Understanding the financialization of the city

The role of finance and financial actors in shaping the city is increasingly key to understanding some contemporary urban problems. Why are rents rising? Why is office space being built when we’re in the middle of a homelessness crisis and desperately need to increase the supply of affordable housing? How and where is profit being produced from urban space and what are the likely outcomes of this type of model? All of these questions in some way relate to how finance shapes the city.

These questions have somewhat complex answers.  Moreover, these are also quickly shifting sands. Indeed, the crisis (both in Ireland and internationally) and government responses to it has also created new opportunities for financial actors (Vulture funds, Real Estate Investment Trusts etc) to invest in and profit from the production of urban space.  To understand the contemporary city requires us to understand the role that finance plays.

In a previous blog post I looked at the concept of the ‘financialization of the city’. There were two key arguments put forward in that post. The first was that it is important to grasp precisely what is being financialized when we say the city is being financialized. It is the capacity of urban space, or rather property ownership over urban space, to generate ‘rent’ by capturing socially produced value. The issuing of credit and other financial products secured by or underpinned by income streams arising from property is ultimately underpinned by this singular monopolistic feature of ‘place as a commodity’, to use Molotch and Logan’s term.

The second argument relates more specifically to the contemporary context of ‘financialization’, understood as a specific phase of the development of capitalist political economy. Here, the argument is that what is decisive about the current conjecture is the ‘tradability’ of income streams arising from property. The classic example here is the securitisation of mortgages, whereby mortgage repayments are bundled together and traded on international financial markets. This argument has been put forward by a number of the most insightful commentators on this issue, including John Coakley’s (1994) early and extremely prescient work on property as a financial asset and the empirically rich analyses of Guironnet and Halbert (2014; see also Gotham 2006; 2009). Fine and Saad-Filho are particularly succinct in their analysis here:

“[A] mortgage…remains a simple (transhistoric) credit relation between borrower and lender. However, it becomes embroiled in financialization once the mortgage obligation is sold on as part of some other asset…”

In my previous post and elsewhere (e.g. Byrne, 2016) I also but forward the above argument. However, there are problems with this approach that I’d like to address here briefly.

The principal problem with the focus on real estate as a ‘tradable income yielding asset’ (Guironnet and Halber, 2014) is the fact that it is overly reliant on the US case and especially on the example of securitization. This is understandable given the role of securitization in the financial crisis. But it presents a particular problem for understanding the financialization of the city in the European context, where securitization played a relatively minor role. Understanding the role of property in the European financial system leads us in another direction. Here, the key driver of the property bubble was flows of finance between ‘core’ and ‘periphery’ (Flassbeck and Lapavitsas, 2015). This mainly took the form of inter-bank lending.

Essentially, northern European banks invested in the over-heating property markets of Ireland and Spain (and elsewhere) by lending to banks in those countries. Securitization did play a role in Spain (López and Rodríguez, 2010; Norris and Byrne, 2015), but it was far from the main vehicle through which credit flowed into real estate. Nor was it the vehicle through which income streams arising from Irish residential and commercial real estate flowed bank into the international financial system.

Most of the credit issued in Ireland during the property boom was non-securitized, more or less old fashioned development finance, investment loans and residential mortgages. The main driver was thus not financial innovation and the tradability of property as a financial asset, but economic and monetary union and the deregulation of financial flows, elimination of exchange rate risk and low ECB interest rates that accompanied it.

If the transformation of real estate into a tradable income-yielding asset is not the definitive feature of financialization of the city then what is? Drawing on the Irish and Spanish cases, the key feature relates to the way in which income streams arising from local real estate took on a structural and systemic role in the European financial system and its expansion as well as in European political economy more generally. As has been argued by others (Hadjimichalis, 2011; Flassbeck and Lapavitsas, 2015; there also many parallels with David Harvey’s work on the built environment as the secondary circuit of capital here), investment in and returns from real estate canalized the flows of capital from the ‘current account surplus’ core countries to the ‘current account deficit’ peripheral countries.

What is novel, then, is the systemic role of real estate in the circulation of interest bearing capital at a European level. The massive increase in the volume of credit flowing into real estate in Ireland and Spain reflects this role. From this point of view, securitization and inter-bank lending are two different mechanisms or avenues through which global financial capital can flow through local urban spaces, but not the cause or essential factor of the financialization of the city. Instead, the key  factor is the structural and systemic role that income streams arising from property take on in the accumulation of capital at the European level.

