One of the myths perpetrated by the organizers of the Puerta del Sol sit-in in Madrid and by commentators on the occupation of Syntagma Square in Athens is that the good citizens of Iceland simply refused to pay the banks’ debts, rejecting terms negotiated with the international bankers saddling every Icelandic family with thousands of dollars of long-term debt which would have taken years to pay off. The anarchist website kaosenlared (31 May) summed up the story like this:

“This is the brief story of the Icelandic Revolution: an entire government resigns in bloc, the banks are nationalized, a referendum is held so the people can decide on overriding economic issues, those responsible for the crisis are jailed and the constitution is rewritten by the citizens.”

A business website, El Confidencial (20 March), spoke of “the revolution without arms in Iceland, the country with the oldest democracy in the world (dating from 930), whose citizens managed to change it by demonstrations and banging pots and pans.”

An “Icelandic Revolution”?! Did we miss something? Not at all. This is a fairy tale worthy of Hans Christian Andersen, and the Icelandic people are far from living happily ever after. The fact that would-be leftists peddle such nonsense is a measure of their democratic illusions … and how distant they are from actual revolutionary struggle.

What is true is that in the wake of the September 2008 Wall Street crash following the Lehman Brothers bankruptcy, mass demonstrations forced the resignation of the conservative cabinet of Icelandic prime minister Geir Haarde, the first and so far only government to fall as a result of the economic crisis; that the banks were nationalized and several bankers arrested; and that the population has rejected terms of a settlement demanded by Britain and the Netherlands to pay off investors in those countries who lost billions of dollars deposited in what amounted to an on-line Ponzi scheme, Icesave, sponsored by Iceland’s leading bank, the Landsbanki. But that in no way means that the Icelandic population has painlessly escaped from the consequences of the world capitalist economic crisis.

On the contrary, the standard of living of Iceland has been cut in half, a far bigger fall than in Spain or even Greece, where wages have plunged by 30 percent. The economy as a whole declined by 10 percent in 2009-10. Stock market prices plunged by 98 percent, meaning that anyone who invested their savings there was completely wiped out. The Icelandic currency, the króna, has lost roughly 60 percent of its value, while exchange controls have been imposed so that foreign currency is available only for government-approved imports. Moreover, tens of thousands of home owners (out of a total population of only 330,000) stand to lose their houses to foreclosure by the banks. And neither the government nor companies and individuals can obtain credit from international financial markets (or from the “restructured” private banks, which are still reporting fat profits).

There is nothing inherently “anti-capitalist” about nationalization of the banks by a bourgeois government. In fact, such action is usually done to save the capitalists from the disaster of bankruptcy by socializing losses. In Iceland, when the three main banks (Landsbanki, Glitner and Kaupthing) were nationalized in September-October 2008, this meant that the billions of euros they owed to foreign investors suddenly became the responsibility of the government, and taxpayers would foot the bill. And while voters twice turned thumbs down on a deal over the Icesave debt with the British and Dutch banks (the first time by 93% to 2%), in response the international ratings agencies reduced Iceland’s “sovereign” (government) debt to “sub-investment grade,” and they may further reduce it to junk bond status when over $1 billion in bond and loan debt comes due later this year, making it impossible to refinance in the market.

The dozen or so bankers arrested are mostly operations-level managers while the so-called “Viking” banker/investors and top government officials are still free. Former Kaupthing chief Sigurdur Einarsson is holed up in London, while Jon Asgeir Johannesson, the main shareholder in the Glitnir bank and head of Baugur investments, who bought up high street stores in London and Gramercy Park real estate in New York, is still jet-setting around.  Former prime minister David Oddson, who ran the country for 14 years before naming himself head of the central bank in 2004, a main architect of Iceland’s bank privatization, is editor in chief of the main bourgeois daily, Morgunbladid, which one commentator quipped would be like “appointing Nixon editor of the Washington Post during Watergate” (quoted by Robert Wade and Silla Sigurgeirsdottir, “Lessons from Iceland,” New Left Review, September-October 2010). And while the most drastic cutbacks in public employment and services were postponed until this year, the hammer will soon come down, sending unemployment (already eight times its pre-crisis level) skyrocketing.

So the conservative government was toppled, but what has Iceland got instead? The British Socialist Workers Party (SWP) speaks of a “saucepan revolution” resulting in the installation of a government coalition between the Social Democratic Alliance (SDA) and the Left Green Movement (LGM). Yet it was these reformist leftists who agreed to the 2009 deal to pay billions to the British and Dutch banks, and then when that was turned down they agreed to a second deal, which was also rejected by the voters. Social-democratic prime minister Johanna Sigurdardottir vows that “We need to keep going…. We have to get an agreement” to pay the Icesave bill, which amounts to $17,500 for every man, woman and child in the country. Some “revolution,” and some “socialists” and leftists these are, who would mortgage the future of the working people to pay off the bankers!

At the end of 2008, Iceland’s overall external debt stood at €50 billion, almost six times the the GDP (down to €8.5 billion in 2010). This debt is literally unpayable, no matter how much budgets are cut or exports increased. Iceland exists today solely at the pleasure of Washington, of the White House and the bankers cartel known as the International Monetary Fund. They know the money will not be repaid, but figure the amounts involved are piddling on an international scale. The external debt of Greece, on the other hand, and even more so of Portugal and Spain, are large enough that financial authorities worry that a default could trigger a general financial collapse. So long as national governments are subject to the world market, no matter how “progressive” or “leftist” their rhetoric, they cannot break the stranglehold of finance capital. The experience of the non-existent “Icelandic Revolution” demonstrates it.

The idea, pushed by liberals, anarchists, pseudo-socialists and the “citizen’s movement” in Spanish cities, that one could get out from under the crushing burden of debt simply by voting not to pay is a deadly dangerous “democratic” illusion. Not only revolutionary Marxists but mainstream economists know that this is not how capitalism works. In a country like Spain, the imperialists would stage a military coup (as the CIA is reportedly weighing in Greece today) and send the Guardia Civil into the streets to deal with petty-bourgeois youth in the Puerta del Sol rather than let a major country refuse to pay the bankers “their” interest and principal. The demand to repudiate the imperialist debt is thoroughly justified, and utterly necessary. But it will take workers revolution to achieve it, and international socialist revolution to secure it. ■