Chapter 4

THE NEW POLITICAL ORDER IN POST-

CRASH ICELAND

Refoundation, continuity or status quo?

Eirikur BERGMANN

In autumn 2008, Iceland suddenly took centre stage as a symbol of the

international financial crisis when its three international banks, representing
85 % of the country’s financial system, collapsed within a single week. Similarly
to what happened in other countries, this episode has become known as
“the crash” since then. International media extensively covered the financial
collapse of this tiny island state, which was unable to meet its obligations and
has come to rank third in the history of the world’s greatest bankruptcies.

Financial crisis and democratic crisis: the impact of

the crash

The stock exchange and the entire equity market were virtually wiped out
almost immediately and the Icelandic króna (ISK) tanked, spurring rampant
inflation which, in the following weeks and months, ate up most people’s
savings. Property values dropped by more than a third and unemployment

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reached levels never seen before in the short life of the Republic of Iceland. In
the wake of the crash, key government institutions and the political class stood
accused of having sponsored the rise and collapse of the financial bubble.
In a series of largely non-violent mass popular protests, the so-called “pots
and pans revolution”, the right-of-centre government led by the hegemonic
Independence Party (IP),1 in coalition with the Social Democratic Alliance
(SDA), was ousted in February 2009 under popular pressure. It was replaced
by a fragile left-wing caretaker government led by the SDA in coalition with the
Left-Green Movement (LGM). This was a minority government backed by a
new leadership within the Progressive Party (PP) which had, until 2004, served
as junior partner in coalitions with the IP. A well-known activist for social
reform who had belonged to the far left of the SDA, Jóhanna Sigurðurardóttir
became Iceland’s first female Prime Minister. Her government promised to
put the house in order and eradicate corrupt practices by implementing more
professional and transparent decision-making processes. Subsequently, the
three politically appointed governors of the Central Bank were replaced with
a single professional governor (Már Guðmundsson, SDA member) while the
director and board of the Financial Supervisory Authority were sacked. After
gaining an absolute majority in the parliamentary elections in spring 2009,
Iceland’s first fully left-wing government (SDA/LGM) introduced a number
of policies and programmes aimed at replacing the discredited neo-liberal
growth model with a resurrected Nordic-type welfare state.

Popular desire for political and institutional

renewal

Not only did the crash cause a deep economic recession but it also led to a
serious crisis of democratic legitimacy. The “pots and pans revolution” was
accompanied by numerous demands for democratic reform, precisely to
ensure that the state regained its lost legitimacy. Ideas for the country’s
recovery poured into the public debate through all discussion channels: the
media, open forum meetings and Internet. New associations were formed to
challenge the ruling class and the whole political system. The traditional party

1 The party that dominated Icelandic politics during the period 1944-2009.

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system, organised around four main groups, was rocked by the emergence of
new political parties and an ever increasing pressure to renew the leadership of
the established parties. Symbolic of this aspiration for renewal of the political
class was the election of a comedian, Jon Gnarr, as Mayor of Reykjavik.
Serious discussions followed on creating a new Icelandic republic along
French lines. Among the strongest demands was a call for a revision of the
country’s constitution, which largely involved the citizens. The idea was
that Icelanders would collectively write their own constitution to replace
the old one, mostly dating from the period when the country was still tied
to Denmark. This was actually a test of legitimacy as citizen participation
in the process of drafting the constitution was seen as a catalyst for reform
of the political system that had just collapsed. Pressured by an angry public,
the new left-wing government, propelled to power following the “pots and
pans revolution”, satisfied the demands of protesters and proposed to the new
Parliament elected in spring 2009 a process by which ordinary people could
participate in drafting the new constitution.
One of the government initiatives was to create the post of a special
prosecutor to investigate the criminal activities of the financial sector that had
led to the crash. There would also be a special investigative research commission
appointed by Parliament (truth committee) to analyse events and study the
constitutional possibility of prosecuting the country’s political leaders. In the
first four years, close to a hundred cases of suspected fraud were referred to the
special prosecutor. In addition, international agreements were signed to allow
access to international financial markets once more and thus benefit from the
assistance of the International Monetary Fund (IMF) to stabilise the economy,
not least with the introduction of capital controls and the co-financing of a
loan package with the Scandinavian and Polish governments. An application
for EU-membership was brought forward to create a more stable framework
for Iceland’s economy.
All these measures were implemented not only to resurrect but rather to
establish a reformed basis for Icelandic society and mark a paradigm shift
from the collapsed neo-liberal model. However, all of these initiatives, both
those of the government and those of the citizens, were highly politicised in
the new political order that emerged from the crisis.

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The new political order: a period in between?