One concluding note which is interesting, however, is that the aftermath of the financial crisis has seen huge trading of financial assets linked to property in Ireland, Spain and across Europe. This has mainly taken the form of ‘bad banks’ and other ‘wind down operations’ selling distressed assets to US private equity and hedge funds (Byrne, 2015; 2016; forthcoming). This may mean the importance of property as a ‘tradable income yielding asset’ will grow in the aftermath of the crisis and the role of inter-banking landing and structural flows of capital between core and periphery may diminish. For the moment it is too early to draw any conclusion.

Articles referenced

Byrne, M. (2015). ‘Bad banks: the urban implications of Asset Management Companies’, Journal of Urban Research and Practice, 8(2) 255-266.

Byrne, M. (2016a). ‘Asset price urbanism’ and financialization after the crisis: Ireland’s National Asset Management Agency. International Journal of Urban and Regional Research, 40(1), 31-45.

Byrne, M. (Forthcoming) ‘Bad banks and the urban dimension of financialization: theorizing the co-constitutive relationship between finance and urban space’. City.

Coakley, J. 1994. ‘The Integration of Property and Financial Markets’. Environment and Planning A 26 (5): 697–713.

Flassbeck, H., & Lapavitsas, C. (2015). Against the troika: Crisis and austerity in the Eurozone. Verso Books.

Gotham, K. F. 2006. The secondary circuit of capital reconsidered: globalization and the U.S. real estate sector. American Journal of Sociology 112(1): 231-75.

Gotham, K.F.  2009. Creating Liquidity out of spatial fixity: the secondary circuit of capital and the subprime mortgage crisis. International Journal of Urban and Regional Research 33(2): 355-71.

Guironnet, A. and Halbert, L. 2014. The financialization of urban development projects: concepts, processes, and implications. Working Paper n14-04 URL: https://hal.archives-ouvertes.fr/hal- 01097192/document

Hadjimichalis, C. (2011). Uneven geographical development and socio-spatial justice and solidarity: European regions after the 2009 financial crisis.European Urban and Regional Studies, 18(3), 254-274.

López, I. and E, Rodríguez. 2010. Fin de ciclo: financiarización, territorio y socieded de propeitarios en la onda large del capitalismo hispano. Madrid, Traficantes de Sueños.

Norris, M. and Byrne, M. 2015. Asset Price Keynesianism, Regional Imbalances and the Irish and Spanish Housing Booms and Busts. Built Environment, 41(2): 227-243.

Mick Byrne

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Ireland’s austerity ‘success’ is no model for Greece

Article Published in the Irish Examiner, July 4th 2015.

GREECE is being told to follow Ireland’s crisis solution of harsh austerity and acceptance of bank-and-bailout debt. This narrative conveniently ignores that the Irish ‘recovery’ has been built on major human rights violations and the undermining of long-term social and economic development.

There is a dark side to Ireland’s ‘success’ that requires discussion about the most effective responses to financial and fiscal crises.

The eight austerity budgets between 2008 and 2014 involved €18.5bn in public-spending cuts and €12bn in tax-raising (revenue) measures. Key public services, in particular health and housing, have been weakened as a result.

Public service staff have been reduced by 10% (37,500). Health spending has been cut by 27% since 2008, resulting in an 81% increase in the number of patients waiting on trolleys and chairs in emergency departments. One-third of all children admitted to hospital suffering with mental-health difficulties have been put in adult wards and the waiting lists for youth mental-health services have increased to 2,818 people.

Funding for local authority housing was cut from €1.3bn, in 2007, to just €83m, in 2013. This meant a loss of 25,000 social-housing units. This is a major contribution to the homelessness crisis, with 1,000 children and 500 families now living in emergency accommodation in Dublin. Because of the decision to prioritise bank recapitalisation and developer debt write-down, homeowner mortgage arrears have escalated.

There are 37,000 homeowners in mortgage arrears of over 720 days, and legal repossession notices were issued to 50,000 homeowners.

The cuts to welfare have had devastating impacts.Affected areas include lone-parent supports, child benefit, youth payments, fuel, back-to-school clothing and footwear, rent supplement, and disability and carers’ allowance.

