How the crisis shaped Iceland’s new constitution..

The crisis in Iceland led to a revolution (called nicely as pots and pans/kitchen revolution as these items were used to create noise in public gatherings). Interestingly, the revolution which started to protest against financial crisis and favoring financial firms led to a bigger call to have a new constitution.

We have debated the impact of crisis on so many things – central banking, financial regulation, teaching etc etc. On constitution is pretty interesting.

Thorvaldur Gylfason of Univ of Iceland writes on this fascinating set of events in Iceland. He begins saying previous crisis too led to changes in constis:

Political upheaval is the most common precursor of constitutional change. The collapse of communism in 1989 produced a large number of new constitutions in East and Central Europe and Asia (Elster 1995). Economic crises are less common triggers of constitutional change. The Great Depression did not prompt the Americans to change their constitution – changes of the law, such as the Glass-Steagall Act of 1933, were thought sufficient.

In Iceland’s case the history is slightly different. After separating  from Denmark in 1944, the Iceland leaders promised a new consti but did not get it:

Iceland’s spectacular financial collapse in October 2008 was, in effect, political as well as economic. One of the most vocal demands of the “pots-and-pans” revolution that led to a change of government in early 2009 was for a new constitutional order, a new republic even, to replace the provisional constitution from 1944 when Iceland unilaterally separated from occupied Denmark.

The new parliament promised at once to quickly revise the provisional document, essentially a translation of the Danish constitution with a nationally elected president with potentially significant powers substituted for a monarch. This promise was not kept, however, except for a few minor revisions to adjust the article on parliamentary elections to demographic changes, to transit from a bicameral parliament to a unicameral one, and to append, in 1995, some new articles on human rights.

This revolution in 2008 sparked by the financial crisis has led to this demand for new consti:

The collapse of 2008 seemed to open a way to break this mould. The pots-and-pans revolution sent into opposition the two political parties that between them had always been able to count on a majority of the vote and thus had held power nearly without interruption from 1927, either one at a time with junior partners or jointly in a grand coalition. It took a deep crisis to produce this sea change, a crisis inflicting on creditors, shareholders, and depositors abroad as well as at home financial damage equivalent to about 7 times Iceland’s GDP, a world record. The local equity market was virtually wiped out. Iceland’s crash was probably the costliest financial crash on record relative to the size of the country (Gylfason 2011). It is therefore not surprising that public confidence in politicians is at an all-time low. According to a recent poll, 11% of the electorate say they have great confidence in the parliament compared with 6% for the banks, 37% for the courts, and 80% for the police.[2]

As demanded by the pots-and-pans revolution, the post-crash government decided to revise the constitution.

He then goes on to explain the process of creation of new constitution which I am skipping. The key highlights are:

  • One person, one vote
  • Natural resources
  • Iceland’s nature and environment
  • Right to information
  • Appointment of public officials
  • Independent state agencies
Read the article for more details. An excellent case study on political economy and financial crisis. How things are linked and interconnected. Truly fascinating stuff.

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