Iceland - a victory for participatory democracy or trying to eat its cake and have it too?

Question

I've been following the events in Iceland with much curiosity. I am interested in the idea of not choosing to take on private debt and standing up for sovereignty. The way Iceland has gone about constitutional reform also seems like a great model.

But, I was arguing this point with a friend. And he said that it was Iceland that initially supported these transactions, so therefore this crisis was probably their own fault. This just happened to be the easiest way out. 

What is the case with Iceland? Is there model one to be followed by others, or a show of irresponsibility?

Nafnlaus · Accepted Answer

You're going to hear the argument presented from both sides in the EFTA court system soon enough.  Iceland's standpoint is that it never insured or claimed to insure the accounts of the country's major banks.  The UK's standpoint is that they did claim to insure the accounts, and that they acted in a discriminatory manner by bailing out their domestic accounts but not their international accounts.  The truth probably lies somewhere in-between.

Note that there's more to this conflict than just bank accounts.  Relations between Iceland and the UK haven't always been the friendliest in the world (although until recently they'd been a lot better than they used to).  I joked with some friends in Iceland the last time I was there that they should count the Icesave accounts as a late payment for all the cod the British took from their waters from the 50s through the 70s  ;)  The British didn't exactly earn brownie points with Icelanders by invoking anti-terrorism provisions against Icelandic banks to seize their assets.  

Note that Iceland isn't exactly a model to follow because there's no other country that's in a situation like Iceland was in.  Most countries with crises right now are dealing with national debt crises.  Very different from a conflict between nations over whether or not private bank accounts are insured or not.  Also, Iceland is not on the Euro, while most of the at-risk countries right now are.  Iceland was able to just float down their currency to half its previous value, throwing away most of their debt (at the cost of dramatically reduced buying power for their people).  Lastly, due to Iceland's small size, their crisis was able to fly under the radar more than other countries' crises will be able to.  Italy, for example, is the world's 8th largest economy.  Spain is 12th.

Susan M · Answer

The only thing I can say on this is that when the debt crisis arose, 
Gordon Brown declared Iceland to be a "terrorist" nation and froze their
banks assets in Great Britain. That made the crisis much worse and seemed like an act of war on a country too small to fight back. 

Some Icelanders were great risk takers in the global mortgage bundling market.  The structure of their government and banks would determine
who is responsible, except for the largest portion of their bank's holdings being taken by Britain.

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Iceland - a victory for participatory democracy or trying to eat its cake and have it too?

2 Answers