But charges were introduced where they did not exist before — putting a further burden on lower-income households. These charges are ‘regressive’, in that they were not tailored to income level. These include water, property, school transport, prescription, A&E and chemotherapy charges. Fees have effectively been reintroduced at third-level (increasing from €1,000 to €3,000). This will have major implications for participation rates from lower-income households.

Funding for local community development, youth organisations, drugs prevention, family support, and to combat rural and urban disadvantage was disproportionally hit. Programme funding was reduced by 50%.

We are likely to see the long-term social impacts of these cuts in the further exclusion from the labour force of youths in disadvantaged areas. Issues of drugs and crime will surely worsen.

An EU report on the impact of austerity showed that the quality of secondary- and primary-level education has also been reduced, with fewer teachers, rationalisation of teacher/student support services, and the abolition of school grants.

The report links early school-leaving to austerity measures, which are highly concentrated in low-income areas. This, along with the cuts in funding to third-level, will seriously damage our education system, the core of the country’s economic development.

Hundreds of thousands of families and children have been pushed into poverty. The child-poverty rate rose from 18%, in 2008, to 29.1%, in 2013.The deprivation rate increased from 26.9%, in 2012, to 30.5%, in 2013, while for lone-parent families it has risen to 63%. Food poverty affects 600,000 (up 13.2%). Austerity has also devastated rural areas and small towns, with unemployment levels remaining much higher in the south-east.

In one of the most disturbing pieces of research into the impact of austerity, UCC and the National Suicide Research Foundation found an increase in self-harm rates of 31% in men, and 22% in women, between 2008 and 2012, while the male suicide rate is 57% higher (that’s 500 additional deaths). They cited a number of factors, including reductions in public expenditure, cuts to welfare, substantial healthcare cuts, falling house prices and personal debt.

Capital expenditure on important public infrastructure, such as hospitals, schools, roads, transport, broadband, water and wastewater was drastically reduced, by 60%, between 2008 and 2014.
Such spending on infrastructure is the bedrock of sustainable and competitive economies, and the lost decade of investment in these will leave Ireland’s economy much more vulnerable into the future.
Don’t forget, also, €17bn of our national pension reserve — which was available to fund infrastructure development and future pensions — was put into the bailout.

The commitment by Irish governments to pay all the bank- and crisis-related debt will damage our long-term social and economic development, and result in ongoing crises in health, housing, and mental health, and in rising poverty and inequality. This is because funding that should be going to these much-needed public services will, instead, be going on debt interest payments. Debt interest payments rose from €2bn (3.4% of tax revenue), in 2007, to a staggering €7.5bn, or 18% of all tax revenue, in 2014. These interest payments will enforce a form of permanent austerity in the coming decade.
Then, there is the often-forgotten issue of forced emigration. Almost 10% of Irish young people emigrated during the recession and emigration worsened as austerity intensified. It rose from 20,000, in 2009, to 50,000, in 2013. Without emigration, the unemployment rate would be 20%.

Finally, almost half of Ireland’s dramatic increase in GDP is from multinational activity, which does not take place in Ireland.

Thus, much of Ireland’s growth is based on facilitating some of the most profitable global corporations and financial services in reducing the tax they otherwise would have to pay to countries across the world. This is an unethical, unfair, and ultimately unsustainable form of economic activity.

It is clear, as highlighted by a recent assessment by the Irish Human Rights and Equality Commission, that austerity hit the most vulnerable and marginalised the hardest in Ireland. But there was, and remains, a choice about how countries such as Ireland and Greece, and the Troika, respond to debt and financial crises. Debt relief is an important option, as is taxing the wealthy, financial services or higher incomes, rather than taking it from public services, the poor and middle-income earners. The Troika and Irish governments favoured the latter and we can see the human misery and economic damage caused, as a result.

The Irish austerity-and-recovery model is being misrepresented on the international stage and should not be followed by Greece or other crises countries.

The Irish case actually points to the human and economic necessity of debt relief and alternative approaches to fiscal crises.

Rory Hearne

 

Placing neoliberalism: the rise and fall of Ireland’s Celtic Tiger

New paper by NIRSA folk at NUI Maynooth/QUB.

