Iceland’s debt crisis morphs
Plebiscite to decide how, even if, Icelanders will repay billions
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Hey there, time traveller!
This article was published 07/01/2010 (4778 days ago), so information in it may no longer be current.
It is almost unthinkable that the Queen’s representative in Canada, Gov. Gen. Michaëlle Jean, would exercise the Crown’s legal right to refuse to sign into law a bill passed by Parliament. But the same might not be the case were the head of state in this country directly elected.
Look at what just happened in Iceland.
On Tuesday morning, President Ólafur Ragnar Grímsson announced to the nation from his official residence, Bessastadir, his intention to veto the controversial Icesave legislation passed by the Icelandic parliament, the Althingi, on Dec. 30. The bill set out the terms for Iceland to pay roughly $5.6 billion to the U.K. and the Netherlands over a 14-year period to cover depositor claims stemming from the collapse of the Icelandic bank Landsbanki, which operated online savings branches in those two countries under the name Icesave.
Iceland’s prime minister, Jóhanna Sigurdardóttir, who came to power in February after the previous government collapsed under the weight of the failure of the Icelandic banking system, had spent a great deal of time and energy — not to mention political capital — negotiating a resolution to the Icesave dispute. Her coalition of Social Democrats and Left-Greens managed to cobble together an agreement that satisfied the British and Dutch, thus paving the way for the removal of a significant obstacle to financial recovery in Iceland. The disbursement of loans from the International Monetary Fund (IMF) and from other Nordic countries, along with Iceland’s bid to join the European Union, may depend upon a successful plan to repay debts from the failed bank. The Althingi finally agreed to such a plan, narrowly passing the Icesave bill by a 33-30 margin before sending it off to the president for his rubber stamp.
Normally, approval by the head of state is almost as assured in Iceland as it is in Canada. Most Icelanders regard the presidency as a mainly symbolic role and don’t expect the will of parliament to be denied. But Grimsson apparently sees things differently. In fact, he is the only president in the republic’s 65-year history to exercise the power given him under Article 26 of the constitution, whereby a presidential veto can lead to a national referendum to approve a bill. In 2004, Grimsson vetoed a media ownership bill, which the government of the day decided to withdraw rather than face a binding plebiscite.
In the Icesave case, Grimsson is acting with what appears to be the strong backing of the Icelandic people. Opinion polls indicate that 70 per cent of Icelanders oppose the bill. Bessastadir was besieged by protesters urging the president to exercise his veto. They presented him with a petition signed by more than 56,000 people — or approximately one-quarter of the eligible voters in the county of fewer than 320,000. Armed with this show of public displeasure, Grimsson opted against approving the government’s bill.
In his traditional televised New Year’s address to the nation, Grimsson hinted that he was leaning in this direction when he said that “there is growing support for direct democracy, so that the people themselves govern to a greater extent.”
He reiterated these populist sentiments in his official statement on Tuesday, saying that the “involvement of the whole nation in the final decision is therefore the prerequisite for a successful solution, reconciliation and recovery.”
For her part, Sigurdardóttir has moved quickly to reassure the world financial community that Iceland does not intend to run away from its obligations. (This is imperative, since at least one investment agency, Fitch Rating, has already downgraded Iceland’s default rating essentially to junk status.)
Yet it is not at all clear how she can live up to this promise in the face of such overwhelming public opposition. Icelanders are angry that they should have to shoulder the burden of paying off the debts incurred by the banks, which had been privatized just a decade ago. If the referendum goes ahead and the Icesave deal is rejected, Sigurdardóttir and her government cannot likely survive.
Ironically, power would then be returned to the Independence party — the very one whose neo-liberal policies created the conditions that led to the devastating October 2008 collapse of the country’s banking system (and the one that called for a constitutional amendment to limit the president’s power after Grimsson vetoed its bill in 2004).
Grimsson is currently serving an unprecedented fourth term as president after being automatically re-elected in 2008 when no challenger came forward. Recently, however, the president’s popularity has been on the decline, as he has been subject to ridicule for his close friendships with some of the key members of the country’s now-disgraced business elite. By siding with public opinion, the president is sure to gain back a lot of popularity. Indeed, he is now a hero in the eyes of many Icelanders.
Whether one applauds or bemoans Grimsson’s decision, it seems reasonable to conclude that he would not be so confident in his rejection of the duly elected parliament’s legislation if he did not himself have the seal of approval granted by the ballot box. Those in Canada who pine for a similar system here might want to ponder the implications of having an elected head of state with the power to say “no” to the legislative assembly. Would it be worth the potential cost?
Richard Sigurdson is dean, faculty of arts, and professor of political studies at the University of Manitoba.