In the comments to the last post, someone who calls himself Gagnráðr asked me point-blank where I stand on the sticky topic of Icesave.
A fair question.
Like most Icelanders, I have, throughout the process of endless discussions and negotiations, been a] so sick of Icesave that I never want to hear the word mentioned again, or b] when I do pay attention, easily swayed by the persuasive arguments on both sides. I can agree with views [some, not all] on both sides of the equation. And I tend to be stunned when new revelations appear and angry about the lack of transparency, and I wonder just what it is we are not being told, and what the implications are.
HOWEVER, at the end of the day, the basic facts are pretty clear. Icesave was a branch of an Icelandic bank. Not a subsidiary. In legal terms, it did not matter whether the branch was located in Sauðárkrókur or in London – depositors in branches have the legal right to be treated equally, irrespective of nationality. Icelandic regulators should have insisted – nay, forced, Landsbanki to move Icesave into a British subsidiary – had they done that, this problem would not exist. That did not happen. Quite the opposite: the Central Bank of Iceland – led by Davíð Oddsson – actually lowered the reserve requirements for Landsbanki, even after he knew it was in trouble. Icelandic regulators f*cked up bigtime, as this interview with Thorvaldur Gylfason makes perfectly clear.
The deposits of all Icelanders were covered in full after the bank collapse, and so the depositors in other branches – overseas or not – should have received the same treatment. And even if Iceland does assume the Icesave debt, those depositors will not be receiving the same treatment, since the Icesave deposits of UK citizens are being covered only up to the 20,000 euro limit.
Sure, one can argue that Icelandic authorities acted to protect their own citizens and the UK should act to protect theirs. One can also argue about the force majeure and that the regulatory framework was deeply flawed and had not kept pace with the Age of the Internet [Icesave was an online bank]. Or that the UK authorities may have been complicit by allowing the Icelandic banks to operate despite the fact that they knew they had liquidity problems [a point that is debatable, since Iceland is part of the EEA and thus Icelandic businesses have the right to operate in any EEA country and do not need a special permit]. Or that the Icelandic authorities may have a case against UK authorities for the rash way they froze Icelandic assets and placed the Icelandic Central Bank on a list of terrorist organizations.
Those are persuasive arguments that might even hold up in a court of law. For that reason I think it is very important that the Icesave agreement was amended after the initial one, to ensure that the Icelandic authorities keep the legal route open. If I understand the matter correctly, British and Dutch authorities have not accepted those amendments, for reasons unknown to me.
The whole Icesave matter is an utter nightmare and horrendously unfair to all concerned. I think it sucks bigtime that we, the Icelandic taxpayers who had nothing to do with launching or operating Icesave, are stuck with the debt. Yet I can also put myself in the position of those depositors who put their money into Icesave in good faith. Turning the tables, it is not hard to envision the fury that would erupt in this country if a foreign bank opened up shop here, collected billions of pounds or euros in deposits from regular Icelandic citizens, and then went bust. I think most Icelanders would expect the governments of the respective countries to do something.
I think it would be a mistake for the President not to sign the Icesave bill. Iceland needs to re-establish its credibility. I don’t think we do that by refusing to sign this agreement. Yes, it is unfair, but maybe this is just what re-establishing credibility costs. It has transpired that the Icesave debt is likely to be lower than originally thought. High enough – but still. And, as has been pointed out, it is only a share of our other national debts, yet is being made out to be the bane of this nation by the opposition parties, especially the Independence Party, which drove this country into this awful mess, and that even signed a sovereign guarantee for the Icesave debt in November 2008. Strangely enough, IP members never seem to mention that the technical bankruptcy of the Central Bank – led by their man Oddsson – is going to cost as much as or even more than Icesave.
Ultimately, the Icesave discussion has taken far too much time and energy, it has held parliament hostage for months while other, even more pressing, matters have had to be sidelined. We have to move on. We don’t have a choice.
I can already see some of the comments that will rain down on this blog post, filled with wrath and indignation. If you would like to express your opinion, please do so in a respectful and brief manner, keeping in mind the comment guidelines. Also, please be advised that I won’t enter into futile arguments about this matter in the comments.