Placing neoliberalism: the rise and fall of Ireland’s Celtic Tiger, by Rob Kitchin, Cian O’Callaghan, Mark Boyle, Justin Gleeson and Karen Keaveney

Abstract.In this paper we provide an account of the property-led boom and bust which has brought Ireland to the point of bankruptcy. Our account details the pivotal role which neoliberal policy played in guiding the course of the country’s recent history, but also heightens awareness of the how the Irish case might, in turn, instruct and illuminate mappings and explanations of neoliberalism’s concrete histories and geographies. To this end, we begin by scrutinising the terms and conditions under which the Irish state might usefully be regarded as neoliberal. Attention is then given to uncovering the causes of the Irish property bubble, the housing oversupply it created, and the proposed solution to this oversupply. In the conclusion we draw attention to the contributions which our case study might make to the wider literature of critical human geographies of neoliberalism, forwarding three concepts which emerge from the Irish story which may have wider resonance, and might constitute a useful fleshing out of theoretical framings of concrete and particular neoliberalisms: path amplification, neoliberalism’s topologies and topographies, and accumulation by repossession.

Published in Environment and Planning A 44(6): 1302 – 1326

PDF: EPA Placing Neoliberalism 2012

 

The Web of European Bank Exposure

Of the deluge of alarming analyses and media commentary on the Irish/European debt crisis that have emerged over the last 24 hours, surely the most unnerving proposition is that the financial markets have already moved on from Ireland and all attention is now focused on Portugal.  The “worst-case scenario” consequences feared from such a development are the spread of the financial contagion from Portugal to Spain (which, given the size of the Spanish economy would be difficult for the EU and IMF coffers to contain), and ultimately an existential crisis for the euro currency. Whether or not this worst-case scenario comes to pass remains to be seen, though recent increases in Portuguese and Spanish bond yields are far from reassuring. With this risk of financial contagion in mind, one wonders just how exposed are European member states to one another’s debts? The chart (below) from a recent Bank of International Settlements quarterly report illustrates just how interwoven the EU member states are in terms of the financial exposure to one another.

A number of features BIS quarterly report have surfaced in recent analyses but perhaps have not been succinctly stated:

• As has been recently reported elsewhere, total exposure of British based banks to Ireland is in the region of $230 billion. Exposure of German banks is not far behind at $175 billion.
• The chart above distinguishes between foreign claims on the public sector, the banking sector, and the non-bank private sector. In both the Irish and Spanish cases, the share of British, French, and German bank exposure to the non-bank private sector appears to be very high. One wonders what exactly will be the consequences of this. Does this mean that even when Irish banks are bailed out, there are still substantial non-banking sector debts that have to be tackled? Do these debts relate entirely to the legacy of Irish property development mania or is this exposure spread more broadly across the Irish economy?
• Government debt accounts for a relatively smaller part of euro zone bank exposure to Ireland than in the cases of Greece, Portugal, and Spain.
• It’s also apparent from the chart above that whatever Greece’s woes may have been, they didn’t stem from a bank crises on the scale of the shocking fiasco Irish banks have become embroiled in. Or, as the Greek finance minister succinctly put it, “Greece is not Ireland”.
• That said, it’s clear that German and French banks were very exposed to Greek debt and are also very vulnerable to Irish, Portuguese, and (in particular) Spanish debts.
• As one would expect, Spain does indeed face the largest exposure to Portuguese debt (coming in at over $100 billion). However, this is by no means the largest exposure of an EU member state to a peripheral neighbour, as indicated by the British banks’ exposure to Irish debts.
• As of 31 December 2009, banks headquartered in the euro zone accounted for 62% of all internationally active banks’ exposure to Greece, Ireland, Portugal and Spain. However, that’s not to say that the other 38% is of no consequence! US banks, in particular, appear to have a significant exposure to both Ireland and Spain.

All in all, one would be forgiven for thinking that  the kindness of strangers is driven by the desperation of worried bankers.

Declan Curran

 

“When I have it, I spend it and when I don’t, I don’t” and other tales of budgetary madness

Former Minister for Finance Charlie McCreevy conjured up his own epitaph when he uttered the now legendary description of his budgetary tactics that went something like “When I have it, I spend it and when I don’t, I don’t”.  This phrase has become somewhat folkloric.  Its attribution is cited as sometime in the mid 2000s and the exact wording changes depending on the telling.  It is a tale of legendary negligence, a legitimation of the burn after earning that characterised the production of Celtic Tiger wealth.  It was a warning sign of the inevitability of hard times to come that we mostly chose to ignore.

