An Update on the Iceland Financial Crisis

Because of the way in which its people have responded to the financial crisis, tiny Iceland has drawn a lot of attention lately. Some pertinent information about this was provided in a previous post. Prof. Margrit Kennedy, author of Interest and Inflation Free Money, traveled to Iceland recently on a fact-finding tour. Her report below provides some additional insights. –t.h.g.

A Visit in Iceland

Margrit Kennedy. 23 September 2011

[English translation by Prof. Philip Beard, Ph.D.]

When I read an article two months ago about the state bankruptcy in Iceland and the public’s refusal to accept the government’s debt retirement plan, as a result of which the three largest banks became insolvent, I decided to travel to Iceland.  I wanted to find out whether the new, popularly-elected 25-member  Council, whose job was to formulate proposals for a new constitution, had made any statements regarding the monetary or financial system.  No such news had shown up in the several reports and English translations I’d gathered.

So a week ago, off I flew, after having received a few contact addresses from friends and having made three appointments with “Constitutional Council” members via email.  I stayed in Reykjavik from 9/13 till 9/19 and then went for a day to Solheimar, Iceland’s only eco-village, whose director had supplied me with these council members’ addresses.

Hardly had I arrived at my Reykjavik hotel when the first of my interlocutors showed up: Salvör Nordal.  A professor of ethics at Reykjavik University, she answered my questions patiently, and in about the first half hour filled me in on what all my later conversations would confirm: No, no one had said anything about the systemic monetary roots of the crash.  The Council’s discussions revolved around laying new groundwork for their democracy, environmental protection and protection of the commons, more transparency in governmental affairs and thereby better regulatory capacities.  She was glad to hear and watch my short presentation on the topic “Money rules the world!  — But who rules the money?”, and immediately said, “You must meet my friend in the finance ministry.  For sure, she’ll be fascinated by what you’ve got to say.”  Then she departed.  It was Tuesday evening.

The next day I met the man who had been elected to the Council with the most votes, the economist Prof. Sylfarson.  We had a short, congenial conversation of about an hour in which I learned that from where he stood, the situation in Iceland had returned to “normal”.  Before the crash everything had been more or less exaggerated: salaries, the value of the Icelandic crown, housing prices, the standard of living.  In his opinion his countryfolk were still doing well (which corresponded to my own first impressions), and Iceland was now catching up to the rules that every other European democracy had been practicing for decades, e.g. universal suffrage, transparency of public budgets, environmental laws, etc.

And no, the monetary system had not come under discussion.  Monetary matters remained pretty much as they had been, except that an index was now being applied to loans in order to reduce excessive credit demands.

He had never heard of complementary currencies, though he was very interested in the couple of examples I described to him and asked me to send him more information.

My third conversation partner was the young singer Svarvar, a friend of friends who had witnessed the so-called “revolution” but hadn’t taken part in it.  His opinion was that people had just been venting their fury at having all gotten poorer again, but he hadn’t seen much in the way of new values being adopted.

I could see, though, that the money theme fascinated him.  He brought a few of his friends to my talk at Reykjavik University that I had been invited to give by the dean of the engineering and natural sciences faculty, Kristin Vala Ragnarsdottir, and some of her colleagues.  They were all astonished that the room they’d chosen for the lecture turned out much too small.  But the concierge had already figured from the many phone calls he’d received that we would need a larger room, and had arranged for it.

It took a little time to get the crowd moved to the new room, but an atmosphere of high spirits and goodwill prevailed.  Obviously the 150-200 guests, many overflowing into the hallways, expected I’d be talking to them about something important.  And I later learned that two translators had already published parts of my first book in Icelandic; they proudly showed me their published articles, replete with graphs.  They didn’t know each other, but had each motivated a sizeable number of people to come to the talk.  I could tell from their questions how deeply concerned they were about this topic, and I agreed to meet with the “hard core” of a few grassroots groups on Sunday evening at one of their gathering places to discuss action strategies.

That evening at dinner I had the pleasure of a conversation with the personal adviser of the Economics Minister about the drama that had led up to the near-total collapse of Iceland’s financial and economic system.  This evening was the preparation for my discussion with the minister and the government’s chief economic adviser on Monday, shortly before leaving Reykjavik.

It was an important meeting for me, and for these two leading specialists as well.  As it turned out, they had never before so clearly perceived the role of interest and compound interest in the lead-up to the collapse, even though they’d been confronted with it practically every day since 2006.  And their serious countenances showed that they were taking it to heart.  Their comments indicated however that it would take considerable time before these new insights could be applied to political practice.  Germany, they said with mild regret, had no doubt been among the hardest hit by the whole matter.  [Translator’s note: It’s unclear how this last sentence relates to the preceding line of thought.]

But I did have the feeling that they were open to new solutions.  Most impressive for me was the evening I spent with representatives of perhaps seven grassroots initiatives, of whom at least three had been trying for years to get the money topic on people’s radar screens, with little prior but now greater success, to judge by their growing membership figures and the fact that they’re now “being heard” in the media.

The main topic was action strategies.  Lots of concrete questions: How can we change this and that?  What’s the best way to introduce complementary currencies?  How can we reduce the debt burden that’s been forced upon our poorer citizens?

I told of our experiences with barter circles, regional currencies, and the WIR system, and described our successes in the Chiemgau and Vorarlberg regions.  And I promised to send them written summaries of the key ingredients.

In any event we shall stay in contact, exchanging news of problems and successes.  As I left I had the feeling of having sown some seeds – having nourished the hope and the knowledge that new pathways lie before us, and what they might look like.

Overall a newcomer to this country notices little of its bout with bankruptcy.  You do see several unfinished skyscraper projects, especially near the seacoast and on the way to the airport.  But very few people or neighborhoods look genuinely poor.

With the help of the 2.1-billion euro credit from the IMF, the country has once again just barely avoided total breakdown.  Now people are rolling up their sleeves and saying, “We’ll make it back.”  I certainly hope they will, because I have become very fond of the Icelanders in the week I spent with them.

The best, most concrete outcome of this trip would be for the grassroots groups to enjoy a new level of attention, understanding, and perhaps even active support for their efforts at introducing new systems – systems that prove that we can run our monetary affairs without interest.

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Here is a link to a tv interview of Prof. Kennedy by Egill Helgason, which was aired on Icelandic television on Sunday the 25th of September 2011: http://silfuregils.eyjan.is/2011/09/26/fjarmalakerfi-sem-leidir-til-glotunar/