Jóhanna Sigurðardóttir - extended interview

The Icelandic prime minister talks to the NS about scrambling to rescue an economy under pressure fr

Click here to see the interview as it appeared in this week's magazine.

How has your first year as prime minister been?
I have always worked hard, and seeing so many Icelanders make tremendous efforts to cope with difficult tasks and decisions inspires me to press for further reforms and to achieve concrete results. First, our aim is to revitalise the economy, balance the state finances and get troubled companies and families on their feet again. This cannot be done without facing the facts, identifying the reasons for the crash and determining who is responsible. Second, the government is taking decisions on law enforcement and changes in our governmental institutions in order to prevent a possible new meltdown in our financial system in the coming decades. Third, by reinforcing democratic processes, promoting better and more responsible governance and a reorganisation of the civil service, the government is opening a new path towards a better society, grounded in the ideals of the Nordic welfare state.

There is still a lot of anger in Iceland about the country's financial collapse. What are the next steps?
Feelings are mixed. Icelanders are both angry and full of sorrow and anxiety. They feel betrayed in many ways by the state, by the banks and by our allies. But the anger is also directed inwards - at ourselves as individuals and as a nation. Why did Icelanders let this happen? Sorting out those feelings will be a long and difficult process. This month, the findings of the parliamentary inquiry into the crash will be published and it's up to the Althing [national parliament] and the government to respond properly and in a trustworthy manner. An extensive judicial process into possible misconduct by financial institutions and other principal players is also ongoing. This will all take time but eventually the reckoning will take place and those suspected of misdoings will be prosecuted. At the same time, the government is pressing on with extensive reform of the financial markets and a radical restructuring of the civil service and the state institutions, in order to ensure that the collapse will not be repeated in the foreseeable future.

How is your relationship with Gordon Brown, given the disagreements over Icesave?
I met him briefly at the COP15 meeting in Copenhagen. We have exchanged letters and spoken on the telephone last week, and our officials have maintained contact. In our conversation last Tuesday, I explained the present situation in Iceland regarding the Icesave bill.

The Icesave bill, and the underlying agreement with Britain, was passed by the Icelandic parliament on 30 December, but the president of Iceland deferred the bill to a national referendum to be held less than two months from now. That is his constitutional right, albeit highly unusual usage of the presidential powers. Mr Gordon Brown was of course disappointed by this delay, but declared his will to continued co-operation with the Icelandic government concerning those difficult circumstances. He expressed the same sentiments regarding Iceland's EU bid, as Foreign Minister David Miliband also conveyed to Iceland's foreign minister, Össur Skarphéðinsson, last week.

Countries have interests and diplomacy is usually not personal, but many Icelanders feel that last year Prime Minister Brown went beyond what can be justified by the protection of British national interests. In addition, the application of anti-terror legislation against a peaceful neighbour and Nato ally is unprecedented. I am convinced that, in a similar situation, the government of the UK would not apply this particular legislation against a larger European country. All of this needs to be discussed openly, while we move forward in repairing bilateral relations.

Are you still seeking to discuss the Icesave issue with him face to face?
In my discussions with Prime Minister Brown, I declared myself ready to meet him if we [both] deemed it productive to clarify and mend the relations between our countries.

What do you expect the outcome of the referendum to be?
The national referendum is in accordance with Iceland's constitution, and that deserves to be respected both at home and in other democratic neighbour countries. I'm convinced that the Icelandic voters will reach the right decision and, on that basis, we will keep on with our recovery plan, hopefully in good co-operation with the international community. You don't contest the judgement of the voters in a democratic society.

Is the request that Iceland repay its bankers' debts reasonable?
Understandably, almost every Icelander finds it unreasonable that Icelandic taxpayers should have to pay thousands of pounds each for a failed private bank, because of mistakes the taxpayers had nothing to do with. But someone has to pay, and the question is really how this burden should be divided between the parties involved.

Iceland has always maintained that the EU regulation on depositors' insurance is flawed, in the sense that it doesn't have relevance in a system crisis where the financial institutions of a country crash at one go. The regulatory bodies of the Netherlands and Britain should also be held accountable for their faulty control of the Icelandic bank Landsbanki in their respective countries. Up to now, we have been pretty isolated in this view, but we will keep on speaking for our opinions on this issue.

If Iceland does not repay its bankers' debts, is there a risk that the country will become an international pariah?
The parliament and three successive governments have stated that Iceland remains committed to honouring its obligations. However, the Icesave case has been deeply contested in Iceland, given the enormous economic burden involved.

If you take into consideration Iceland's progress in 2009 in implementing the economic recovery programme supported by the International Monetary Fund, the prolongation of the conclusion of the Icesave issue is a certain setback. However, Iceland's fundamentals remain strong -- Iceland will recover. We stay in close contact with the governments of the UK and the Netherlands, Nordic and other partner countries, and with the EU and the IMF, in order to explain the issue and the next steps.

