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Iceland - financial meltdown brings down government

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The right-wing government of Geir Haarde has fallen, the first European political casualty of the world economic crisis.

The Social Democrats had demanded to be given control of government, a demand Haarde would not accept, resulting in the resignation of his ministers.

The pressure had been growing on the government. After five straight days of mass demonstrations outside the Icelandic parliament in Reykjavik, there were violent clashes as riot cops used tear gas against the marchers for the first time since Iceland's NATO entry in 1949.

On Thursday 22 January protesters surrounded Haarde's car and pelted it with eggs. He resigned the next day citing ill health – but he is widely viewed as having given in to the mounting calls from the protesters for his resignation.

Haarde's government – an alliance between his right-wing neoliberal Independence party and the Social Democratic Alliance – was looking increasingly weak in recent days. The Reykjavik branch of the Social Democrats had voted for the SDA to withdraw from the coalition government, and both parties are behind in the polls to the growing Left-Greens, a radical left-wing environmentalist party.

Iceland has not been known for sharp class conflict, especially after years of credit-fuelled expansion delivered very high rates of growth for the small Nordic island state, with a bubble in property prices and the very rapid expansion of its investment banking sector. But the impact of the crisis - or the 'kreppa' as they call it in Icelandic - has been very hard indeed.

When Iceland's finance system collapsed in October 2008, the country owed foreign creditors more than $40 billion. Britain and Holland both demanded that Iceland guarantee holdings in their banks, which had offered very high interest rates to depositors, based on the fact that bank rates were pegged to inflation. The level of savings and investments in Icelandic banks expanded wildly to 10 times the country's GDP. But Iceland secured these investments against international loans that were themselves exploded in the global credit crunch. The bubble burst and Iceland couldn't pay.

The tiny country – it has a population of just 320,000 – now has a debt exceeding its gross domestic product. As Jon Danielsson of the London School of Economics has pointed out, this is more relative to GDP than the reparations payments demanded of Germany following World War I (which were 85 percent of GDP.)

Iceland's economy is now expected to contract by 10 per cent this year and unemployment is rocketing. With the Icelandic krona in freefall and prices rising by 20 percent, poverty is a growing issue. Workers laid off last autumn have only now been paid – and the value of their wages has plummeted in the meantime.

Of course, the bankers and financial parasites responsible (called 'Viking Raiders' by the people) have vanished with the loot.
No wonder people are angry, and that the peaceful demonstrations that began in October have mushroomed into a militant challenge to the regime.

As Eirikur Bergmann, professor in political science at Bifrost University in Iceland said: “the people of Iceland [are] starting the first revolution in the history of the republic.” And the Huffington Post quotes the Head of Research at Iceland's Kaupthing Bank: “Today, the Icelandic people are calling for revolution, literally."

No wonder the financial capitalists and their journals are eyeing developments in Iceland very nervously. Alongside Latvia, Bulgaria and Greece, the street protests in Iceland herald new days of confrontation and mass struggle against the effects of the crisis on ordinary people. And although Iceland was one of the first country's to feel the full socially destructive force of the crisis, it certainly won't be the last. Other countries that have witnessed the sudden end to the financial bubble like Ireland are aware that they could follow. A popular joke doing the rounds in Ireland these days runs: “What's the difference between Iceland and Ireland? One letter and six months.”

The Financial Times – the house rag of British finance capital – reports in shocked tones that the Left Greens are ahead of both the Independence Party and the Social Democrats in the opinion polls and could win the may elections. They are especially alarmed that the Left Green programme is anticapitalist says "all natural resources shall be public property and utilised without reducing them".

But there are clear signs that the Left Greens intend not to abolish capitalism but to set out on the utopian path of establishing a small scale capitalism less integrated into the world market. The party's manifesto says only that “It is necessary to prevent monopoly and centralization of capital, enable the conventional industries of Iceland to develop themselves and make use of Iceland's special status to create jobs of all kinds for all the inhabitants.” And the party's leader, Steingrimur Sigfusson, told Reuters he is ready to become prime minister and that rather than simply renouncing the country's huge debt to the IMF “we would be supported by many to try and reopen negotiations with the IMF to at least adjust these programmes better to Icelandic needs and circumstances."

Workers, socialists, anticapitalist and youth in Iceland should organise their own council of delegates to maintain control of opposition politicians and demand the complete cancellation and repudiation of the debt, nationalisation under workers control without compensation of all banks and industries, guaranteeing jobs and expropriating the super-rich. They should fight for a workers' government based on popular mass democratic organisation on the ground. And they should look to the workers of the rest of Europe – whose struggles will surely mount in the months ahead – to link their struggles against the crisis to a joint fight for a Socialist United States of Europe.