AND ABOUT THE WEATHER
As I alluded to at some point a few weeks ago, starting this year the written weather report will be replaced by an automated one. I’ll elaborate a bit more on that in a later post.
{ 27 comments… read them below or add one }
A balanced, informed and sensible analysis, dealing with the reality.
A year ago the government should have said we will pay it, but not until we have reconciled everything and recovered stolen deposits.
After a year of IceSave having been used as a political football by the opposition parties, Iceland is painted into a very tight corner.
It is painfully unfair that honest citizens have to bear the burden, but everyone knows now that a few criminals drained out many times the amount of IceSave in just the few weeks before the collapse. These people are the real terrosists, having not only destroyed hundred of lives, but responsible for suicides as well!!
Thanks Alda for changing my views on ICESAVE with the above post, I therefore have a fresh solution not that ICELAND/ICELANDERS pay but David Oddson pays, yep every last red cent.So David my laddie get selling loadsa copies of that thar Morgenbladdid newspaper because you have one heck of a tab to pay off buddy. !!!
6th paragraph – did the Icelandic authorities place the Icelandic banks on the terrorist list? I thought the Brits did that. Typo?
However it is a new year for Iceland and Ireland who have made it into the papers as the top 5 countries that crashed and burned both with a panic factor of 3/5.
http://www.guardian.co.uk/business/2010/jan/03/credit-crunch-iceland-ireland-greece-dubai-spain
So there’s hope for us all in that select band of nations above that lead the way for the human race.
Alda, as Peter said, it is a balanced, informed, sensible, and if I may add, REALISTIC analysis… I totally agree with you. It is very unfair to punish the tax payers for the mistakes of their government and bankers but that’s how it works…
Representative democracy is a wonderful thing, but it has its disadvantages, one of them is that when your government, your representatives fail, it is the common people who have to pay for their mistakes. It is unfair, but that’s how it works and cases like this are repeated around the globe on a daily basis… the easiest, fastest, and less harmful way of getting rid of this thing is to approve this bill.. really, vetoing the Icesaves bill would be a huge mistake. No country can afford not caring about what the international community thinks about them, especially a small country like Iceland. This is the only way of restoring your good name out there and move forward.
If only more of your fellow citizens could see it like you do, Iceland might be on the right track very soon. It is a responsible view on this matter contrary to the more naive approach by those, who are just saying that they don’t want to pay, because they didn’t do it, ignoring the fact, that a ‘No’ would not make the whole unpleasant matter just miraculously disappear but rather be the prelude for a very nasty overtime.
Apart from the matter-of-fact arguments given – when judging about the available options for Iceland, it may help to look at who is benefitting from a ‘No’ to the Icesave bill. Iris Lee is providing a view on this point:
http://www.huffingtonpost.com/iris-lee/icesave-agreement-just-si_b_409479.html
Interesting to hear your personal stand. I agree with most of your points, except that I think a policy change of this magnitude should go to a referendum. The risk, of course, is that the citizens will probably make the wrong decision!
A couple of comments:
“British and Dutch authorities have not accepted those amendments, for reasons unknown to me.”
…probably because dispute agreements normally conclude disputes, not explicitly state that almost everything is still open to legal challenge.
“the Icelandic taxpayers who had nothing to do with launching or operating Icesave”
I suspect there are actually several strong links, eg Icelandic tax payers paid the salaries of regulators to regulate Icesave. But state regulation of banks is normally performed on behalf of all the nation’s citizens, not just its tax payers.
Ah, finally some sensible debate on the issue, free of emotional or nationalistic ties. As a British-born resident of Iceland with Icelandic partner and family, this reflects my outlook on the issue seeing as I have been watching the whole mess unfold from both sides.
I agree that the President should sign the agreement as soon as possible to put an end to this and begin the longer process of helping Iceland regain it’s lost reputation on the world stage. Although I understand the frustration, I feel the protesters at Bessastaðir are being irresponsible in trying to get Ólafur to veto the bill. I feel that a large portion of these guys are guided by misplaced nationalism unaware of the bigger picture for Iceland outside the island. As someone said to me the other day:
“Do they think if he vetoed the bill, the debt will disappear?”
