An extraordinary development is occurring in the tiny island nation of Iceland. The first sovereign casualty of the financial tsunami that occurred during the onset of the global economic crisis in 2008, Iceland underwent a fiscal meltdown and currency collapse when its 3 largest banks became insolvent. A neo-liberal government allowed Iceland's financial industry to go global amid an environment of deregulation. The result was that Icelandic banks held more deposits from foreigners than from the nation's citizens. When the global economy went into a nosedive, the three banks were rendered utterly insolvent, with liabilities exceeding the GDP of Iceland by a multiple of ten.
The national currency, the krona, collapsed. The government was forced to nationalize the three banks, go to the IMF for emergency loans, then resign as the population of Iceland erupted in a massive display of civil disobedience. A new government came to power, seeking to responsibly cope with the profound financial disaster that has engulfed Iceland. However, the governments of the UK and the Netherlands, which had reimbursed citizens who lost their deposits in the Landsbanki, which had enticed them with above market interest rates through a program known as Icesave, demanded that Iceland assume full financial liability and pay back those governments. Desperate to enter the European Union and receive additional IMF help, the government in Reykjavik felt it had no choice but to agree to compensate London and the Hague, to the tune of $6 billion, payable over 15 years. This would mean that every one of Iceland's 300,000 souls would be responsible for paying the British and Dutch governments $20,000. The Icelandic government has told its citizens that there is no choice: either abide by the agreement or accept isolation from the global financial system, junk bond status in sovereign debt markets and a termination in loans from the IMF.
The citizens of Iceland have reacted with a petition containing the names of 25% of the nation's registered voters, opposing the agreement. In response, Icelandic President Ólafur Ragnar Grímsson announced that he would not sign the agreement as approved by the nation's parliament, and would instead call for a national referendum. Current projections are that 70% of the voters would reject the agreement.
What is now occurring in Iceland is a foretaste of what may become more common throughout the developed world. Taxpayers have been told by policymakers that they must bear the financial costs of failed decisions made by private business, no matter how steep the price, or accept even more horrendous economic consequences. For the first time, an aroused public in at least one country has rejected the dictates being imposed by the political establishment. No wonder that the Dutch and British governments reacted so swiftly with a condemnation of Iceland's citizens for having the audacity to think they have the right to exercise their democratic rights in deciding for themselves what is in the best economic interests of their nation.
As the global economic crisis continues, leading to more private business failures and demands by policymakers that taxpayers fund ever-larger bailouts, look for other aroused citizenry following in the footsteps of Iceland's.