done – what then? How do we deal with the €18 billion deficit in our economy, whilst protecting the most vulnerable in our society during the crisis? This critical issue will be explored in the next edition of Hot Press.

Stay informed:
Visit [link]www.enoughcampaign.org[/link]