Thank you Alda for this brave and utterly up-front analysis. This afternoon, BBC TV News carried the IceSave story with pictures of the petitions being given to your President. It was low-key and simply pointed out the difficulty your President has in taking this decision. If Iceland does go down the line of a referendum, I do hope that all facts both for and against, with the possible consequencies, will be put before the voters so that an informed decision can be made. You need heads as cool and clear as Vatnajokull to deal with this one.
in solidarity, sylvia from viking wirral
Icelandians have the option to leave the country and thus opt out of any agreement they don’t agree with. This happened many times in the past with other impoverished nations. Sad, but I have voted with my feet 10 years ago (East Germany -> US) and might do it again.
I can follow your reasoning completely, and it is appealing. But my personal view is different. Iceland acted as a guarantor for Icesave deposits. But as you know, any guarantee is only as strong as the guarantor. So, if Icelandic taxpayers are unwilling to cough up the money, it will not be paid.
Ok, maybe the first tranches will. But come the elections the issue will keep dominating the debates, and I am willing to bet a lot of money that there will be one (or more) parties that will claim they can renegotiate the deal. So, a referendum would not be unwise.
I don’t think there really absolutely needs to be a referendum on this, as I thought the elections that brought the current government into power served that function quite well.
The worst part of all this, politically speaking, is how the IP is trying to rewrite history. I hope that no Icelander forgets who governed Iceland right into this mess.
If Iceland is to prosper securely it needs responsible governance and the IP is the least responsible cabal residing on Icelandic shores.
There’s another side to this issue: The vulgarisation of Icelandic democracy that the presidential practice of vetoing parliamentary bills entails. The present president has already done it once, by doing it a second time he will have precedented a practice which I’m pretty sure Icelanders generally will not live very happy with. If people really want a more vulgar democracy based on frequent referendums, I’m sure they would, in the long run, want some other mechanism than a flip of the coin of the president to determine when to vote?!?
And just one more thing – There are figures available showing that Icesave is just a small fraction of all debts of the Icelandic state. Which might indicate that the whole matter is rather exaggerated, driven by a political agenda of parties, who seem intent to deflect attention from their own failures. It is holding up the restoration of public finances and severely damaging Iceland’s image abroad. So, in my opinion, nothing would be worse than having this debate continue for another couple of months or even years.
Alda, this seems to me a very fair view and you have, as usual, an excellent handle on the competing attitudes to this issue.
I have heard that there is now much more knitting taking place in Iceland. An Icelandic lady said something to this effect: ‘Faced with necessity, the naked lady spins.’ We will also have much spinning to do where I live.
Right you are. Hope the President will have Iceland , not his legacy in mind and sign. Cheers and HAPPY NEW YEAR!
Dear Alda,
I agree with you about Icesave and what should be done. It is a heavy price, and not entirely fair, but the foreign depositers who in good faith put their savings into Icesave should be compensated, and Iceland’s credibilitly does need to be restored. I do wish that Icelanders who still support the Independence Party could realize what the elites of that party have done. They and the Icelandic “Viking” oligarchs betrayed their country and it seems like they are not really being punished…(the very fact that Oddsson is the editor of Morgunbladid! Preposterous!)
On occasion, I disagree with your views, but always read your blog with pleasure, because I love your country
Dear Alda
I would like to thank you for your reasonable analysis of the mess which Iceland is currently in. It is unfortunate how soon Icelanders have forgotten their bitter struggle last year, to oust the governmental collision of the thouroughly corrupted Independence Party and the spineless Social Democrats. As a social democrat myself, I found it hard to accept my own party’s responsiblity for this catastrophy, albeit there was probably much this party could have done during those six months, regarding the already established economy of artificial value, and the incompetend federal bank head. Your views at least have the support of one of your fellow countrymen.
What have you said that anyone could possibly disagree with, Alda? Sensible and balanced, you have made a number of fair points. In the final analysis, it looks like the Icelandic people will have to grin and bear it. Bridges need to be rebuilt with the rest of Europe, and allowing this matter to grind on will not allow them to be. Those responsible for your troubles will probably get away, but it looks like the politicians responsible for the UK’s current financial woes are still supported by as sizeable, stupid portion of the British public, so you won’t be alone in feeling fed up about it.
