MARCH 6th 2010
The Prime Minister of Iceland thinks (and states) that it was by offering his citizens a referendum on whether or not Iceland should pay its debts of principal and interest that he succeeded in getting the terms of the payment improved. The truth is that offering a referendum was an act of unparalleled folly which could well have led to confusion and disaster. To pretend to the Icelandic people that have the power to decide on such things while remaining within the entire panoply of international legislation and protection, all of which the average citizen in all of the world's nations are blissfully unaware was, I will accept, forced on his administration as a way of remaining in office and achieving some pretense of regaining control of a situation brought about by extreme opportunistic negligence over the previous decade. Most of the Icelandic public have said they do not believe they are liable to pay the debt at all, let alone on the terms first suggested. For their Prime Minister to tell them they have the power to make this decision on national policy is typical of the delusions that citizens of the modern world suffer from collectively. They believe they have MONEY, sometimes, and that governments have NO MONEY, because governments are fond of saying this when asked to pay for public services. The truth is more complicated.

The value of money is no longer associated with the market value of coins, whether that be high or low, or with paper notes. It's value is dependent on the credibility of the guardian and arbitrator of any given currency, as judged in the global scales in which all global currencies are weighed. National Governments are the guardians and arbitrators, even if they subcontract the mechanics of their national or central (in the case of the Euro) banking operations to a body barred from involvement in political decision making beyond the purely financial and monetary, while the government is barred in turn from manipulating the interest rate. Such operations as Quantitative Easing can be carried out as a matter of judgment when bubbles of notional wealth are burst, but only when general liquidity has been sucked from the system to the extent that trade in goods and services is threatened. That is why appropriate Quantitative Easing is not inflationary, but the hysteresis in the system, the trousering of surpluses and the global black markets of various kinds means that hawk-eyed monitoring and serious international cooperation at the highest level is a sine qua non of these operations.

As individuals we can own goods and property. They value of these are the market value. We do no own money as such, we have a credit account with a national bank. If that bank goes bust we have lost all of that money. This has been happening regularly in various parts of the globe over many years. To tell Icelanders they have the right to not pay their debts is telling them they have the right to send themselves down the plughole leaving them only with goods and property (if they have these) which they can sell if they wish for whatever currency a buyer may have that they are prepared to accept. They can use their domestic currency, the Icelandic equivalent of Harold Wilson's famous 'Pound in your Pocket', between themselves, whatever its value outside, but as they now realise they need goods and services from outside Iceland. In other words, stability and international support is a necessity unless they wish to go to war and appropriate these as was done in the middle ages when bows and arrows had a limited destructive effect on the infrastructure, however painful it may have been to get one in the eye. Today, we are adults apart from the fundamentalist throwbacks.

In summary, it is time to be clear that referenda are not permissible unless every clause and paragraph of every international (and domestic!) item of legislation is ratified by referendum. That is tantamount to having a referendum now to approve the status quo, whatever it is, before moving on. I would not advise that as there many things that have to be modified and developed as circumstances change. Most of our laws are tentative, the result of the latest thinking on how best to run our affairs in the best interest of maintaining a civil society. We do this by dialogue and debate on options put before parliaments in representative democracies. A referendum cannot be held on any policy unless the probable consequences of the yes and no vote are set out and these are fully accepted as possibilities. A referendum should only be held if its aim is to bind a nation long term, beyond the life of elected parliaments. Even then a referendum is not for ever.

The Icelandic government will ignore their referendum and save face by saying that it not longer applies as the terms of the deal no longer apply. However, unless they and the rest of the world have learned a terrible lesson from this they will have started a trend in political idiocy that could lead to worse.