From 2008 onwards the whole world has been experiencing an unprecedented financial crisis. When Lehman Brothers, the fourth largest investment bank in U.SA, collapsed on September 2008, it marked the biggest post-war global economic crisis. You could call it the end of Thatcher-Reagan era.
Because of the economic mess that was caused, all the states and countries of the modern western world have had to deal with political and social uncertainty. A lot of governments within Europe, among which the Icelandic government, were overthrown by its own citizens, who found themselves in the middle of an unfamiliar situation. The Icelandic government was not able to help those people who saw their lifetime’s savings lost and so the people demanded elections.
In some other situations the governments (such as the Greek Government) decided to ignore the will of its people and decided against elections or alternative solutions. Even though people went on strikes for long time, even though during these strikes three people, among them a pregnant woman, were killed, the Greek Government, with the help of IMF, implemented and ratified a variety of fiscal programs with a lot of austerity measures in order to prevent the possible default of Greek State.
But let’s put an order to the whole situation. As I mentioned earlier, all of the trouble started in United States. When the American government allowed the bankruptcy of Leman Brothers on 15th September 2008 a financial crisis was born and affected not only U.S.A. but the whole European Union. The consequences of the bankruptcy had not been taken into serious consideration by the American officials and that’s why we now see formerly fiscally responsible countries under economic surveillance!
The financial crisis was spread to Europe with astronomical velocity. The first European victim was Iceland. In autumn 2008 the country was dragged into the vortex of the global financial crisis. The Icelandic government, as a first step, introduced an emergency legislation which gave them enhanced powers over the banking system. Specifically, the Icelandic Parliament approved a law unanimously which transferred the control of financial institutions to the state. According to that law the Government assumed the housing loans from the banks and integrated them into a state housing fund in an effort to help thousands of residents who had to deal with the possibility of losing their homes.
In addition, Iceland’s three largest banks owed $126 billion to United States of America. However, the nationalization of those three major banks was not enough to restore serenity to country’s financial system. In fact, the debt of those three banks was twelve times bigger than the country’s GDP, which according to analysts was an absolute default!
The whole economic situation in Iceland led to a kind of mess. After a lot of arduous negotiations and intense political debates the Prime Minister Mr. Geir Haarde along with the help of Minister of finance Mr. J. Steingrimur, set up a rescue plan in order to deal with the economic crisis. The Scandinavian countries agreed to provide with a loan to of almost €2 billion, which would be paid back in installments according to the country’s progress. The government also asked for the IMF’s help, which contributed €1,5 billion.
Another part of this ambitious plan was the repatriation of investor funds. But the government did not take into consideration the social unrest. During 2009 the protests in front of the Parliament and the pressure of the opposite parties forced the Prime Minister and his government to resign and declare for early elections. This brought to power the Social Democrats.
The Icelandic citizens asked the new Prime Minister Mrs. Jóhanna Sigurðardóttir for a referendum in order to decide whether they would pay back foreign depositors who had invested their money in the bankrupt banks, or not. After a few months, Iceland decided to pay nothing and so the foreign governments who had aided Iceland in its time of need were obligated to refund their own citizens.
The new Icelandic government set out a different plan for the restoration of the national economy. This plan included the nationalization of banks and the erasure of citizens’ banking debts. This decision decreased the country’s debt by half. By doing this, the small country in the North, again won a place among the top international news stories of the week.
In other news the Icelandic justice department accused former Prime Minister Geir Haarde for a number of crimes concerning his role in the global financial crisis and failing to prevent the country’s economic crisis. The trial has already started and it will last for months, perhaps a year!
On the other side of Europe, another country was stuck in the cyclone of financial crisis: Greece.
The centre-right Government of Mr. Karamanlis implemented some measures, such as the national guarantee of the Greek and foreign deposits, which did not last for long. The Prime Minister, under social and political pressure, decided for early elections during 2009.
The socialistic political party PASOK (Pan-Hellenic Social Movement) won the elections with the slogan “The money exists!” During his campaign Mr. Papandreou informed the people that there was no need for pension and salary cuts or for a change in the national retirement system. Greeks believed him, and so they gave him a great victory with over 2.5 million votes and with a great difference, almost 21%, from the centre-right party Nea Dimokratia (New Democracy).
