What happened to Iceland?
Freedom Today visited Iceland to learn why it’s good to let banks die and why it’s also good not to join the EU.
A team of Freedom Today Network editors and producers traveled to Iceland in October 2016 to attend the European Students for Liberty Conference in Rejkavik, the third Conference of this kind in Iceland.
Of course, they shot a short documentary about Icelands recent crisis, recovery and the way forward. Our team spoke to top managers, academics, politicians, and entrepreneurs.
Below is a transcript of the documentary, lightly edited for reading.
Heiðar Guðjónsson, Chairman of the Board of Directors at Eykon Energy, assessed the General impression left by the crisis:
“If somebody has asked the question before the crisis: What would happen if all the banking system would collapse? Most people would have assumed that it would be total chaos. But that didn’t happen…”
Far away from the big continents, surrounded by the Greenland Sea, the Arctic Ocean and the North Atlantic lies Iceland. Geologically, Iceland belongs to America as well as Europe.
It participates in the European Free Trade Agreement EFTA, in the European Economic Area, but not in the European Union.
Hannes Hólmsteinn Gissurarson, Professor of Political Science, puts the dimensions into perspective: “It’s an island about the size of the old East German republic 103,000 square kilometres but only inhabited by 330,000 people.”
Strategically well situated between the continents, Iceland is an interesting trade partner for many countries.
Hannes continues: “We have the sea as our immediate neighbor and it gives us a lot of fish. Then we have Norway, Great Britain, Canada and the United States.”
Iceland is well known for its stunning landscape, volcanoes, geysers and waterfalls.
But in 2008 Iceland made global headline news. After the US housing bubble burst, the American bank Lehman Brothers collapsed. The financial crisis spread throughout the international links between banks and Iceland was not spared.
Within 3 days the 3 biggest banks collapsed. Apart from common problems in the financial sector, Managers had illegally manipulated stocks of their own banks. By giving each other unsecured loans amounting to hundreds of millions.
Hannes: “The government nationalized all the Banks and divided them up into a foreign part, which was basically put into resolution and the domestic part which continued as new banks.”
Foreign lenders, banks and investment funds had to write off the biggest part of their claims. This led to legal disputes from Britain and the Netherlands at the EFTA Court in 2011. Their lawsuit was dismissed in 2013.
Lukas Schweiger, an entrepreneur former ESFL chairman, says: “They decided that if a departed savings guarantee fund — as long as it is properly set up under the respective directives and regulations — if those funds do not suffice to bail out the creditors or the savers, then it is not the obligation of a state to bail these people out. Or to bail the banks out. And this is now european law. It has not gotten the attention that it should have. For the simple reason that all other countries in europe usually chose a different path and they chose to bail the banks out. And what it meant for Iceland now is that Iceland is better of than most European countries.”
This course of action was radically different from other affected countries, such as Ireland. Due to EU pressure, the Irish government took over the debt from the Irish banks. The national debt skyrocketed.
Hannes: “It’s an interesting question whether we would have the bank collapse if we had been in the European Union. We might have been trapped in the European Union like Ireland and Cyprus where the governments basically took on debt that they should not have taken on. What we did in Iceland was just to tell the banks we are not going to responsible for your actions. Those who took the risk of keeping the money with you, they have to bear the costs of that risk. And therefore we do not have really a large debt after the bank collapse.”
Despite seemingly insurmountable problems the situation in Iceland calmed down very quickly. At first the Icelandic Crown lost half its value, the stock market tanked by 90 percent and GDP fell by 10 percent. But in 2011 economic growth was already rising again at 2 percent. In 2016 it is expected to reach 4.25 percent.
Áslaug Arna Sigurbjörnsdóttir, Secretary of the Iceland Independence Party, believes the progress is not yet fully appreciated: “A lot of Icelanders haven’t still realized how well we did the last three years. We are trying to show them and they should feel it in their wallets as well. I think when they realize how well we have done in the last three years they see that the EU is not the answer, the socialists are not the answer.”
But the Icelanders even went a step further.
Áslaug says: “A lot of people got angry, they don’t trust the politicians, they don’t trust the government.”
Heiðar adds: “So Icelanders decided to prison many of the managing directors and this sort of senior people at the banks.”
Lukas: “It’s a statement against crony capitalism as opposed to the free market. There is no too big to fail. That fact alone is something that many european countries and also the US could and should learn.”
But what did this criminal prosecution change about the financial system?
Heiðar: “It certainly hasn’t change the system. They decided to start it again exactly as it was before the crisis.”
Hannes: “Generally speaking I would say that the Icelandic justice system was to lax before the bank collapse and too strict after the bank collapse.”
Is it even desirable for Iceland to become a member of the European Union? Apart from new regulations threatening their fishing sector, many Icelanders don’t feel like they are a part of the continent. They look beyond Europe and see opportunities in other markets.
Lukas: “Iceland is already part of the single market through the European Economic Area, the EEA. So I don’t really see a benefit in joining the European Union, especially not in this state.”
Áslaug: “I think we should not go in there. Because we need to look at the whole world as an opportunity.”
Heiðar: “I don’t think Iceland and europe will come closer together. I see rather that there are new entrants coming to iceland. There is more Asian business with Iceland, there is more Canadian business with Iceland so Iceland is more dealing with the parts of the world which are growing healthily.”
Lukas: “To this date Iceland is the only European country that has a free trade agreement with both China and Canada.”
Áslaug: “Now people see that we don’t need the EU to do well.”
Hannes: “Being outside of the European Union but having access to the European market through the European Economic Area provides us with some opportunities. Because we can make free trade agreements with countries like China, India Brazil and other large emerging economies.”
Áslaug: “The EU is not the answer to everything like some parties think.”
Hannes: “So let us trade with everybody but let us be ourselves.”
But in which sectors does the Icelandic economy grow the quickest. And do these sectors offer young entrepreneurs the right incentives to pursue their goals?
Heiðar: “I definitely recommend to everyone that can praise the Icelandic weather to come to Iceland.”
Hannes: “It can be quite cold and dark in Iceland, that’s true. But the people, they are warm.”
Lukas: “Establishing a business in Iceland is relatively easy and I would say it would be a good place if you find your niche.”
Heiðar: “The most growing businesses in Iceland are basically within tourism. So it’s around the airport and it’s the airlines.”
Hannes: “Secondly we have vast energy resources. Thirdly we have great accumulated capital.”
Heiðar: “The Fisheries business and now fish farming is growing. And because Iceland is an Island here in the middle of the North Atlantic, quite high up, there are huge logistical opportunities to work on as well.”
Áslaug: “We need more workers, we need more people to do everything we want to do.”
Hannes: “Iceland has suddenly become a hot spot — despite it’s name.”
Note from the Editor: You may be wondering why we don’t use last names to attribute the quotes. That’s because Icelanders are properly referred to by their first names.