Yet again Alda, I am in total agreement with you, we are between a rock and a hard place but this is – or seems to be the only way to address this particular problem in the economic mess that is the Icelandic financial system. I, like many others living here, am not happy with the Icesave agreement, nor am I particularly happy with the laws passed by parliament, but I realise that there is little else to be done given what ground work was done by the IP. We can only hope that the future is not as bleak as the nay sayers would like us to believe. That our resources remain ours and that we don´t become an International heritage site where we all have to “dress up” when the foreigner come to look at what was once “ours”. Gleðilegt ár Alda – óska þér og þínum allt það besta.
Alda.
I’m with you on … weather issue but I think you missed something important in your Icesave analysis.
1. For me it sounds rather strange that you deny the right of people to decide about their future. I understand that it’s easier if someone else i.e. government, parliament, president make decisions for you. Very good for excuse later on.
You were so excited about National Assembly as ants wisdom but now you don’t need that wisdom any more?
2. I think your following assumption is absolutely wrong
Iceland won’t re-establish any credibility …cause those responsible are getting free of trouble. So they will repeat it again and again. Next time they will open SafeIce Investments bla-bla-bla etc. And they will be much more careful and prepare the SafeIce agreement beforehand…Then they will repeat it. Why not?
3. And most important – the real reason behind the case (unless you truly believe UK, Holland, EU, Iceland politicians and gangsters care about “interest of people”)
Government paying for private entities? Isn’t this against the basic rules of capitalism?
The whole “guarantee idea” as it is now was born as part of European financial mechanism. And now “architects” of this mechanism are facing the option – to admit that basic design of that mechanism is wrong or claim that only Icelandic “parts” were defective.
It was not the “crazy vikings” that caused the troubles – they just used this malfunctioning mechanism for their benefits. But it showed clearly that this mechanism is not working. So blaming Iceland and closing the case is the only way to postpone of being getting accountable.
The issue is a way far bigger than IceSave and Iceland. Iceland just exposed the problem in a very clear way – due to it’s small size. Like in the lab – all processes were fast and visible.
PS. I tried to be short and skipped legal and other aspects. Really.
I’m afraid I’m with the doom and gloom crowd. I think the total owed is somewhere around $60 billion US or 12 x GDP. That is bone crushing debit. The IMF is certainly going to demand privatization of everything as a part of the ‘austerity’ program. Has the IMF outlined the austerity program? Do they even need to? Has the krona been floated on the market? Iceland is in limbo right now. When they accept the IMF money, the hammer will come down. No going back then.
If I was a politician, I would drag it out endlessly. File a lawsuit with the WTO and refuse to pay until it was settled. Meanwhile, form a coalition with other states in a similar situation like Ireland and Greece (new trading partners!) to gain political power and then re-negotiate. Doing this deal in fear and isolation is not good. Stall, wait. The fear mongering to get the deal done now is just because you are weak and tired. The whole “I’m so tired of it…” talk is self defeating. This will go on for years and it can be fought.
Here is how I accept responsibility as an Icelandic citizen. You can have these thieves and lock them up in your prisons until they rot of old age, but not a penny of my money will be spent of preserving their positions and luxury. May they burn in hell!
Back to Icesave. Rejecting Icesave is unknown territory. There no reason why it is not possible to form new alliances and prosper in a different way, not withstanding the forward-looking geniuses currently in power! There will certainly we willing trade partners who have the bitter taste of the IMF in their mouths!
60 billion divided by 300,000 is $200,000 per person alive today. Does that seem reasonable to you? I don’t see any alternative to total rejection of the deal. The Icesave deal is essentially the Trojan Horse that paves the way for the IMF takeover of the country. That is how I read it.
PS — Damn it’s chilly here in Florida. Record cold. OMG climate change! I guess in an Orwellian world hot becomes cold, war peace, banker thief…
Happy New Year everyone and be it better than the last one!
One feeling I have on the whole thing is that Iceland as well as many other countries needs a shake off. If Iceland is let to wash hands off Icesave then it (and not only Iceland) will get a green light to actually plunger anywhere in the world and return to “safety net”(as was put by Icelandic president) of a home country.