Even though after the elections the political parties within parliament (except for the parties on the left) were asking for measures against the crisis and for the protection of the people, Mr. Papandreou continued to have an ambiguous and wry position for the management of the crisis. That changed at the end of March 2010 when the government was forced to take measures to prevent the crisis from escalating. But it was too late!
The Greek government decided to implement a variety of austerity measures, which were forbidden before the elections. They cut pensions and salaries from people in the public sector and they increased the retirement age. Mr. Papandreou tried and succeeded in building a mechanism with the IMF, European Union and European Central Bank, the so-called “Troika”. The government signed for the biggest loan ever in international economics, €110 billion, but in order to be approved, they had to agree on a memorandum with the Troika which contained austerity measures, privatizations and nothing for progress and development.
During 2011 the government had to sign another memorandum for the fiscal adjustment for 2012 to 2015, an economic agreement which would enforce the next elected governments to follow the same steps without any derogation. And then the current political system started falling apart. Many MPs of PASOK became independent because they refused to give their approval for the program which had another package of austerity measures. The socialistic party lost 4 deputies (from 161 to 157) and furthermore, Mr. Papandreou had to deal with social unrest and daily protests.
The citizens of Greece rose up and created an independent movement. That social movement, along with the continuing refusal of the parties on the left to cooperate, forced the Prime Minister to resign from his position and to propose the creation of a coalition government. This time only the right-wing and the centre-right parties responded positively in this call for cooperation. The leaders of the three parties (Mr. Papandreou, the new-elected Mr. Samaras and Mr. Karatzeferis) recommended Mr. Papadimos for the office of Prime Minister and he would be responsible for the creation of the new government. The new governmental coalition counted 54 members Ministers and deputies! Yet the Greeks and the left-wing parties were proclaiming this new coalition was a constitutional aberration because the government and the choice for Mr. Papadimos as Prime Minister were not the result of elections. That said, the Greek constitution does gives the Prime Minister a right to form a coalition.
The new government was there for a specific purpose, to negotiate the new memorandum, the new loan agreement and the accompanying measures. Again the result was the same, Mr. Papadimos along with Mr. Papandreou and Mr. Samaras (Mr. Karatzaferis left the coalition) agreed on salary cuts in the private sector, the increase of objective values and a new cut in pensions between 2% to 5%. When the contract was voted on in parliament the two parties lost a big part of their members, people became independent. The government agreed for elections before May 2012, in order for the Greeks to decide whether they approve the two-year policy or not.
If we try to compare the two European countries, Iceland and Greece, we will observe and underline several and great differences in the management of the crisis.
In October 2008, Iceland became one of the first victims of the international economic and credit crisis. However, within three years the country succeeded in coming back on track and to be reborn from its own ashes, like a phoenix. In comparison, the Greeks still suffer from a cycle of austerity measures and they seem to worry a lot for their future within the Eurozone.
Another great difference was the negotiations. Iceland decided to fight hard in order to keep foreign money within the country without taking drastic austerity measures which is in contrast to the Greek Memorandum.
In general we can agree that the elected government in Iceland set and followed a more realistic and social fiscal program in order to deal with the financial crisis. The Icelandic Prime Minister put social providence and Iceland’s own people first instead of favouring the lenders and furthermore, he tried to rebuild the country’s image. Through referendums the Icelandic people co-decided the rescue plan along with the government, and in this way no one could deny the power of the governmental decisions, not even the IMF or the foreign depositors.
Greece with a “unelected” technocratic Government made its own route. The former banker Prime Minister Mr. Papadimos and the political parties which participated in the coalition served the austerity measures with blind faith without taking into consideration that the problems of Greece are structural and not only economic. Greeks know that they had to make a rational fiscal adjustment, but they also know that nothing has been done for progress.
In conclusion, we can say that the best way for a country or a state to deal with a crisis is to prefer elected “social” governments and not technocratic ones who serve the numbers instead of the people. The differences between Greece and Iceland are great and vast but I feel that I can say with safety that the Icelandic way was the better way, and led to better economic repair.