How will Iceland's economy change, post-crash?
In future, the Icelandic economy will be based on sustainable use of its fishing stocks and energy resources, and the ingenuity and strength of its well-educated, vibrant, young population. The economy will not return to the flammable combination of high leverage and unbridled risk-taking that drove us into the financial crisis we are now overcoming.

Our international competitive sectors, including tourism, have rapidly become more important over the past 12 months. These sectors will continue to be of high importance and push the economy onwards to rapid recovery. Most importantly, we are restructuring a more stable economy that is returning to its roots as a Nordic welfare state.

To this end, I put great faith in the EU accession negotiations that we hope will start in early 2010. Membership of the European Union and adoption of the euro would secure the already extensive success we have made in restructuring and rebuilding our economy.

What benefits would EU membership bring?
Our goal in the membership negotiations is to reach an agreement that is in accordance with Iceland's fundamental interests as defined by the Althing. Recent polls indicate that public opinion is divided about EU membership, but I expect the nation to approve an agreement if a solution is found regarding fisheries and agriculture. We have been members of the European Single Market for 15 years through the European Economic Area Agreement, as well as being members of the Schengen Agreement, and I believe that the benefits are appreciated in my country.

EU membership will build confidence as regards the future of the Icelandic economy and give a clear sign of direction. This is very important in the light of the circumstances. In addition, we would gain a voice within EU institutions and be able to rely on European solidarity. Prices of certain consumer goods should fall, and the EU's regional policy would be beneficial to the remote regions of Iceland.

Membership would also allow for adoption of the euro, which would reduce the costs we pay to maintain the world's smallest independent currency. We would expect less economic volatility, lower interest rates and funding costs closer to those enjoyed by other European economies.

Your economic "stability pact" received a mixed response from trade unions. As a former union organiser, do you still feel loyal to them?
Times in Iceland are hard for everyone and the trade unions feel the burden of accepting wage cuts, cuts in social expenditure and the rise in income taxes. Nevertheless, they are taking full part in stabilising the economy for the common good.

The trade unions participate in managing the pensions funds, which are fully funded by 10 per cent of the pool of wages each year, and they manage capital the equivalent of 150 per cent of GNP. These funds play an important role in Iceland, as they give us means to invest in large-scale infrastructure programmes, which will raise the employment level in the difficult times ahead. I have given my word on implementing the stability pact, and despite all obstacles I will do my best.

Your government is 50 per cent female. Is equality important to your vision for Iceland?
Definitely! My long experience in politics tells me that egalitarian policies are the best way to unite and empower people, and are also a necessary counterweight to the sometimes dividing and detrimental influence of market forces. A society that does not use the intellectual power of its female population fully is not a wise society. Women are now the majority of students in the Icelandic universities, and 43 per cent of our MPs.

We have to use all our resources to bounce back from the recession and we expect women to take their full part in the new era. Most women are not as tainted by mistakes in the conduct of the economy as the male population, and now they deserve an opportunity. We are determined to achieve gender equality in the political sphere but, unfortunately, the corporate side is still lacking. This is odd, because international research shows that companies with a sound gender policy are better run and more profitable than male-dominated companies. We are prepared to introduce legislation that would actively encourage the private sector to adopt a wiser and more effective gender policy.

By the way, it's not a coincidence that the World Economic Forum recently ranked Iceland first in its annual, 134-country survey of gender equality, followed closely by Norway, Finland and Sweden. We would like to keep that position!

You called for Davíð Oddsson, the former head of Iceland's Central Bank, to stand down. He now edits the Morgunblaðið newspaper. How do you feel about his current job?
It has become a quite common view that he has turned Morgunblaðið into a campaign organ for his own views, rather than a broad-minded newspaper on the right. His assignment is a decision the owners of Morgunblaðið have to stand by, and is not for me to comment on.

Iceland is already experiencing signs of climate change. What moves is your government making to combat it? How can those be reconciled with the need to focus on the economy?
The Icelandic government will soon publish its action plan for reducing greenhouse-gas emissions, recovering wetlands and increasing forestation. In Iceland, renewable energy has supplied 90 per cent of the primary energy needs since 1999 -- proportionally more than any other country. Geothermal sources are also used to heat 89 per cent of our buildings.

Our aim is to become completely energy-independent, using 100 per cent renewable energy sources. This will take time but makes ecological and economic sense.

Following the oil crises in the 1970s, Iceland turned geothermal, and this has led to great savings in the national economy. Some estimates say Iceland is saving as much as a year's national income every 11 to 12 years by virtue of that foresight.

Is there a plan?
A plan provides focus, but it is not an end in itself.

What would you like to forget?
I would like to remember all and be able to forgive everything -- in due course!

Are we all doomed?
Our time is limited, but the spirit is free.

Click here to see the interview as it appeared in this week's magazine.

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.

 

 

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