Lessons from Reykjavik

Iceland is an abundance of natural wonders and awe-inspiring scenery. However, its current political scene is perhaps even more of a wonder to behold- and its Independence Party has two lessons for Mr Cameron and co.

If you were to ask an average Briton of their thoughts on Iceland they would likely tell you one of the following three things: Firstly, they might reminisce of a time they went and marvelled at the naturally occurring phenomena that we know as the Northern Lights; alternatively they might remind you of that time one of their may volcanoes erupted and dumped ash all over Scotland; or perhaps even, they will remember the catastrophic banking collapse of 2008, and of the government that failed to rescue them.

All are largely true. Iceland is indeed a tourist hotspot, where people flock to see the Northern Lights amongst many other natural marvels. One which of course includes a few volcanoes, including the one that erupted in 2011, causing major disruption to air travel as well as dirtying a few Scots’ cars. And lastly, the banks did indeed collapse, completely devastating their own economy. However, this was not a failure from the party in power- on the contrary, it was a heroic policy.

Euro flag

In 2008, the financial crisis hit Iceland in much the same way as it did Britain. However, unlike Britain, it was not the left that was in government when there was a finger that needed to be pointed. The centre-right Independence Party, was deemed responsible, or more accurately irresponsible, for its laissez-faire economics, allowing the financial service sector to dominate the economy and by opting to not bail out the banks when they crashed. Leader Geir Haarde was defeated at the ballot box in the 2009, by a leftist party on a ticket of economic control and membership of the EU.

However, resurgently the Independence Party won the majority of seats in the Althing (parliament) this January, forming a coalition with the more centrist but also Eurosceptic, Progressive Party. Unexpectedly, the Independence Party did not apologise, and, as the figures show, they had every right not to. Iceland’s economy expanded, right at a time when the Eurozone flat-lined.

Statistics show Iceland’s GDP increased by 4.2 per cent in the second quarter of 2013, after growing by 0.3 per cent in the first quarter, and is expected to continue on its upward path. Although the previous Social Democratic government may stake a claim for this recovery, one reason Iceland’s economy is racing back to its former glory, is because of its courageous policy in 2008, of standing up to the banks, and letting them fail.

Confused? Allow me to elaborate: when the banks failed, the financial sector that dominated the economy shrank, allowing other industries to fill the void. Iceland’s intellectuals and graduates took up positions not in finance, but in the industries that did not quite go bust- manufacturing, fisheries, IT, tourism and so on. This consequently fuelled the recovery, and making the new economy more broad based, and thus less likely to fail like it did before. Furthermore, unlike  here in the UK where the taxpayer became (and remains) burdened with the responsibility of paying for the bailouts, through cuts or otherwise, Icelanders had no such bailouts to fund, enabling them to gets the wheels of recovery in motion without mountains of debt holding them back.

Adam Afriyie, MP
Adam Afriyie, MP

Thus we have the first lesson for the government, and in particular the Tory party: Laissez-faire economics is not a dangerous game to play, it is in fact, the right and sensible course of action. The privatisation of Royal Mail, Vince Cable’s commitment to removing red tape, and the Chancellor’s favourite policy of cutting corporation tax year on year show signs of this. However, with projects such as the Help to Buy Scheme, it seems they still have lessons to be learnt.

The second lesson regards the leviathan’s leviathan, the bureaucratic monster that is the European Union. Iceland’s Eurosceptic coalition’s first act of government was to withdraw Iceland’s application for EU membership, steering the nation from the institution that would only smother the recovering economy in needless red tape and endless bureaucracy. Despite this, the nation is far from isolationist- it is not only an active member but also one of the founders of NATO. It is part of the Schengen Zone, and is a member of the European Free Trade Association. It has merely recognised that the super-state does more harm than good to its ‘members’.

As Adam Afriyie MP once again heaves up the Tories’ all too tumultuous issue of Europe, they should certainly spare a thought for their Icelandic peers. To allow our slowly recovering economy to prosper in a similar fashion, we too need to remove all restrictions and enable it too actually grow. Our economy is progressing slowly, but it is clearly burdened, and Mr Afriyie is correct in his assertions: The time is not later its now- a date needs to be set, so Europe can take the threat seriously, allowing for serious negotiations of our membership, and consequently at least remove some of the shackles on our economy. If not, the public will almost certainly vote for the UK’s withdrawal. The Icelandic Independence Party made it its first act in its term of government. Britain’s Conservative Party should make it its last.

 

Sean Coley

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