Monday, April 29, 2013

Iceland votes

The vote this weekend in Iceland may seems confusing but it really is not.  The Social Democrats who managed the recovery from the financial disasters of 2008 did a pretty good job—at least by the standards of Irish politicians.  But the "prosperity" they engineered was pretty weak tea and lots of Icelanders are still hurting.  But the SDP wouldn't have lost the election if they hadn't decided that it would be a good idea to join the Euro.  Frankly, I have NO idea what they were thinking.  The Icelandic solution to their financial catastrophe would have been nearly impossible if they had been using the Euro.  This little factoid was so obvious, the voters turned to the parties that had allowed the banking crises to occur in the first place simply because they promised to stay away from the Euro.

This isn't really a left-right matter.  When it comes to cultural issues, most Icelanders are on the same page (a page that puts them on the far left in places like USA.)  NO, this vote was about the Euro and the Euro lost.  If the SDP had been anti-Euro, they probably could have stayed in power for a long time.  So the political parties that had been in power in 2008 were forgiven simply because they claimed they had learned their lessons and were absolutely committed to monetary independence.  The only question is: Now that the old parties are back in power, will they revert to their old neoliberal swinishness, or will they chart a better path?

‘Vote against euro’: Icelandic center-right opposition wins in parliamentary poll

April 28, 2013

In the Iceland parliamentary polls, the center-right opposition party is winning with 26.7 percent with nearly all ballots counted. The Social Democrats, who steered the nation through an economic crisis and towards EU membership, have been ousted.

With a final count of nearly 194,000 valid votes, the Independence Party won 19 seats, and will now unite to form a coalition with the agrarian-centrist Progressive Party, which won 24.4 percent of the vote and 19 legislative seats.

"We are ready to lead the government," AFP cites Independence Party head Bjarni Benediktsson as saying in a televised debate, adding his was the party "with the most votes."

In the 2008 elections, the Independence and Progressive parties lost to the Social Democrats, their main rivals this year, following a massive economic collapse.

The new coalition is “against joining the euro, and that’s what the Icelanders are voting for now,” Harlan Green, editor of Popular told RT. “There are some sticking points, but I think the Icelanders just said they don’t want to join the euro, they’re doing quite well with their krona.”

The crisis in Iceland, which led to skyrocketing unemployment, bankruptcies and widespread popular protests, is far from over even after five years, Green said, though the situation has improved slightly.

“It takes a long time to recover during such a serious recession, some call it a depression for Iceland. The fact is that their three largest banks now have seven quarters of GDP growth, 2.5 percent, something like that. Tourism is back: In fact, they have quite appreciable inflation now because the consumers’ incomes are rising, and they allow it to happen. Because of all these issues, they’re on the path to recovery, but certainly, they aren’t there yet.”

Iceland's path should have been mimicked by other struggling European powers, Green explained: “If Greece had known better, they’d probably would have dropped out of the euro, they should have gone back to their drachma... [Icelanders] are very adventuresome, and they’re willing to take a chance to keep their own independence.” more
The fact that 2008 produced the first center-left government in Iceland since independence in 1944 demonstrates pretty conclusively that Icelanders seem not to be natural Social Democrats.  The voters essentially told the SDP, "Thanks for your efforts, but the grown-ups will take over now.  You folks can go back to doing whatever it is you folks do these days.  The Euro?  Are you kidding?"

Will Iceland Shift Right?

Iceland’s surprising recovery was heralded as the great anti-austerian victory. So why are voters unhappy?

Iceland—the first major victim of the 2008 global financial collapse—isn't in as dire straits as Greece. But that distinction is of scant comfort to people in Reykjavik ahead of Saturday's parliamentary election.

Despite the fact that Iceland's unemployment rate is under 5 percent, voters are expected to send a strong message to the political establishment: The economic data doesn't reflect the ongoing pain, the banks are still skimming far too much off the top and the status quo isn't working.

The government—the first center-left coalition since Iceland gained independence from Denmark in 1944—has earned praise both at home and abroad for averting a total disaster after the banking collapse by imposing controls on outgoing capital flow and attempting to resist deep austerity. It is, nonetheless, expected to give way to a rightwing coalition after the votes are counted and the dust settles. Polls are indicating that the next prime minister will come from either the Progressive or Independence Parties—right and center-right parties that ruled Iceland from 1995 until 2007 and oversaw the corrupt banking privatizations that brought the country to the brink of ruin.

The majority of Icelanders, however, haven't indicated that they're going to support either party. The two parties, according to the latest poll, only have a plurality of the popular vote. One patron at a cafe on Laugavegur, Reykjavik's main street, joked that the rightwing parties’ support is coming from huldufólk—“hidden folk” elves in Icelandic folklore.

The polling edge of the right might have been helped along by a fractured left. Parties must win 5 percent of the popular vote to earn any seats in parliament, and a number of fringe parties that have emerged in the run-up to the election are polling below that threshold.

The proliferation of new parties reflects discontent with politics as usual and a lack of confidence in the traditional power players. There will be about a dozen parties at most districts' polling booths when Icelanders cast their votes tomorrow.