The process of drafting a new constitution followed three stages. A

National Forum first convened a thousand randomly selected people to
discuss the essential principles. Next, a constitutional committee of experts
prepared information for an elected Constituent Assembly – which became
the Constitutional Council after the invalidation of the elections – responsible
for drafting the proposed constitution. The process was praised by many
foreign observers for its innovative aspect in practices of participatory
democracy. However, the political forces of the centre-right recently ousted
from government fought fiercely against the constitutional process every step
of the way. Finally, political infighting in Iceland after the crisis resulted in an
interruption of the change process. We will return to this later.
Despite benefiting from its longstanding opposition to the previously
hegemonic Independence Party, delegitimising the idea of a capitalist society
“rising from the ashes” proved to be a hard sell for the new left-wing coalition
government.
Historically, the emergence of a new political order in the wake of capitalist
crises is not at all unusual. What is unusual is the existence of a sustained crisis in
an advanced capitalist economy. The new order in Iceland thus poses a serious
test for capitalism and its capacity to relegitimise itself wherever the state is in
trouble. Iceland provides an opportunity to study a potentially paradigmatic
case of an extended period of capitalist relegitimisation, or of resilience and
struggle between different competing recovery projects. In addition, interests
and high stakes on the political and economic plane also fostered political
reluctance and institutional obstruction of this popular refounding moment
that was seeking to bring new founding values to the Icelandic state. Thus, the
interests at stake in terms of collective or private ownership of fishing rights
were at the heart of the popular demands and the reluctance of some political
actors.

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The initial intention to refound the legitimacy

of the Icelandic state depends on Constitutional
reform

Crises in capitalism can open up our thoughts to new “economic

imaginaries”.2 Similarly, constitutional revisions are usually only embarked
upon in the aftermath of severe political or economic crises.3 This is what
Ackerman (1998) refers to as a “constitutional moment”. The case of Iceland,
where a major crisis triggered a constitutional reform project, is far from being
isolated.
After the crash of 2008, Iceland’s “constitutional moment” could perhaps
mark the start of an eighth wave4 spreading out in the wake of the international
credit crunch.5 The participatory approach of the Icelandic process was
reflected in a large number of initiatives around the world, such as the citizens’
panels convened for electoral reform in Canada, in the provinces of British
Columbia in 2004 and Ontario in 2007. There are also similarities with the
Dutch Burgerforum of 2006 and the Irish Constitutional Convention of 2013,
in addition to similar citizens’ initiatives in Belgium (G1000) and Estonia
(Ravagogu).
Despite these similarities, in many ways Iceland’s process remains
unequalled. In the wake of the crisis, Iceland found itself in an unprecedented
situation for any country: it was facing the opportunity to virtually wipe out
the past. In addition, to better understand the dynamics at work in the process,
it is necessary to bear in mind that constitutional reform had been on the
political agenda of Icelandic politics ever since the republic was established in
1944, when the country finally freed itself from Danish rule, while Denmark

2 E. Jessop, “Critical semiotic analysis and cultural political economy,” Critical Discourse
Studies, 1(2), 2004, pp. 159-174.
3 J. Elster, “Forces and Mechanisms in the Constitution-Making Process,” Duke LJ, 45, 1995,
364 p.
4 The first processes of modern constitution making started in the late eighteenth century.
Professor Jon Elster (1995) describes seven waves of constitution making running through
Europe and North America (and their former colonies around the world) following the US
declaration of independence in 1776.
5 In addition to Iceland, constitutional revision processes have begun, for example, in
Belgium, Ireland and Luxembourg.

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itself was still under Nazi occupation. Accompanying the proclamation of

the republic, the founding fathers announced that a complete constitutional
revision would be undertaken immediately. However, mostly as a result of
political infighting, Iceland’s parliamentarians have never since been able
to agree to amend the constitution except on very minor changes. In other
words, when the process was restarted after the crash, constitutional revision
had in many regards been very much an unfinished project in Iceland.

From popular impetus to political institutional

logic

As mentioned above, it should not be forgotten that it was in the face of

pressure from an angry public that the new left-wing government decided to
launch the constitutional revision process in 2010. Parliament then called a
special election to appoint the 25 members of the Constituent Assembly, who
would be in charge of either revising the constitution or drafting a completely
new one based on the work of the National Forum and the Constitutional
Committee of experts.
In a country used to election turnouts higher than 75 %, only a third of the
electorate participated in the unique election of the Constituent Assembly, in
which 522 candidates stood for only 25 places. Those elected were from all
walks of life: doctors, lawyers, priests, professors, company board members,
a farmer, a fighter for the rights of disabled persons, mathematicians, media
people, erstwhile MPs, a nurse, a philosopher, poets and artists, political
scientists, a theatre director and a labour union leader. Soon after the results
were announced, the opponents of the process complained that only previously
well-known individuals had been elected, mostly from the ranks of Reykjavik’s
left-leaning elite. Most were however not affiliated with any political party or
political association.
The process ran into serious trouble when in late January 2011 six Supreme
Court judges, acting in their capacity as a special electoral administrative
authority, declared the election null and void. They found that the electoral
authority had deviated too far from normal operating procedures in force for
parliamentary elections, that the polling booths could not be sufficiently well