McCreevy’s comment is iconic of the era in which it was uttered.  During the Celtic Tiger period a collective consciousness was arguably created in which most of us believed in the myth of eternal economic growth (or if we didn’t, we at least did not think about the consequences of collapse so often).  In a way the Government had convinced people that they didn’t really need state support.  On some level we all knew that the Government were squandering the tax intake but it didn’t somehow seem essential to (most of) our daily lives.  We were producing our own wealth, creating our own opportunities.  They had pulled off the neoliberal trick of convincing the country that it wanted less and not more state intervention.  And this produced new types of citizens.  In the space of a generation the Irish had gone from a people that saved before they bought, questioned any extravagance, and were wary of debt, to a nation only too happy to blow their paycheque on nights out, put the bills on the credit card, and become sodden in debt to buy their dream home and all the trimmings in one go.  For a long time the Irish had been a people who simply didn’t have it to spend.  Now that we had it, by god we were going to spend it.

This attitude was actively encouraged by the Government in almost everything they did.  They transferred the tax burden to assets, property in particular, and talked up the property market at every turn, encouraging people to buy, buy, buy.  They generated an economy based on consumption and called it growth, and they dealt in macro-economic statistics to obscure the uneven and precarious nature of this ‘expansion’. 

 

It wasn’t me …

It would be funny if it wasn’t so tragic.  Bertie Ahern advises the Poland on how to avoid a financial crisis. The mantra is a familiar one:

It wasn’t me; it wasn’t us; how were we to know?  How could I be responsible?  Yeah, sure, we knew that banks had failed elsewhere and fecked their countries, but sure, it’s not the government’s job to have an understanding about how the financial system on which a country depends works.  That’s what banks are for.  Sure, if they pay themselves mega-bucks they must know what they are doing.  That’s why I was earning a fortune and have a massive pension even though I’m still working.  A reward like for good service.  Anyway, it’s not the government’s job to actually be running the country and setting finance policy and making sure the banks don’t feck us.  But even if it were, that would be the Central Banks role, not mine, and sure, they’re a law unto themselves, told me nothing – nothing.  It wasn’t my job to ask, they should have told me.  What, I had my eyes closed and was muttering la-la-la-la-la so I couldn’t hear?  Ha, ha.  What were you saying?  I didn’t hear you.  Only codding you.  But sure, the Irish people love me.  They know I’m a great fella.  Sure, they want me back, that’s why I’m thinking of running for President.  No, that wasn’t a joke.  I’m a great fella all round.  And I have a good solid base of votes – everyone I put on a state board.  Sure, if it wasn’t me we wouldn’t have had a Celtic Tiger in the first place and all those whinging right now would be in London or New York or Sydney or somewhere.  I didn’t make people lose the run of themselves.  I made this country what it is, but I’m in no way responsible for its collapse.  Sure, the only reason we’re in trouble is because of the damn American’s letting Lehman Brother’s collapse.  We’re the victims here, okay.  It’s a global crisis after all.  It’s not homegrown in the slightest.  And I’m as much a victim as anyone.  Really.  I’m suffering as much as anyone; god knows I’ve got time on my hands since I do feck all in the dail any more.  That’s why the President’s job is so right for me.  I can keep giving to the nation.  And if I mess up some protocol or cause a diplomatic incident, sure that’ll be someone else’s fault in any case.  After all, the job was made as a retirement jolly for great fellas.

 

Ireland’s banking crisis: a ‘homemade’ stew of ‘glocal’ ingredients?

Two reports on the causes of the banking crisis in Ireland were published at the same time yesterday as reported by the Irish Times in particular (Irish Times, 10/06/10).  One was produced by a team led by Patrick Honohan, Governor of the Central Bank, while the other one is informed by the findings of an inquiry conducted by German economist Klaus Regling and Max Watson, formerly of the International Monetary Funds and now working for the Chatham House think-tank in the UK. In a nutshell, the two reports broadly come to a very similar overall conclusion: Ireland’s banking crisis is not simply the outcome of  a global financial and economic crisis, it was fostered at home through, among other things, an unreasonable support of the construction industry, a lack of financial regulation, and a unsustainable tax-base. So the successive Budgets during the Celtic Tiger boom period have largely contributed to make the country highly vulnerable to events such as the global financial crisis that has been unfolding since 2008 now. As Regling and Watson put it: ‘Ireland’s banking crisis bears the clear imprint of global influences, yet it was in a crucial ways “homemade”‘. In other words, Ireland’s banking crisis is a ‘glocal’ crisis, which negative impact was deepened by the fact that instead of starting to manage public finances more carefully when hints of an imminent crisis and subsequent recession emerged, the Government continued to spend money as it came without even giving some serious thoughts on how to provide Ireland with a more stable tax-base. Beside the fact that this is a major political blow for current Taoiseach Brian Cowen who was then Minister of Finance, what is interesting here is that the conclusions of the reports may help people think about the continuous importance of local and national political economies, or the political economic choices that we make (through our elected representatives) in an era of so-called globalization.

