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.

Photo: STEFAN BONESS/PANOS
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What Britain needs to understand about the profound and ancient divisions in Germany

As Angela Merkel campaigns for re-election, the balance of power in Europe is changing.

On 24 September, Angela Merkel will be re-elected chancellor of Germany and that, we might think, will be that. With Merkel and France’s Emmanuel Macron in control of the European project, populism will surely be vanquished and the old Franco-German core of the EU restored. Yet things are changing, and if western Europe wants Germany to keep singing “Ode to Joy” as enthusiastically as “Deutschlandlied”, it will have some work to do. Our Brexit negotiators need to see how important this is to Macron, to other European leaders and, above all, to thinking Germans.

For we may all soon miss the old, self-effacing Germany. Despite having such economic power, it always seemed to have no greater wish than to exist as part of a larger whole. Konrad Adenauer, its first postwar chancellor and founding father, made Westbindung (“binding to the West”) the heart of West German politics. Adenauer came from the deeply Catholic Rhineland, “amid the vineyards” as he put it, “where Germany’s windows are open to the West”. His instinctive cultural sympathy was with France, but he knew that West Germany’s existence depended on keeping America in Europe. France he courted out of profound conviction, the US out of clear-eyed necessity, and he was worried that after him this twin course might be abandoned. His demands for reassurance during his final year in office led to John F Kennedy’s “Ich bin ein Berliner” speech of 1963. Every West German knew about that, and about the Berlin Airlift: these became locations of national memory from which West Germany triangulated its sense of self.

There were some Germans for whom this was too much. Anti-Americanism was ingrained among West Germany’s hard left, the early Green Party and the tiny hard right. But even Germans who were suspicious of America had no fear of tying themselves closer to Europe. On the contrary, that was exactly what they wanted. The standard explanation of this is guilt. West Germans, in this argument, felt so remorseful about the horrors of the Second World War that they wanted to make amends. This idea fitted with others’ belief that Germany did indeed have much to feel guilty about.

A nuanced version of this held that the western Germans thought they had somehow “got away with it”, compared with their brethren in the east, who had felt the weight of Soviet vengeance: rape, pillage, occupation. Accordingly, Germany’s willingness to subsume itself so thoroughly, even as it footed the bills for the European Economic Community and later the European Union, was accepted with little gratitude, almost as an ongoing war debt repayment.

This guilt thesis is based on a misunderstanding of German history, especially of the experience of western Germans. The most graphic illustration of this comes from Adenauer. In 1955, he privately informed the British that while he was obliged to act in public as though he wished for reunification, he intended to devote his remaining years to blocking it. In 1961, he secretly proposed to the Americans that they offer the Russians a swap: they and he should, he said, give up West Berlin in return for Thuringia (the region containing Leipzig and Weimar). He wanted, in effect, to make the River Elbe the eastern border of Germany.

Why did Adenauer dislike the eastern Germans, think Berlin was expendable and consider the River Elbe to be the natural frontier? Simple: he knew that the Elbe was Germany’s Mason-Dixon line. Beyond it lay the flat, grim Prussian heartlands, which until 1945 stretched into present-day Russia. This vast region was known to Germans as “Ostelbien” – East Elbia. Adenauer viewed the “unification” of Germany in 1871 as East Elbia’s annexation of the west. That’s why in 1919, as mayor of Cologne, and again in 1923, he tried to get Britain and France to back a breakaway western German state. Having failed, he is said to have muttered, “Here we go, Asia again,” and closed the blinds every time his train crossed east over the Elbe.

Prussia was a different country. The victorious Allies agreed. On 25 February 1947, they declared: “The Prussian state, which from early days has been a bearer of militarism and reaction in Germany… together with its central government and all its agencies are abolished.” The name Prussia was eradicated. The Prussian hegemony of 1871-1945, an anomaly in the two millennia of German history, was over.

If we understand this, we understand what West Germany really was and why it acted as it did; why the “reunification” of 1990 – or, at least, the way it was handled – was such a mistake; why we may all have to stop taking Germany quite so much for granted now that East Elbia is back; and why our Brexit negotiators are on a hiding to nothing if they believe that the Germans have no more urgent business to consider than their car exports to us. Far more important to liberal Germans is keeping safe the western soul of Germany.

***

West Germany was anything but an artificial construct. It was the historical Germany, being almost geographically identical to what was, for almost 1,200 years, the only Germany. Julius Caesar named the land, together with its people, in 58 BC; 49 years later, Drusus, the greatest commander of the infant Roman empire, is said to have been supernaturally advised that after defeating every tribe he met in Germania, he should halt at the River Elbe. By 100 AD, Roman rule was shown by a fortified border, the Limes Germanicus. You can still walk large stretches of it; it encompasses most of the richest land in modern Germany and all of the great cities except Hamburg, Berlin and the 19th-century industrial monocultures of the Ruhr. Even these last were born as trading posts or forward bases within what archaeologists call the “market region” of Germania – the lands beyond the limes where commerce with the Roman empire defined the whole culture. Southern and western Germany’s cultural roots are almost as Roman as France’s.

