Four years have passed since the financial system crashed in Iceland. The crisis hit Iceland harder than many other countries: the whole banking system defaulted and crashed. Attempts to bail out the banks failed, and because of the size of the banking system in Iceland, the government did not have the option of taking them over – the Icelandic state would have defaulted. It was a crude awakening for most people. The enormous “success” of the financial sector before 2008 was a matter of national pride. Living standards, mostly based on great expectations and debt, had skyrocketed. But it had all been a lie. And the political system had failed to prevent this unsustainable bubble. In fact political parties attributed the “success” to their own policies, while most did not read the danger signs and the few who did sound the alarm were not heard. After the crash swept it all away, trust in the political system fell to ten percent. It has not risen since then.
In some respect, Icelanders have made their voices and interests heard in a way people of other countries have not. The protests after the crash got us a new government, the head of the central bank and the financial inspection agency were axed and a process to make a new constitution with the active involvement of the people was initiated. Public pressure got us a vote on IceSave. The Prime Minister of the government in charge at the time of the crash was convicted of negligeance. Because of the size of the financial system in comparison with the wider economy, it was allowed to default. Bailouts were impossible. A special agency was formed to investigate possible illegal activity within the banking system. And the government decided against a severe austerity programme (although there were cuts in spending).
These are important achievements. Things that other countries could learn from. But frankly, most of these developments were also controversial in Iceland and overall, they could have been executed more efficiently. For example: the idea that the general public should be actively involved in creating a new constitution is indubitably right. But this could have been better carried out. The selection process didn’t have the legitimacy it needed and random selection should have been used as well. The time given to the process was too short. There was not enough debate all over the country and in the media. Of course, in comparison with the constitution being rewritten by a small group of politicians in closed session, as usually happens, the new process was great. But it could have been better.
Full Article: Real democracy in Iceland? | openDemocracy.