The ‘Other’ Way of Iceland: Analysing a Case of ‘No Bail-Out’ : Lecture by Lilja Mósesdóttir at NPI on 17 April

The Professor of Economics and ex-MP of Iceland expressed her view that the Icelandic way out of the crisis shows an alternative to the neoliberal crisis management.

The lecture, organized by the Nicos Poulantzas Institute (NPI), was introduced by Maria Karamesini, Professor of Economics at Panteion University and member of the Secretariat of the NPI. Firstly, Maria Karamesini presented the speaker’s academic activity who had been teaching economics at Bifrost School of Administration of Iceland until 2008, and then served as a Director of Research at the University of Iceland.
While before the crisis, Lilja Mósesdóttir was not involved in politics, in 2009 she was elected as MP of Iceland with the Left-Green Movement which then formed the first left-wing government of Iceland together with the Social Democrats. Later, she left the parliamentary group of the Left-Green Movement, as she disagreed with the negotiating stance of the government against the foreign creditors which she considered that should be more decisive. During her tenure as MP, she chaired the parliamentary committee charged with the regulation of the financial system of Iceland after the collapse and the parliamentary committee of social affairs, while she served as vice president in the Council of Europe during 2010. Lilja Mósesdóttir’s political presence connected this way with the most crucial aspects of the crisis in Iceland, from the Icesave affair and the international debt negotiations to the regulation of the households’ debt and the economic and social recovery of Iceland.
In the beginning of her speech, Lilja Mósesdóttir conveyed the sense of solidarity of the Icelandic people to the Greek people, which motivated her to visit Greece and to present her country’s experience of the crisis.
Following this, she gave emphasis on the importance of the components of the Icelandic way out of the crisis and particularly the refusal of the socialisation of the costs, the large social mobilisation and the income redistribution in favor of the lower income categories.
In 2008, after the outbreak of the crisis, Iceland was urged to manage the Icesave affair, i.e. the demand for compensation of the foreign depositors (mostly British and Dutch) of the Icelandic bankrupt bank Landsbaanki. That could lead in a dramatic deterioration of the public finances with the subsequent expansion of the public debt burden in the expense of the Icelandic taxpayers. The citizens of Iceland rejected such a perspective, by twice voting no on the proposal for negotiation with the foreign creditors. Britain responded directly by activating the Anti-terrorist Act in order to take control of the assets of this bank. Britain and the Netherlands took advantage of their international power to trigger an international pressure towards Iceland, which led to the collapse of the transactions of the country with the EU and the USA and the continuous postponement of loans from the IMF and the reluctance of the ‘friendly’ Nordic countries to provide a kind of economic assistance.
Despite the unfavorable international context, Iceland followed a different way to manage the bank crisis, choosing to separate banks into old bankrupt banks and the new ones, which absorbed the domestic loans and deposits. Iceland also proceeded to negotiations with the IMF – which have not finished yet, so as to achieve an agreement of smoother public finance adjustment.
Moreover, the left-wing government aimed at finding a way out of the crisis to the direction of productive reconstruction of the Icelandic economy and the redistribution of wealth. Iceland – after facing a sharp drop in GDP – returned soon in positive growth rates by turning its economic activity from the financial sector to fishing and tourism. Unemployment followed the same path, falling in 5% in 2012 versus a 9% in 2009, while reducing the working hours for the employees. In parallel, the government took initiatives for an equitable distribution of the burden of the crisis between different social classes. With the changes in taxation by imposing a greater burden on the richer, it became possible for the left-wing government to take some measures for the reduction of the poverty rate and the relief of the heavily indebted households, the prolonged duration in the unemployment benefits from three to four years and the subsidy of those employees working part-time.
According to Lilja Mósesdóttir, the case of Iceland, despite the redistributive and development initiatives of the left-wing government remains at stake. The country is still in negotiations with the foreign creditors and faces challenges with regard to the economic policy issues such as the control of capital flows in the context of monetary devaluation, the debt relief of the households and the strengthening of the economic development. Furthermore, Iceland has not overcome the political instability that began in 2008. People think that the government is permissive towards the pressures of the foreign creditors, something that Lilja Mósesdóttir supported when leaving the parliamentary group of the Left-Green Movement. Furthermore, the middle class was displeased by the economic policy of the government, as they felt that they have undertaken disproportionate tax burdens. These two elements seem to explaining her view, the collapse of the left-wing government and the already looming at that time victory of the Center Party in the forthcoming election.

Lilja Mósesdóttir closed her speech expressing the view that the Icelandic way out of the crisis shows an alternative to the neoliberal crisis management with its positive and negative elements, which may be useful to those seeking a way out of the crisis outside the neoliberal context of tight fiscal adjustment.

The video of the lecture is available at the website of the 
NPI as well as on the right at Media files.