But what about 9 AD and the destruction of three Roman legions by the German tribes under Arminius? There is a popular myth that this kept all Germany free and different. We owe this idea to Martin Luther and his supporters: Luther claimed from 1520 onwards to be a German, anti-Roman hero and identified himself with the newly rediscovered tale of Arminius. More decisively, the events of 9 AD were an obsession of later Prussian historians, who had an interest in claiming that the real Germany was one that was pure and un-Romanised. Yet the reverse is true. Under the Romans, then the Merovingians, then the Franks, the Rhine/Danube super-region of Germany remained politically and culturally a part of western Europe. After Charlemagne, a Rhineland German, “restored the Roman empire” (as his seals put it) in 800 AD, western Germany was the very centre of things. It was never a nation state, but always the key part of a greater whole, the Holy Roman empire.

Along the Elbe, things were different. Charlemagne extracted tribute from the pagan Slavs across the river, and his successors tried to build on this, but the German conquest and settlement of East Elbia only really began with the Wendish Crusade of 1147, the northern arm of the Second Crusade. Three centuries later, the entire region was still hotly disputed by Balts and Slavs, with German supremacy threatened by major defeats at Tannenberg (1410) and in the Hussite Wars (1419-34).

Long-contested frontier lands breed a special kind of society. The German incomers cowed the natives, such as the pagan Pruscie from whom they ultimately borrowed their name, through brute force. Where they couldn’t, they had to make armed deals with local elites. In this new sort-of-Germany, the Junkers, an aggressive landowning caste, lorded it over the Slavs and Balts – as well as poorer Germans, who knew that the locals would cut their throats if the Junker castles fell, so were loyal and subservient to their masters. East Prussia remained like this within living memory.

In 1525, Prussia named itself and declared itself the first Protestant state. From then on, it had absolute rulers, the Hohenzollern dynasty, backed by a quiescent Lutheran state church. The Junkers swore loyalty in return for exclusive access to all officer-level jobs in the army and the administration. By the mid-18th century, Voltaire quipped that while other states had armies, the Prussian army had a state. The overriding strategic concern of Prussia was always with the east. In his 1758-59 campaigns, Frederick the Great was shocked to find the Russians extremely hard to beat. He bequeathed to his successors a policy of keeping the tsars onside. Partitioning Poland between them was the sticking plaster that masked this Russian-Prussian rivalry, right until 1941.

This thoroughly east-facing power was, by the normal standards of European statehood – history, social structures, religion, geography – a different country from the Rhineland, Swabia or Bavaria. It defeated them all in 1866, laying the ground for the “unification” of 1871. The Prussian empire (for that is what it was) could now enlist the wealth, industry and manpower of Germany in pursuit of its ancient goal: hegemony over north-eastern Europe. By 1887, the future imperial chancellor Bernhard von Bülow was already musing on how to destroy Russia “for a generation”, cleanse Prussia of its Poles, set up a puppet Ukrainian state and take the Prussian armies to the banks of the Volga. This is the bloody Prussian – not German – thread that leads directly to the Nazi onslaught of 1941. In 1945, that centuries-long struggle was settled, in almost inconceivable violence. Half of East Elbia was ruthlessly stripped of Germans and handed over to Poles or Russians; the rump became the German Democratic Republic (GDR), a mere satrap of the Red Army.

So while it is easy and comfortable to say that the otherness of eastern Germany today is the result of that 40-year Soviet occupation, history says otherwise. East Elbia has always been different. Take the voting patterns: from 1871 to 1933, East Elbia outside Berlin (always a left-liberal political island) was the main electoral reservoir for the authoritarian right. The Prussian Conservative Party under the empire, the Deutschnationale Volkspartei until 1928 and the Nazis from 1930 depended on rural and small-town East Elbian voters. It was they who (just) swung things in 1933, by going 50-60 per cent for the “Hitler coalition”. Had all Germany voted like the Rhineland or Bavaria, Hitler and his Junker allies would have got nowhere close to a majority. Small wonder that Adenauer didn’t want East Elbia back and was secretly delighted to have it safely fenced off behind the Iron Curtain.