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closed, that the ballot papers had not been folded before being placed in the
ballot boxes and that the ballot papers were numbered and bar-coded, thus
raising questions of traceability.6 Even though the judges stated that these were
only technical deviations not affecting the end result, and that there was no
indication of wrongdoing, they had no choice but to invalidate the elections.
This was an extraordinary decision which dealt the whole process a near fatal
blow.
Faced with this unexpected decision to invalidate a national election (not
only in Iceland but in the whole contemporary Western world) on solely small
technical deviations, Parliament decided to appoint those individuals elected
to the Constitutional Assembly to a Constitutional Council which would more
or less have the same tasks.

An attempt by the institution to build its legitimacy

in opposition to the political establishment: the
Constitutional Council

It was thus in a rather humbling manner that the Constitutional Council

started its work on 6 April 2011. In its first days, it decided to focus its work
on three principles: distribution of power, transparency and responsibility.
Though agreeing on the principles, the Council members held vastly different
positions on the content of the constitution, on how to proceed or even on the
fundamental question of whether the constitution should only be amended
or completely rewritten. The Council members were, however, still able to
agree on the execution of three main initial tasks: to update the human rights
chapter,7 to more clearly define the branches of government and build in
checks and balances, and to implement a more direct democracy.8
While Parliament asked the Council to focus on a few isolated points, quite
early on, it decided to write a new constitution rather than simply amend

6 A. Meuwse, Popular Constitution-Making: The Case of Iceland, Tilburg Law School, 2012.
7 In particular, to bring it up to the same standard as the best rules on the matter by
incorporating social and civil rights, in addition to building a new chapter on the protection of
nature and the collective ownership of common natural resources.
8 For example, by implementing preferential voting in parliamentary elections and clear
instances on how the people can call for referendums on vital issues.

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the old one. However, the Council was split into two, both parties providing
separate proposals for the majority of articles. Based on the Swedish, Finnish
and to an extent the German constitutions, the Council decided to preserve
the main features of a parliamentary republic but with a much clearer division
between the powers and more explicit checks and balances.
Contrary to the advice of many constitutional experts, one of the Council’s
decisions was to open its work up to the public as much as possible, at the
expense of the professional distance more typical of such situations. It was a
strategic decision, as the Council believed that it might help to regain legitimacy
in the eyes of the public to invite all those interested to participate in the
process. Indeed, opinion polls indicated that popular trust in Parliament was
at an historic low, with only one in ten feeling satisfied with its work. Professor
Jón Ólafsson, who studied the process, claims that the Council made a point
of distancing itself from Parliament, and that some of its members had “openly
expressed their hostility to the ‘political elites’”.9 He claims that the Council
members saw themselves as representing the general public rather than the
privileged elite, and as a result the anti-establishment rhetoric “alienated it
from the Parliament”.10

From a grassroots constitution to participatory

methods: the end of a dream

Through social media outlets like Facebook© and Twitter©, the Council
received around 3,600 individual suggestions, in addition to 379 formal
proposals via more traditional correspondence. The Council also opened
up its working documents online and the members explained their work
in countless interviews. All of its meetings were broadcast on TV and by
direct webcast. It helped the exercise that Icelanders are the world’s greatest
Internet users, with 95 % of the population connected to the Web. The Council
members even posted their private phone numbers on their websites as a way
of encouraging people to contact them.
Perhaps deluded by the distance that separated them from the country,
9 J. Ólafsson, An experiment in Iceland: Crowdsourcing a Constitution, Bifrost University,
2012.
10 Ibid.

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the international media were rapidly talking of the first “crowdsourced”

constitution, drafted by the interested public in clear view of the world. The
Council welcomed this media interest and even played on it, using it to its
advantage in domestic politics. However, the international media’s description
of the process of constitutional drafting was far from realistic. Despite the
extraordinarily open process, the Council was unable to systematically plough
through all the extensive input as it only had four months to complete its task,11
despite relying on a robust secretariat staffed with many experts. However,
through its interactive engagement with the public, the Council achieved a
final version of the draft constitution in which each article was approved in
separate voting.
Despite the initial wide differences of opinion and, on occasion, vigorous
open dispute – and to the amazement of many observers, who had grown used
to the disarray and fierce infighting which has characterised Icelandic politics
ever since the crash – the Council adopted the new constitution unanimously.
By the end of July 2011, and after four months of deliberations, the 25 members
were able to reach consensus on a single completed draft. Solidarity grew
stronger among the Council members as their work progressed, precisely
because it was seen to be vital to offer a united front against the expected
political resistance.

