Iceland is a tiny country of just barely more than 300,000 people, but it took a famously outsized role in the earliest stages of the 2008 financial crisis when all three of its private banks failed in rapid succession. 

Now, Icelandic voters will go to the polls this Saturday for a six-question referendum to determine whether to reform the country’s constitution and, if so, how.

In contrast to Ireland, where the government nationalized and assumed the debts of its failing banks, Iceland simply allowed its banks to fail.  Although growth has resumed in Iceland (3% in 2011) and unemployment is now falling (hovering at around 6.7%), the Icelandic economy remains quite subdued in contrast from the heady days when Reykjavík was angling to become one of Europe’s investment banking capitals.

In the wake of that crisis, Icelanders have weighed many different reforms, ranging from joining the European Union to joining the eurozone to adopting Canada’s dollar as its currency.  The former prime minister, Geir Haarde, faced charges in front of a special session of the Alþingi (Iceland’s parliament and, given its formation in AD 930, the oldest parliament in world history), and was convicted on one minor charge, although he has faced no formal punishment, aside from widespread disapproval from Iceland’s citizens.

In the same manner, the constitutional reform process, which culminates in the October 20 referendum, also emerged from the crisis.  Reform was one of the key promises made by the broadly leftist coalition under prime minister Jóhanna Sigurðardóttir that took power in 2009 — the coalition includes the Social Democratic Alliance (Samfylkingin), the Left-Green Movement (Vinstrihreyfingin – grænt framboð), the Progressive Party (Framsóknarflokkurinn) and other small parties.  The 2009 election, which followed riots in the typically tranquil island nation, saw the once-dominant Independence Party (Sjálfstæðisflokkurinn) kicked out of power after 18 years in government.

As such, a Constitutional Council of 25 Icelandic citizens has been working on proposals for constitutional reform — including by soliciting input on social media — and it presented a draft constitution to the Alþingi in 2011, which voted to refer the draft constitution to the advisory referendum to be held Saturday.  The constitution would replace the version adopted in 1944 when the country voted to become independent from Denmark.  It would essentially perpetuate the current government structure that includes a largely ceremonial president, a prime minster who heads the government and a president of the Alþingi, but enact other reforms.

Several of the key issues include the removal of the Lutheran Church as the ‘state church’ of Iceland, the addition of more direct democracy rights, the addition of more information rights for citizens, and the inclusion of a provision that would strengthen state control over natural resources not currently under private ownership.

The new constitution is not without controversy — Iceland’s Supreme Court initially invalidated the election of the 25 individuals who form the Constitutional Council, although the Alþingi ultimately upheld their election.  Furthermore, the opposition center-right Independence Party voted against the draft constitution when presented to the Alþingi, and the newly reelected president, Ólafur Ragnar Grímsson, who has served as president since 1996, opposes the constitutional changes because he says they do not garner support from across the political spectrum. 

The six questions are as follows:

• Do you wish the Constitution Council’s proposals to form the basis of a new draft Constitution?
• In the new Constitution, do you want natural resources that are not privately owned to be declared national property?
• Would you like to see provisions in the new Constitution on an established (national) church in Iceland?
• Would you like to see a provision in the new Constitution authorizing the election of particular individuals to the Alþingi more than is the case at present?
• Would you like to see a provision in the new Constitution giving equal weight to votes cast in all parts of the country?
• Would you like to see a provision in the new Constitution stating that a certain proportion of the electorate is able to demand that issues are put to a referendum?

Famously, the prior two referenda held in Iceland were over whether to make repayments to the United Kingdom and the Netherlands in respect of loan guarantees made under the Depositors’ and Investors’ Guarantee Fund, incurred over the bank failure of the Icesave bank, where many British and Dutch citizens had invested their money.  In each referendum, held in March 2010 and April 2011, the Icelandic electorate voted against making such payments, initially in 2010 by the wildly lopsided margin of 98.1% opposing the payments.  The issue remains in litigation throughout various European courts.

In addition to the high-profile Haarde trial, the constitutional reform process and the lingering Icesave guarantees issue, Sigurðardóttir’s government has passed strong women’s rights legislation, including a ban on strip clubs and the use of women’s bodies as commodities. Sigurðardóttir herself is the world’s first openly lesbian head of government.

Iceland’s application to the EU continues to languish — in the wake of the 2008 banking crisis, the country quickly looked to join and formally applied in July 2009 and negotiations began in July 2010, but the path toward Icelandic EU membership remains unclear.  Although Sigurðardóttir’s Social Democratic Alliance favors EU membership, her governing allies the Left-Green Movement and the opposition Independence Party both oppose membership.  In addition to the Icesave issue, Icelandic and EU negotiators have clashed on Iceland’s fishing rights — the Icelandic economy is much more heavily dependent on fisheries than the rest of the EU and, as such, is hesitant to open Icelandic waters to EU-wide competition.  Iceland, notably, is already a member of the Schengen area of free and open borders among member nations and the internal tariff-free European market.  The draft constitution would require a referendum before Iceland could enter into any formal international treaties, including, for example, accession to the EU.

Photo credit to Kevin Lees — photo of Reykjavík harbor, October 2008.