“We are filling an ideological gap that has existed in Iceland for way too long,” Pirate Party candidate Smári McCarthy told In These Times, explaining his left-libertarian party's popularity. The Pirate Party is one of the more successful of the smaller parties and is expected to send deputies to the parliament. After campaigning on a platform that seeks to promote open governance, direct democracy, online privacy, copyright reform and Internet freedom, the party has been polling at around 6-7 percent in recent weeks.

Bright Future, a party with ties to the Best Party, which was founded by anarchist-comedian Jón Gnarr in his successful bid to become Reykjavik's mayor in 2010, is also polling above the 5 percent threshold. More than 7 percent of voters are leaning in its favor, according to polls. One of its platform’s main planks involves trying to change the way politics are approached, with an emphasis on civil dialogue and long-term solutions. Heiða Kristín Helgadóttir, one of the party's candidates and the current CEO of the Best Party, said that, to that effect, the party has opened up its manifesto to suggestions online.

“One of the main issues that most political parties are dealing with is the fact that they don't get any participation,” she said in an interview at the party's Reykjavik headquarters, stressing that people outside of politics can offer effective solutions. “We want to have an open source for people to come into the party with ideas.”

Bright Future also wants to adopt the draft constitution that was written using crowdsourced techniques. The proposed constitution was allowed to die in the last session of parliament, despite clearing an important hurdle in a referendum last October. Some people who helped piece together the document and open the process up to the public believe that parliamentarians wanted to neglect it because of the challenges it presented to their power, including many provisions that would have allowed voters to introduce parliamentary bills and call for referenda on a variety of issues.

One new party that has emerged—the Iceland Democratic Party—was even founded primarily to promote the constitution. It, however, doesn't appear poised to win any seats.

Fringe parties aren't only motivated by political issues, either. One such party, the Household’s Party, has been founded mostly to protect those with “mutated” mortgages, whose interest payments are linked to the ballooning consumer price index. Another such party is the People's Front of Iceland. Led by Vésteinn Valgarðsson, it has attracted many former supporters of the Left-Green party who became disillusioned by its capitalistic tendencies after assuming power in 2009. Valgarðsson said that even if the party doesn't win any seats—a likely outcome, according to polling—it is taking the long view of things by attempting to build up an anti-capitalist movement that has been absent in Icelandic politics for decades. The party's platform includes nationalizing natural resources and the financial sector.

He said the idea that Iceland's center-Left has eschewed austerity—a theory pushed by Paul Krugman, among others—isn't exactly true. While cuts haven't been as severe as they have been in other crisis-stricken countries, like Greece and Spain, they have, too, been implemented in Iceland. According to the Ministry of Finance, welfare spending did increase by a percentage of GDP between 2007 and 2011—from 6.85 percent to 7.76 percent of GDP. However, because of economic contraction, framing welfare spending as a percentage of GDP hides cuts, particularly when considering the greater need. Accounting for the recession, overall welfare spending has declined by about 22 percent—from $139.7 million to $108.8 million—between 2007 and 2011. As a worker in a publicly run psychiatric hospital, Valgarðsson said that he has seen belt-tightening firsthand, having been repeatedly shuffled between different departments.

Some Icelanders say that the cuts will do lasting harm to the universal healthcare system, by pushing top professionals to emigrate to Norway; in 2011, a Reykjavik area clinician warned that such a brain drain threatened the “imminent collapse” of Iceland’s healthcare system. Similarly, while unemployment here is relatively mild compared to other countries stung by the collapse of credit markets in 2008—there are those who say unemployment would be much worse, about three times as high, if not for about 13,000 Icelanders who have left for Norway.

It is undeniable, however, that the ship has been steadied. Tech companies, tourism and other creative industries have sprung up, with exports made more affordable by the krona's decline, and commercial conditions stabilized by capital controls (which themselves have been controversial). Despite the panic and anger that followed the banking collapse, the crisis may be considered a blessing in disguise by those who hail Iceland’s post-crisis economy as more diverse and sustainable.

In another indication that Icelanders are back on their feet, by many measures the demand for charity has decreased. Sólveig Ólafsdóttir, a spokesperson for the Red Cross in Iceland, said that it has wound up a number of programs it offered for unemployed Icelanders after the crash. She also said that the organization's Christmas assistance is down. So too, is assistance doled out by the Church of Iceland.

But there are doubts as to how robust this recovery actually is. Christmas assistance handed out by another charity named Mæðrastyrksnefnd was up in 2012.

“We cannot see that the condition is better, rather the opposite,” its chair, Ragnhildur G. Guðmundsdóttir, told the newspaper Fréttablaðið in December.

There’s also evidence that pride deters those in need from requesting handouts. According to a survey by Hagsmunasamtök heimilanna (HH), an association of homeowners, though only around 12 percent of Icelanders have asked charities for help in recent times, over half have asked family and friends for help.

Ólafur Garðarsson, chairman of the HH, told In These Times that articles touting Iceland as being past the crisis “are like a joke to me.”

“This is basically propaganda from the IMF and the government,” he says.