When the political institutional system neutralises

citizens’ aspirations

The process was heavily politicised from the outset. The Independent Party
recently ousted from government fought fiercely against it every step of the
way, perhaps feeling the whole exercise was an attack on its entire political
heritage. While the new Prime Minister, Jóhanna Sigurðardóttir, and many
of her colleagues were avid supporters of the project, there was also quite
hefty opposition within the government amongst prominent ministers.
Many parliamentarians from the coalition parties either remained silent or
were suspected of only paying lip service to the project while quietly plotting
against it.
11 Interestingly the Constitutional Convention of Philadelphia in 1776 also had four months in
which to draft the American constitution.

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Parliament seemed to have been taken by surprise by the proposal of the

Council and lacked any clear plan as to how to proceed. Professor Jón Ólafsson
12
claims that the main reason for the relatively cold reception was that the
Council had refused to cooperate with Parliament or political parties on the
drafting, in order not to allow anyone privileged access. Both parliamentarians
and the political elite therefore felt alienated from the draft.
After submitting the draft Constitution, the usual political quarrels erupted
immediately, perhaps not surprisingly, as throughout the process the main
party fought tooth and nail against the entire project. Holding an extremely
fragile and even fluctuating majority (several MPs crossed party lines in both
directions during this parliamentary term), the government parties spent a
full year steering the draft through all the required parliamentary procedures.
Finally, Parliament decided to hold an advisory referendum, as suggested by the
Council, which was initially supposed to take place alongside the Presidential
election in late June 2012. The issue of the referendum date illustrates the kind
and level of dispute that the opposition was still able to stir up on the issue
in Parliament. To prevent the referendum coinciding with the Presidential
elections, which would have led to greater participation, the opposition finally
secured an agreement to hold it separately on 20 October 2012. Voters were
asked if they wanted the draft to become the basis for a new constitution to be
put to Parliament for deliberation and eventual ratification.
Despite an extensive smear campaign by prominent members of the
opposition, and despite the fact that virtually no systematic campaigning was
conducted to attract voters to the polls, around half of the electorate turned
out. When public interest in the election became evident before the poll,
the IP asked its members to send an email to all their contacts urging them
to cast a No vote to the new constitution. Even so, two thirds agreed to the
fundamental question. Opinion polls showed the same results, indicating that
those who stayed at home were of like mind to those who turned out to vote.
The broad support for the proposed constitution came as a surprise to many.
The fate of the whole exercise was, however, still in the hands of Parliament.
Running out of time leading up to the April 2013 election, the government
agreed to leave a decision on the new constitution to the next Parliament.
Further changes to the bill were required by the new Parliament, which
12 J. Ólafsson, An experiment in Iceland..., 2012, op. cit.

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appointed a parliamentary constitutional committee to find its way through

the complexities of the process. The new right-of-centre government, however,
had no intention of ratifying the draft constitution, and this effectively halted
the process.

The constitutional reform process behind a new

political order in Iceland, but no refounding of
the state

This constitutional process was initiated in the hope that it would provide
a positive, constructive route out of the crisis. Perhaps to mark a paradigm
shift from the collapsed order that had developed in Iceland in the boom years
before the crash, there were many who saw it as a state relegitimisation process
after a serious political crisis. However, the process was highly politicised from
the start in what can be considered a “new critical order” in Icelandic politics.
The process was repeatedly hijacked by party political infighting. From the
outset, many criticised the whole exercise for being merely a pet project of
Prime Minister Sigurðardóttir, or even an unwelcome distraction from
dealing with serious economic reforms, which were of vital interest to the
public. Caught in the new critical order of Iceland’s post-crisis politics, the
constitutional process, like many other proposals for political reform, ran into
trouble.
Still, and perhaps somewhat paradoxically, the public discussion spurred
by the project served as a healing process for the post-crash society. Through
it, many had been able to contribute to the promise of a resurrected and
reformed Iceland. The exercise as such is thus likely to have contributed to the
expectation of greater public participation in decision-making in the future.
It is still too early to know the final outcome of the process as several
important political forces continue to see the draft constitution as the only
legitimate basis for any future constitutional reform. Following the crisis,
Iceland has experienced a period of increased political volatility, for example
with the rise to power of the new right-of-centre coalition after the April 2013
elections. However, public support for the coalition dropped much faster
than that for previous governments. It is therefore not completely out of

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the question that future political developments in Iceland will entail putting
the draft constitution back on the agenda. For now, it is unclear what the
outcome of the process will be, and whether the draft will one day clear the
steps necessary to provide the basis for a new constitution. As demonstrated
by Jon Elster,13 constitutions often appear in the wake of crises. However, if
the process takes too long, the “constitutional moment” could pass and, if the
economy recovers, the window for change could close.

13 J. Elster, Forces and mechanisms..., 1995, op. cit.

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