Iceland coped with the banking crisis: Now it’s tackling the climate emergency. Image: By Jeremy Bishop on Unsplash
Faced in 2008 with a melting economy, Iceland acted fast to avoid total collapse. Icelanders’ own needs were its priority.
What can you do if you’re a smallish island in the North Atlantic with a lot of snow and a melting economy? Quite a lot, it turns out, if you’re prepared to put local people’s needs first.
Iceland was hailed recently for erecting a memorial plaque to one of its most striking features, Okjökull, which shrank so drastically because of climate breakdown that it lost its status as a glacier. It was the first in Iceland to do so, and is now known, fittingly, by a diminutive, as Ok.
Barely 10 years ago, when the country was in the grip of a different crisis, the pace of its far from glacial response showed how quickly rapid changes of government policy can turn a crisis around.
Iceland was at the heart of the global financial crisis in late 2008 and was nearly destroyed by it; 97% of its banking sector collapsed in just three days. its three largest banks − Glitnir, Kaupthing and Landsbankinn − had accumulated a debt of $85 billion (£66bn), equivalent to 10 times the country’s national income (GDP), or 20 times the national budget.
These losses amounted to $330,000 for every man, woman and child on the island, whose stock market then collapsed, with huge numbers of businesses going bankrupt. Iceland approached the International Monetary Fund (IMF) for emergency aid − the first western country to do so since 1976 − and obtained a loan of $2.1bn (£1.4bn).
“It is possible that the Icelandic way of governing also played a part. Was their natural reflex to protect the many, rather than the few?”
So how did it manage to survive? First, it allowed a default on the $85bn in debt accumulated by the banks. A new national mood set in, creating lasting conditions for change and the desire for new economic approaches.
Other countries had largely let banks off the hook, but in 2015 Iceland’s Supreme Court upheld convictions against bankers at the heart of the crisis. Finance is now so sensitive that when the Prime Minister was caught up in revelations from the release of the so-called Panama Papers, he was forced from office.
The debts are now largely paid off, but most multinational businesses have left Iceland, for fear of the capital controls. A huge expansion in tourism has rescued the nation’s economy, though average wages are now much lower.
The government protected Icelanders’ bank deposits and forgave debts for a quarter of the population. As Bloomberg News reported in 2012, “Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.”
The Rapid Transition Alliance (RTA), a global initiative which aims to learn from rapid change to address urgent environmental problems, believes Iceland’s way of extricating itself quickly from the global crisis has lessons for other countries, some of which are still paying a heavy price for the events of 2008 and the way they reacted.
Contrary to the conventional wisdom that individual countries cannot independently follow radically different economic policy and control capital flows, says the RTA, Iceland shows they can, and quickly;
Radical change can usher in a virtuous circle, by becoming a habit: once you’ve started, new opportunities may open up for yet more change;
And, perhaps most surprisingly of all, the Alliance says, it is possible to put people before the demands of financial markets and still run a successful economy. Citizen engagement and economic reform can go hand in hand.
Iceland’s economy had thrived on speculative finance but, after the meltdown, rather than making the public pay for the crisis, as the Nobel economist Paul Krugman points out, Iceland “let the banks go bust and actually expanded its social safety net”. Instead of placating financial markets, it introduced temporary controls on the movement of capital to give itself room to manoeuvre.
Following this, a “pots and pans” revolution kick-started a process that led to a new citizen-drafted constitution, which succeeded in engaging half the electorate.
The constitutional exercise proposed a new approach to the ownership of natural resources for the public good, which has had a lasting effect on the country’s choices: all its electricity and heat today comes from renewable sources, and transparency has become a central part of Icelandic public life.
The RTA thinks there were several key factors that enabled such rapid and fundamental change: the extent to which the economic system was irreparably damaged; the decision by the government to respond to the people’s demands and not to those of the banks; and the decision to punish those at fault and start anew.
It concludes: “It is possible that the Icelandic way of governing also played a part, because they have a longstanding history of deeply embedded democracy and a culture that discourages hierarchy. Was their natural reflex to protect the many, rather than the few?” − Climate News Network
* * * * *
The Rapid Transition Alliance is coordinated by the New Weather Institute, the STEPS Centre at the Institute of Development Studies, and the School of Global Studies at the University of Sussex, UK. The Climate News Network is partnering with and supported by the Rapid Transition Alliance, and will be reporting regularly on its work. If you would like to see more stories of evidence-based hope for rapid transition, please sign up here.
About the Author
Alex Kirby is a British journalist specializing in environmental issues. He worked in various capacities at the British Broadcasting Corporation (BBC) for nearly 20 years and left the BBC in 1998 to work as a freelance journalist. He also provides media skills training to companies, universities and NGOs. He is also currently the environmental correspondent for BBC News Online, and hosted BBC Radio 4's environment series, Costing the Earth. He also writes for The Guardian and Climate News Network. He also writes a regular column for BBC Wildlife magazine.
Life After Carbon: The Next Global Transformation of Cities
by Peter Plastrik , John Cleveland
The future of our cities is not what it used to be. The modern-city model that took hold globally in the twentieth century has outlived its usefulness. It cannot solve the problems it helped to create—especially global warming. Fortunately, a new model for urban development is emerging in cities to aggressively tackle the realities of climate change. It transforms the way cities design and use physical space, generate economic wealth, consume and dispose of resources, exploit and sustain the natural ecosystems, and prepare for the future. Available On Amazon
by Elizabeth Kolbert
Over the last half-billion years, there have been Five mass extinctions, when the diversity of life on earth suddenly and dramatically contracted. Scientists around the world are currently monitoring the sixth extinction, predicted to be the most devastating extinction event since the asteroid impact that wiped out the dinosaurs. This time around, the cataclysm is us. In prose that is at once frank, entertaining, and deeply informed, New Yorker writer Elizabeth Kolbert tells us why and how human beings have altered life on the planet in a way no species has before. Interweaving research in half a dozen disciplines, descriptions of the fascinating species that have already been lost, and the history of extinction as a concept, Kolbert provides a moving and comprehensive account of the disappearances occurring before our very eyes. She shows that the sixth extinction is likely to be mankind's most lasting legacy, compelling us to rethink the fundamental question of what it means to be human. Available On Amazon
Climate Wars: The Fight for Survival as the World Overheats
by Gwynne Dyer
Waves of climate refugees. Dozens of failed states. All-out war. From one of the world’s great geopolitical analysts comes a terrifying glimpse of the strategic realities of the near future, when climate change drives the world’s powers towards the cut-throat politics of survival. Prescient and unflinching, Climate Wars will be one of the most important books of the coming years. Read it and find out what we’re heading for. Available On Amazon
From The Publisher:
Purchases on Amazon go to defray the cost of bringing you InnerSelf.comelf.com, MightyNatural.com, and ClimateImpactNews.com at no cost and without advertisers that track your browsing habits. Even if you click on a link but don't buy these selected products, anything else you buy in that same visit on Amazon pays us a small commission. There is no additional cost to you, so please contribute to the effort. You can also use this link to use to Amazon at any time so you can help support our efforts.