Social justice, fundamental rights in the aftermath of the financial crisis: from Iceland with sorrow

Article by M. Elvira Méndez-Pinedo, Associate Professor of European Law. University of Iceland. 

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For everybody´s knowledge. This article was sent to the editors of 40 newspapers of Europe, including Financial Times, on the 8th January 2010. None of them published it but some thanked me for the input and background information. I had an interview of 2 hours with a journalist from EL PAÍS who came to Iceland. I am happy to see that the editorial of this Spanish newspaper changed its perspective on the issue after the visit of the special economic reporter. See El País of 17th January on Iceland. 

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The bank collapse in Iceland has been the first case of a systemic bank failure in Western Europe since the Great Depression. Iceland is also the first case of cross-border insolvency and failure in the internal market of financial services leaving victims in other EU countries. Presumably because the whole financial stability of Europe was at risk, Iceland is unfortunately the first case where, in order to comply with a Directive and EU law, a country is forced to assume sole responsibility in the nationalisation of the debt created by private companies, risking national bankruptcy, forcing tax payers to pay for the bill and threatening the economic sustainability of the country.

As the situation stands now, the financial and banking crisis and the Ice-save dispute and subsequent agreements have resulted in diplomatic rows between the UK, Holland and Iceland, the overthrow of the Icelandic government in January 2009, a fierce debate over compensation to the depositors of Ice-save bank, an agency of the Landsbankinn in the UK and Holland and a constitutional crisis without precedents in Iceland.

Fundamental and ethical issues  that Ms. Eva Jolie and J. Stieglitz have pointed out in their visits to Iceland still remain unresolved and prove that justice and fundamental rights in the European market is a challenging, never-ending and sometimes elusive task.  Only now the deficiencies of the European financial system are painfully visible. The internal market of financial services created in Europe lacked a European regulator and a lender of last resort. The EU achieved the first part of the internal market in this sector but the rules were not complete from a cross-border perspective when the financial sector of one country could exports problems to the other EU/EEA depositors creating insolvency. In practice we had a “federal” internal market for free movement of capital but without the “federal” back up, collaboration and security procedures when things risked to go wrong. No security rules, no obligations to coordinate and help, no lender of last resort (think about the euro and the regulations of the Economic and Monetary Union as a comparison). This second part necessary for the financial services was never created because of the reluctance of some EU States to go into a federal/centralised direction (principle of subsidiarity defended by countries such Germany). EU institutions and Central Banks of Europe have acknowledged this fact. It is a classic methodology to compare EC law with the USA federal system. The EU chose to trust national regulators in a decentralised system but the cross-border aspects were left as gaps and lacunæ of this internal market plan. When the unthinkable crisis hit Iceland .... the EU could or did not want to help as procedures had not been planned for this kind of emergency situations. The result is sad and bitter: tax-payers left to pay the bill while the EU pretends to have nothing to comment on this and issue of the determination of the part of responsibility at all levels is left unresolved (public/private institutions– European/national supervision authorities).

At the same time, it is almost a paradox that the EU has announced that the protection of fundamental rights is a strong and renovated duty in the construction and regulation of the internal market, especially after the entry into force of the Lisbon Treaty which makes the EU Charter of Fundamental Rights legally binding for all EU institutions and EU Member States when applying EU law. Fundamental rights are also part of the general principles of EU law, as the European Court of Justice has declared on a rich jurisprudence dating from the 70s.

While the protection of fundamental rights is strengthened in the new EU Treaty, reality is far more complicated when national agendas and financial interest collide as the recent Icelandic example of reconstruction after bank collapse proves. As Icelanders bitterly have experienced, economic freedoms within the internal market, combined with a lack of proper financial supervision and defective rules, can even lead to the violation of fundamental rights of citizens and small nations. The bitter lessons from the Icelandic crisis show that the rules on the internal market on financial services, based on a neo-liberalist approach of weak decentralised supervision, just freed capitalism from its social responsibilities leaving the financial consequences of the collapse for the citizens. As Stieglitz has pointed out in his recent book “Making globalization work”, markets are not at all efficient when evaluating social justice and fundamental rights. Markets respond to numbers and economic data, not to justice, discrimination, fundamental rights, nor to the economic sustainability of a country. Economic freedoms and efficient markets do not carry per se justice.

The result that a sovereign national government like Iceland can be directly or indirectly forced by the European Union and two EU countries to assume the sole responsibility for debts incurred by private Icelandic companies without taking the matter to a European court represents the worst of the diplomacy of the late 19th century as some authors have argued. (Tarple, 2009). Furthermore, I agree with Tarple that Gordon Brown’s use of the British anti-terror legislation against Iceland in the autumn 2008 could be qualified as an act of economic warfare, an act which is shocking when examined in the framework of the European integration and EU legal order based on the notions of solidarity between European nations.

It is probably for some of these reasons that 60.000 Icelandic citizens requested their President to submit the new law approving the Ice-save agreements to a national referendum. Taking into account the punitive actions, threats, and intimidation coming from London and The Hague, taking into account the lack of access to justice for Iceland and Icelanders before the European Court of Justice and the strong debates within the society; the Icelandic President refused to sign the new agreements and let the nation have the final word on the entry into force of the law to the citizens. Whether the new law is to remain in force is to be decided in a national referendum. In this sense, one may look at this constitutional decision as the result from a direct call from the citizens asking for direct democracy. A call requesting that social justice and human rights are taken into account in the present and future construction of the European internal market.

What is interesting to note is that these events are strongly connected to the global justice movement that is surging around the world. A number of Icelanders is requesting a new agenda for social justice and fundamental rights for the EU in the aftermath of the financial crisis. This crisis  has disrupted the functioning of the internal market in Iceland, a member of the European Economic Area and candidate country to the EU. This crisis is also proving that Europe is missing an historic opportunity to show leadership in the reconstruction of the international financial system. Will the EU continue with its “business as usual” forgetting to help citizens? Critical voices are requesting social justice in the aftermath of the financial crisis. European economic freedoms should not lead to unjustice. The solidarity of European nations in the resolution of this dispute between Iceland, UK and Holland should not be forgotten. European integration, lets not forget about the fundamentals, should work first of all in the benefit of its citizens.

Athugasemdir

[Einar Björn Bjarnason, 21.1.2010 kl. 00:48]

Hi - what about when fundamental interests of a nation, are at a stake?

Isn't there are rule, that nations can apply, when a genuine emergency arises? Meaning, that in the context of that emergency, actions can be acceptale that in nomral situation, would not or might not be?

I'm wondering, if it's actually legal, to impose on Iceland, a debt burden that with high probablity isn't self sustaining!

Wondering, if fundamental national interests, are a viable legal angle.

Einar