Like it or not but Iceland drifted into the direction of becoming a shelter country for “financial geniuses”.
It’s only good the whole thing has stopped before even more damage was done. Simply put if it happened a century ago then people of Reykjavik would observe British and Dutch battle cruisers talking “canon diplomacy”
Today British and Dutch have chosen other means but what else could they do? I can imagine how angry Dutch people are after Landsbanki promised and immediately ignored the promise to stop collecting more money. That is what is worth mentioning. There were other small, negligible facts like Icelandic ship receiving repairs in some East European country and leaving without paying to the “safety net” of a home country. That would never happen with companies of most countries because everyone knows by expierence that such a thing can backfire.
Hopefully people (not only Icelanders) will realize that ignorance, corruption and unprofessional management can do cause problems. That is the whole point.
It is completely unacceptable to here Icelandic government simply saying foreign savers are on their own, we don’t care. The only answer one must expect after that is a “canon diplomacy” which was exactly what Iceland got.
On the other hand it is good to hear when some Icelanders acknowledge they have to stay honourable and take responsibility for Icesave. At this point it is possible to start talking and searching for a middle ground.
a friend of mine put it this way…..
It is a choice of two scary things. Pay ICESAVE and our other debts and be broke. This is the known scary. Dont pay and break the rules. This is the unknown scary. Its like jumping off a cliff and hoping for a safety net.
Scary stuff!
It is fascinating to hear the two camps debate this fundamental issue:
1) Those resigned to paying IceSave are all naturally unhappy but realise the necessity to assume responsibility / regain some integrity.
2) Those against – not many of your readers – provide little argument other than wailing about ‘little Iceland’ and the big bad foreign bullies. Reality: A few maniacs went beserk on the world stage, then hid in palaces in London. Anywhere else – it may be soon – they would be extradited and have their assets repatriated in the national interest.
As Gunnar Tomasson – who, like me, is a member of the Gang8 Yahoo list puts it:
“Whether or not the President signs the Icesave legislation is not important for Iceland’s medium-term economic prospects. The question is whether national insolvency is better acknowledged now or a few years down the road.”
Another member of the list, Professor Michael Hudson, has also pointed out frequently that debt which can’t be paid, won’t be paid.
As a practical exponent of market regulation and development for almost 25 years – for six of them as a director of a global energy exchange – I think that there is another way for Iceland, with a little help from Nordic friends like Norway, maybe, to emerge from under the debt burden.
This is simply to consolidate this debt into a single class of UNDATED units (like the quaintly historic undated UK ‘Consols’ and War Loan on the UK national balance sheet) and to pay maybe a one or two per cent index-linked return, or a return linked to (and funded by taxation of?) energy prices.
Iceland’s creditors would then have what is essentially a form of equity, with a market price like any other form of equity.
Iceland could then gradually buy back the Units over the years if they wish, which will gradually reduce the outgoing financing cost.
The result would be a sort of modern version of a Jubilee, through a one-off ‘debt/equity swap’. Nasim Taleb and Willem Buiter both suggest that equity is the bets solution for unrepayable debt.
As Tomasson is essentially saying – in the medium term, Iceland will have to go down this road, so why not bite the bullet now?
>Peter Reeves January 4, 2010 at 10:40 am
> It is fascinating to hear the two camps debate this fundamental issue..
I’d point another fundamental question: is the whole nation responsible for the acts of it’s business and political elite or not?
After more facts emerge there is no question that Icelandic government is equally if not more than buisenessmen responsible for what has happened.
The question is about where is the line between “taxpayers” and “elite” ? As it turns out many Icelanders see their immediate future with Independence party. That’s ok as long as conservative values are concerned. That is not ok as long as party’s leadership and course is concerned. It must be understood that Independence and breaking of rules are too different things. Party’s followers must already be protesting against new-old leaders returning to public life once again.
In practice there is probably no other way to fix that kind of mentality than to take responsibility for Icesave and start negotiating. Hardly anyone is asking Iceland to commit an economical suicide and if someone does than it is a different talk.
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