***

West Germany (1949-90) – Germany shorn of Prussia – was, then, no historical fluke, and nor was the supra­national way it acted. This was the real Germany. But the hasty reunification of 1990 (there was no referendum or election on the issue) changed things. Why should the inhabitants of the former GDR, rather than Poles and Czechs, get immediate access to the wealth and benefits of the West? Because they were Germans. With that, the chancellor Helmut Kohl embraced the notion that being German overrode all considerations of social, economic or historical difference. He also subliminally revived the idea, common to the Second Empire and the Third Reich, that East Elbia was special and needed subsidising by the rich west of Germany. The director of the Bundesbank, Germany’s central bank, resigned in 1991 over this abandoning of economic sanity for political nationalism.

Since 1990, the former East Germany has received more than €2trn from the old West Germany, for a fast-ageing, shrinking and disproportionately male population of only 16 million, including Berlin. That’s the equivalent of a Greek bailout every year since 1990, and as a straight gift, not a loan. This represents a huge shift in financial priorities, overshadowing Germany’s annual net EU budget contribution (currently €15.5bn). In 1990, Kohl promised that western German aid would soon turn the new states into “blooming” areas, but they have become, instead, proof that age-old differences resist even the most gigantic subsidies.

Between 30 and 40 per cent of voters in East Elbia have declared over the past two years that at the general election, they intend to support either Alternative für Deutschland (Germany’s Ukip), Die Linke (heirs to the old East German Communist Party) or the all but openly neo-Nazi National Democratic Party (the NPD, currently represented in the Mecklenburg-Vorpommern state parliament). Though theoretical enemies, these three parties are united by cultural affinities: all despise economic liberalism, oppose Nato and the EU and want closer relations with Russia.

East Elbia no longer has the population to swing the entire German electorate of more than 61 million but many liberal western Germans are nervous. They recoil at the sight of anti-asylum-seeker attacks, which are proportionally far more common in East Elbia than in the west, or when they see Merkel heckled by right-wingers. They call East Elbia Dunkeldeutschland (“Dark Germany”) and joke bitterly that if Britain can have a Brexit, why can’t the old East Germans, whom they lump together under the name of Saxons, have a “Säxit”? But it’s no laughing matter. They know there are those only too aware of any anti-western drift in Germany and eager to give succour to it.

Alexander Saldostanov, the rabid leader of Russia’s “Night Wolves” bikers and a public friend of Vladimir Putin, recently told Germany’s bestselling daily, Bild, that he dreams of a grand union between Germany and Russia: “We have so much in common. You simply have to free yourself at last from America, that scourge of humanity. Together, we can, should and must take power.”

There’s no danger of that, but there is a sense in which eastern Europe is, to Germans, no longer “the other”. It’s the place whence natural gas flows from Russia, where labour is cheap but skilled and where the people are keen to work with Germany on setting up new sites of joint national memory. From Kaliningrad to Prague, museums and projects are springing up in which the horrors of the past are neither denied nor used as ammunition in today’s negotiations. In eastern Europe, perhaps because Russia is so close, the Germans are rarely made to feel guilty for their grandfathers’ sins. Meanwhile in the west, from Greece to Britain, people can’t resist mentioning the war whenever the Germans don’t act as desired.

***

Germany’s resources are not infinite. Nor is the patience of the 40 per cent of Germans who “have net worths of essentially zero”, as Die Welt reported last year – largely because German home ownership rates are the lowest in the EU. They are disproportionately concentrated in the old east, the region that never had supranational, western European connections. From them come ever-louder voices saying that Germany’s EU contribution is too high. And with Britain out, the maths will look even worse to such voters. If south-western Germany’s taxes have to keep bailing out the country’s east, while also helping out the old and new EU lands, what is left for, say, the post-industrial Ruhr, which has financial and social problems of its own? There are tough choices ahead, and it’s not hard to imagine a day when Germany decides to aim its subsidies and investments where they seem most welcome. The old idea of Mitteleuropa – a multi-ethnic, German-centred Middle Europe, neither of the West nor of the East – no longer seems so antiquarian. Nothing would gladden Putin’s heart more.

So, yes, Merkel will win the election and will have a chance to revive the EU’s Franco-­German core. Yet the relative strengths of France and Germany are different now. As for their leaders, while Adenauer was a devoted Catholic Rhinelander, Merkel is a Lutheran vicar’s daughter from the east. Bonn was physically close to Paris, Brussels, The Hague, even London; Berlin is closer to Prague and Warsaw.

With Donald Trump’s wavering on Nato and his noisy anti-German protectionism, along with Brexit, the West may no longer seem vital to Germany’s future. During Merkel’s election debate with her main challenger, Martin Schulz, on 3 September, Brexit was not even mentioned. The old EU core will have to work to keep Germany anchored, resisting any new call from the east. Macron and German liberals know that; that’s why there will be no Franco-German split over Brexit just to sell us a few more Audis. The sooner David Davis and Liam Fox realise that the Germans have far bigger issues to deal with, the better.

James Hawes is the author of “The Shortest History of Germany” (Old Street Publishing)