Vol. 74/No. 11      March 22, 2010

The Iceland government quickly sought to reassure capitalists in Britain and the Netherlands that the debts would be paid.

Icesave, an online bank operated by Landsbanki, collapsed along with its parent bank and two other major Icelandic banks in October 2008. Icesave had attracted foreign deposits by offering “market-beating interest rates,” noted the Financial Times, which it sought “to shore up its over-stretched balance sheets.” The nation’s debt is more than 10 times the size of its economy.

The British and Dutch governments reimbursed the roughly 400,000 people from Britain and the Netherlands who had deposits with Icesave. They then demanded that the Icelandic government repay these funds. In December Iceland’s parliament in a 33 to 30 vote agreed to pay London and Amsterdam $5.3 billion. But in early January President Olafur Grimmson, after receiving petitions with signatures from one-quarter of the population expressing opposition, vetoed the legislation and called for a referendum.

The bill rejected by the voters would represent more than 40 percent of Iceland’s gross domestic product, noted Business Week. Just meeting the hefty 5.5 percent interest payments would account for one-quarter of Iceland’s revenue.

Demonstrations of up to 2,000 people have been taking place every week opposing the agreement. “The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled” three months after the banks collapsed, reported Business Week.

“We want to be perfectly clear that a ‘no’ vote does not mean we are refusing to pay,” Finance Minister Steingrimur Sigfusson told the New York Times. “We will honor our obligations. To maintain anything else is highly dangerous for the economy of this country.”

Leading the coalition government’s ongoing efforts to renegotiate a new repayment package is Prime Minister Jóhanna Sigurdardóttir of the Social Democratic Party.

Since the bank’s collapse, London has been pressuring Iceland’s rulers to repay by using anti-terrorism laws to freeze Icelandic assets. Landsbanki, along with Iceland’s central bank, have been placed on a UK list of “financially sanctioned regimes,” alongside Burma, North Korea, and al-Qaeda, reports the London Guardian.

Working people have suffered the biggest blows from the capitalist economic crisis unfolding in Iceland. Unemployment is officially at 9 percent, up from 1 percent in September 2008. The government used the crisis as a pretext to expel “guest workers” from the former Yugoslavia and other countries.

Household debt with credit institutions doubled in the past five years to $14 billion in 2009, exceeding the country’s $12 billion gross domestic product, according to the central bank.

The island’s residents were the world’s fifth-richest per capita in 2007, noted Business Week, but “ended 2009 18 percent poorer and will see their disposable incomes decline a further 10 percent this year.”  
 
 
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