He likens the situation for indebted Icelandic homeowners to that of frogs in boiling water. The “mutated” mortgage interest payments here have mushroomed because they are indexed to inflation—a convention that had been in place since the boom years. The decline of the krona caused by the banks' collapse has, in turn, caused inflationary pressures due to Icelanders' dependence on imports. Problems have thus multiplied for indebted homeowners, rendering a large number with negative equity and mortgages that they will struggle to pay off, unless the rules change or the banks agree to write off debt.

Banks—which are believed to be owned by enablers of the old banks' reckless managers, although no one really knows who owns these institutions after the government privatized them with a discounted asset portfolio—are thus siphoning off a significant portion of wealth created since the collapse. Some people here have scoffed at the idea that Iceland didn't “bail out” its banks.

Which does, somewhat, explain the Progressive Party and Independence Party's success. The former has promised to write down mortgages by 20 percent and end CPI mortgage indexation; the latter want to lower tariffs and taxes on gas (though it does also want to implement a flat tax—a move that would harm lower tax brackets).

Many Icelanders skeptical of the Right doubt that these promises amount to anything but opportunistic PR moves. The Progressive Party hasn't proposed unfettering mortgages already tied to indexation; it has promised to outlaw the practice. Some have suggested that its 20 percent write-down will fuel a housing bubble and benefit the rich more than other income brackets. Fueling the idea that the Progressives are preying upon low-information voters' disaffection, a Gallup Poll showed that a third of its likely supporters had only a primary school education and 31 percent had only a high school education. A number of Icelanders told In These Times that they wouldn't be surprised if the two rightwing parties, assuming they win, sell public stakes in banks to their friends, as they did in the previous decades.

Nonetheless, the decline of the traditional left, the unprecedented proliferation of smaller parties and the populist rightwing revival do suggest that Icelanders aren't exactly pleased with the situation. Even if Reykjavik is far from resembling Athens. more

‘Iceland proved there is a way of dealing with financial crisis in isolated country’

April 27, 2013

Iceland has been praised for its handling of the financial crisis, during which politicians allowed banks to fail, rather than bailing them out. Economic expert Margaret Bogenrief explained why in the case of the EU the solution is unlikely to help.

Iceland is ready to head to the polls for the country’s second presidential elections since the country’s 2008 banking collapse, and there are fears that those responsible could once again be voted into office.

Margaret Bogenrief, a co-founder of the financial advisory ACM Partners, told RT about Iceland’s political situation, and whether the small nation should be held up as an example for other debt saddled countries.

RT: Why do you think the political parties that brought Iceland to the brink of disaster are now regaining popularity?

Margaret Bogenrief: Because I actually think people are reacting less to being drawn to those parties and more to the years of austerity that they’ve had to endure since 2008. I mean, really what you’re looking at politically is pretty common not just in Iceland but around the world. Typically you have one party or group that creates or exacerbates an issue, another party is then brought in to correct that issue, and that party or group is then punished for the after effects of the correction for that given issue. That’s really all you’re seeing in Iceland.

RT: In Iceland, it’s kind of a small community. People know each other, and by putting people before banks Iceland proved that there’s another way of dealing with the financial crisis. What’s stopping other debt-ridden countries from following in their footsteps and doing the same?

MB: For the exact reason that you said, Iceland is a very specific country. I think it’s very important to note that it’s less integrated with Europe, and countries within the European Union. Iceland is a very specific case, and it’s a case that illustrates that there is a way to correct these issues when there’s an isolated country and an isolated community, but you generally just don’t see that right now in the global economy.

RT: Does it help that Iceland is not a member of the EU or even the Eurozone?

MB: Absolutely. The country is less tied to other countries, it’s an isolated community, people there have a much tighter sense of “what I do affects my neighbor, what my neighbor does affects me.” It’s almost as if a city within the United States was trying to correct something, that’s much easier to do with a much smaller, much more isolated country.

RT: If you take a step back, rewind if you will, in 2008 Brussels threatened Reykjavik saying relations would be damaged if it refused a bailout from EU countries. Iceland blocked that move, so now, are the relations as bad as the eurocrats had warned in that particular situation, or are things pretty much normal?

MB: Well, frankly I think the eurocrats have a lot bigger things to worry about now than Iceland. I think ultimately what the Icelandic example proved to both the economic and political world is that ultimately results trump. And Iceland is now at this point not an entirely healthy country, but it’s healthy enough. And frankly, I don’t think the Eurozone is really in a position to say we won’t do business with you, we don’t want to work with you, we don’t respect you. The Eurozone has a lot bigger issues now than it did in 2008.

RT: And despite that, even considering these issues in the Eurozone, many politicians in Iceland believe it’s still in the country’s best interest to join the European Union. Why would that be the case?

MB: I think it really goes back to cultural and economic issues within both Iceland and the Eurozone. I mean, at the end of the day if you’re an optimist the Eurozone isn’t a bad bet. I’m personally am not an optimist, I think it is a bad bet, but I think that if you’re operating within the assumption that the Eurozone will get out of its current mess relatively unchanged it’s not a bad political idea. It’s certainly not a bad one that a small country could tie itself to. I don’t think it’s a good idea in the long run, but it does make sense if you’re operating from that assumption, that you say you want to be a part of it. more

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