19 - The New Deliberative Assemblies

Summary

Iceland has traditionally been recognized as a highly homogeneous, developed, and egalitarian country with a strong welfare state. In the mid-1990s, however, the local authorities became interested in the prevalent economic theories of those times favoring the “free market” over state intervention in the economy through “regulations.” Reforms in the financial market were introduced to liberalize the flow of capital, which ended up making the country’s banks and stock market attractive to investors, at least initially. For almost a decade, the country experienced an unexpected “boom” as foreign funds flooded in, which also left the country at the mercy of capital flux. As early as 2005, Iceland’s economy began showing alarming signs of weakness, including high levels of inflation and a sudden change in the flow of capital: almost overnight, capital began to flow out of the market, and quickly. Now a prisoner to foreign capital and its fluctuations, the economic “shock” was immediately felt: the national currency depreciated by 70 percent; the stock market crashed; and interest rates skyrocketed. By mid-October 2008, the downward spiral seemed uncontainable. Faced with the crisis, the government decided to assert control over the country’s three main private banks and declared the economy in a state of “bankruptcy.”