Delphine Ancien

 

Iceland and Ireland are not only separated by one letter

Another guest post from Iceland, this time from Huginn Freyr Þorsteinsson.

In the early days of the present financial crisis Iceland became one of the poster children for the crash that seemed inevitable. Some commentators thought Iceland’s problems were an indicator for what would soon be the fate of other countries that had prospered in the days of the economic boom. The question was posed in early January 2009: “What’s the difference between Ireland and Iceland? – One letter and about 6-months!”

The question was valid. Although Ireland did not expand its banking system nearly as much as Iceland did the situation in Ireland was serious enough. Both countries had followed neo-liberal policies in trying to lure investors to the country with deregulation, lowering of taxes and privatization. For this the two respected countries got lauded by neo-liberal economists who stated that the proof was in the pudding – economic growth was staggering in both cases. But what is the situation now one year has gone by since the above question was posed?

I think it is fair to say that the doomsday scenarios put forward in October 2008 for Iceland have not materialized. Also that predictions for other countries such as the Baltic States, Ukraine, Ireland, Spain, Italy and Greece turned out to be wrong because they were too optimistic. The status of these countries is now catching the international media headlines whilst Iceland has somewhat gone out of the spotlight and news that Iceland’s economic contraction was smaller then envisaged, unemployment figures lower, less capital needed to put into the resurrected banks and a huge turnover from a massive trade deficit to trade surplus has not surfaced.

Three major differences separate Ireland and Iceland. One is that we do not have the Euro which is extremely helpful when we need to rely on exports and a trade surplus. The Icelandic krona gives way whilst the crisis in Ireland has little or no impact on the Euro. Once an expensive place of travel, Iceland is now actually a relatively cheap destination, helping the tourist industry staying strong despite diminishing tourism around the world. The same goes for the export industry which benefits greatly from a weakened krona as it gets more kronas for the products exported.

The second difference is that Ireland went for an all-out bank bailout whilst Iceland took deposits and matching important assets (loans to individuals and Icelandic companies etc.) and put it into new banks whilst letting the old banks go into administration. This manoeuvre was implemented through emergency legislation in October 2008 in order to protect the Icelandic economy from collapsing along with its gigantic banks (their size was 8-10 times Iceland’s GDP at the time of collapse). This means that the sovereign did not try to stand behind the big banks but used the opportunity to heavily trim them down which in turn has made Iceland’s external debt many times lower than it was in the months before the crash.

The third difference is the future unforeseen impact of pensions on the tax payers’ money. One thing we do know is that the future number of pensioners in Europe will be considerably higher than today and more money is needed to fund pension schemes. When it comes to calculating the government debt or obligations of the state such numbers are left out but it is quite evident that many states will struggle with meeting pension obligations. Iceland has a well funded pension system and as seen on the picture below will be well off in meeting these demands and will probably not have to rely on tax payer money.

Pension fund assets growing in relation to the size of the economy (OECD Pensions and Markets 2008)

The ratio of OECD pension fund assets to OECD GDP increased from 70.7% in 2005 to 72.5% of GDP in 2006. The largest asset-to-GDP ratio was Iceland’s, at 132.7%.

However, Iceland has become very indebted because of the need to take loans to support its currency, restore the banks, resurrect the Central Bank (which went bankrupt), reimburse depositors in the UK and the Netherlands for the Icesave accounts and tackle a massive government deficit. At the moment the Icelandic government is working with the IMF and the Nordic countries in order to get the economy back on track and hasten the recovery. The IMF is working in close collaboration with a left-wing majority government whose finance minister, Mr. Steingrímur J. Sigfússon, comes from the Left-green Movement. The situation for the IMF is probably quite unique as they are dealing with a crisis that is a result of radical neo-liberal policies as opposed to lack thereof. Traditionally the IMF has thought such policies were medicine for failed economies but now the case is the opposite.

The uniqueness of the Icelandic case might be seen in how multi-dimensional it is. It is a bank crisis, a debt crisis (households and companies), a currency crisis and a tainted reputation. But as events unfold in the world economy Iceland’s difficulties seem to be less and less unique. Other countries seem to be catching up quickly and even possibly have already left us behind.

Huginn Freyr Þorsteinsson is adjunct professor at the University of Akureyri.

 

The view from Iceland

This is the first in a series of guest blogs from geographers around Europe. Edward Huijbens is a geographer based at the University of Akureyri in Iceland.
—
On the Friday before the big weekend in October 2008, when the whole finance sector in Iceland came tumbling down, there was tension in the air. During lunch time news a revered economist at the University of Iceland had stated that the banks were bankrupt with unforeseeable consequences for the nation at large. The was obvious panic in his voice and I rushed back to the office, where we gathered round the computer and listened to a replay on the internet of the news. We had not much to say – we were just numb and awestruck. On the Monday after the weekend big news were afoot and the PM was to address the nation on TV at 4pm. The nation came to a stand-still and we watched as the PM announced that the finance sector had capsized and might suck the whole nation in. He ended with the famous Bushian “God bless Iceland”.

Immediately it was clear that this collapse manifested regional disparities within the country. Around the small villages and towns around the cost people shrugged and said; we have had recession here for 30 years, this will not change much. Whilst in the capital region Reykjavík and bigger towns namely Akureyri and Reykjanesbær, the effect was felt more, but also the need to invest all the bubble capital accumulating was mainly manifest there, in highrises, roadworks, big building projects and new boroughs. Now these are all half-done and on hold.

Mostly people were at first numb, did not know what had happened and how. In August 2008 the nation was on the top of the world, with a booming economy and just having won a silver medal in the Olympics in handball. When the handball team returned home tens of thousands filled the streets in Reykjavík as they received a royal welcome – national pride was rampant and all of a sudden it was all gone. Overnight we became equated with Zimbabwe and the likes in international media.

Then it began to dawn on some that the system we had built was fundamentally corrupt, through nepotism, and the ideological dogma of neo-liberalism was flawed. This was of course obvious to many beforehand, but the debate could never be sustained in the face of the amazing wealth that seemed to be pouring into the country. The only political party (the left green) that raised concern was absolutely ridiculed. As one left green parliamentarian suggested that the banks should just leave the country and set up HQ in London, the media uproar was immense.

As it dawned on the general public, various groups started to emerge and talk on various issues: general mis-trust at the political establishment was rampant so new ones formed. The most prominent one started the first Saturday after the collapse in October to rally people at 3 pm on the centre square in Reykjavík in front of the parliament house. There for 30 minutes 3-4 people would give short speeches on their take on the situation and the organiser, the well known civil liberties activist Hörður Torfason, would talk to people reminding them to come next Saturday. His aim was simple, to come every Saturday until three of his demands would be met: 1) That the director of the Central Bank would be ousted, 2) the government resigns and 3) that a general elections will be called.

The firm use of public space to voice simple clear demands became the platform for the change that would in the end occur. People held on to these meetings, and the media made more and more of them as people started coming in their thousands. What at first was a handful of people had by January 2009 become at least 10,000 people (bear in mind in Iceland the population is 320,000 in total). This mass of people simply could not be ignored and when the parliament reconvened after Christmas mid-January, Hörður urged all to come to the square and bring anything that could make noise – this time they will listen. People grabbed pots and pans mostly and filled the central square banging them along with percussionists and blaring horns. Inside the parliament people needed to shout to be heard, but still the parliament members and PM pretended as if nothing was going on. This so infuriated people that they came back the next day and the day thereafter and what unfolded was what later was called the “Kitchenware” Revolution and the government resigned. An interim government took over and general elections were called. There was change and a left government gained clear majority – but now, almost a year on, we are in the interesting situation that this new government seems to be doing all it can to resurrect the former system that collapsed in all its nepotistic and corrupt glory. We are a bit confused up here now and what next we do not know, except it seems clear that it is the tax-payer who will pay.

The lesson in this for me is that clear demands have to be set, with a clear structure and platform for the voicing of these demands: where come hell or high water, the demands will be voiced, and if not heard accompanied by pots and pans. For me the pivotal role that public space plays in the strategic locations, such as ours in Reykjavík, cannot be underestimated.

A hammer and a thick steel frying pan  can sever eardrums!

Eddie from Iceland