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More on the delicate subject of Iceslave

This week, Iceland’s parliament will vote on whether or not to accept the Icesave agreement with British and Dutch authorities, negotiated several days ago. Some are calling this the most important casting of ballots the Icelandic parliament has ever had to undertake. If the agreement is rejected, it could well mean the kiss of death for the current government.

The controversy over the Icesave agreement is harsh and far-reaching and numerous MPs have already said that they will not support it.That includes several members of the Independence Party, including one Tryggvi Þór Herbertsson who was the financial advisor to former PM Geir Haarde at the time of the bank collapse [and who featured with YT in this interview]. Tryggvi Þór was one of the guests on the programme Vikulokin [Week-end] on RÚV yesterday,  a weekly talk show that reviews the week’s events in the company of a few of guests usually directly involved with the topics under discussion. Yesterday’s programme was entirely devoted to the Icesave dispute.

It was extremely enlightening. Near the beginning, the host played a clip from an interview that Tryggvi Þór did in the British media [didn’t catch the name of the programme] last October. Excerpt [verbatim]:

INTERVIEWER: A lot of British savers have money in the two largest banks Landsbanki and Kaupthing – is their money safe?

TRYGGVI ÞÓR HERBERTSSON: Yes, according to my knowledge, Iceland is a part of the directive on deposit insurance, so yes – they should be.

I: I know you’re part of the deposit scheme, I’m asking if they did come to you, you would say, ‘we can pay your 20,000 euro’, or would you say, ‘the economy is in such difficulties, I’m sorry, we can’t meet this obligation’?

TÞH: No, we are not in that kind of difficulties.

– Oh, the folly!

It’s tragicomic to watch how the coalition parties and the opposition have completely switched roles in parliament these days. The Left-Greens, for instance, were vehemently opposed to paying the Icesave debts – until they came into power. Now, suddenly, they are in favour. Whereas much of the opposition [led by the Independence Party, of which the aforementioned Tryggvi Þór is a member] opposes it – some with a vengeance.*

Be that as it may, one of the more interesting things to be illustrated by the programme yesterday was just to what extent the Icesave dispute was an international one – and not just a dispute involving Iceland on the one hand, and the UK and Holland on the other. It seems common knowledge that the UK and Holland exercised their influence behind the scenes to force Iceland to sign a preliminary agreement on Icesave last November, just when this country was appealing for a loan from the International Monetary Fund. The message was clear, and came not just from the IMF but from the European Union: there would be no assistance from the IMF or any other European country until Iceland agreed to the terms set by the UK and Holland. And if Iceland refused? There would be no foreign currency to pay for basic necessities like food, fuel or medical drugs. Starved into submission.

Oppression? Coercion? Manipulation? – You decide.

In another compelling interview [on Kastljós last Friday], Einar Már Guðmundsson, one of our most prolific writers, presented an interesting perspective, drawing parallels between the Icelandic economy in the past few years and economies fuelled by the drug trade. In Einar Már’s view, over the past several years a system emerged in Iceland in which the nation’s wealth was transferred to a handful of moguls and into the banks, the bankers lied to and misled the nation, the wealth was squandered in vast excesses and extravagance – and now the IMF and the European Union are stepping in, not to help the people, but to maintain this system. And how? By allowing the moguls to get off scot-free and making us, the Icelandic people, responsible for their mess – and their debts.**

There is some dispute about whether the Icelandic people are really obligated to pay the Icesave debt. According to some legal experts, the Icelandic state fulfilled the obligations it undertook with the EFTA [European Free Trade Association] agreement by simply having a deposit insurance scheme in place. Yet when that regulation was drawn up and signed, no one could imagine the scenario that would later come to pass – the collapse of a country’s entire financial system. In other words the directive was flawed and was never intended to be applied to extreme circumstances such as this.

Many people have wanted to see this settled by an international tribunal – but the problem is that no tribunal exists by which all of the disputing parties are bound. Iceland is not bound by the European Union court, and the UK and Holland are not bound by an EFTA court. The only possible solution would be arbitration court – but on that all parties must agree, and alas, they do not.

Anyway. It’s hard to envision a more despicable situation for this – or any other – country to be in. The Icelandic people are proud people, and on the whole we want to pay our debts – when they are OUR debts. But when we are being held hostage to pay the debts of private individuals who squandered and pillaged our wealth we become like Third World countries forced to pay the debts of its tyrannical leaders – while their people starve.

AS PROMISED, THE WEATHER IS INDEED FINE
Although somehow I think we all envisioned a bit more sunshine. Not that anyone is complaining – it has been very calm, which is rare around here, with temps are in the mid-teens. We have 12°C right now [54F]. The sun rose in the sky at 3 am [and was blazing at 5 am], and will go down exactly at midnight.

* I should point out, though, that a share of the opposition is not opposed to the agreement in principle, but rather the terms of this particular agreement. Tryggvi Þór, for instance, is strongly opposed to the fact that the interest on the loan – some ISK 40 billion per year – will inevitably fall on the state. He would like to have a clause in the agreement that interest paid by the Icelandic state may never exceed more than one percent of our gross national output – which seems eminently sensible.

**Just to put this into perspective once again: the Icesave debt, which in the worst possible scenario we the Icelandic people would be responsible for, would be enough to run the Reykjavík City Police force for 130 years.

Some more on Icesave:

On becoming an Iceslave
Facing up to the Icesave debacle
I get dizzy trying to understand the sums
On the status of the Icesave debacle

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  • Ljósmynd DE June 29, 2009, 6:44 am

    It is debatable, if the terms of the actual Icesave agreement are the best to be achieved under the present circumstances. As this is an international dispute, I would have expected more lobbying for Iceland’s case on the European level before signing the deal. Maybe I’m mistaken but reading news about Icelandic politics somtimes gives the impression that the bickering between the parties is being valued higher than finding shared solutions and compromises in a matter-of-fact manner, which would strengthen Iceland’s position.

    How about Landsbanki’s assets, which are supposed to cover much of the debts as it was asserted by the former government? Are there assets available for this purpose or are they already heavily mortgaged or claimed by other foreign parties?

    And if this agreement is the outcome of Iceland’s involvement with European institutions and law – how could there be any enthusiasm about a future membership in the EU?

  • Bromley86 June 29, 2009, 6:50 am

    Good summary. The only thing I disagreed with was the comments about hunting those responsible down:

    and now the IMF and the European Union are stepping in, not to help the people, but to maintain this system. And how? By allowing the moguls to get off scot-free . . .

    That of course can only be done by Iceland. The surprising thing has been, as came out in your interview with Eva, the heel dragging even from even the new government on this subject.

  • jpeeps June 29, 2009, 7:28 am

    Alda, thanks for your ongoing good works.

    What I don’t understand is why Icesave UK was allowed to remain a subsidiary of the Icelandic parent, unlike Kaupthing Edge (in the UK at least), which was set up in a way that did not expose the home country to risk in event of its collapse. If I remember rightly, the UK Govt was actively encouraging Landsbanki to instigate the change of status, to no avail. Was this just mismanagement or was someone benefitting from the status quo? Either way, perhaps one for Eva J.

  • Oscar June 29, 2009, 7:56 am

    The real slap in the face will come when those that are responsible for this mess get away with it. Justice will never be served in a small country like Iceland whose lawyers, judges and politicians are related to the guilty parties.
    There will however be poetic justice because the guilty parties will be known and despised by every unrelated Icelander and can never live in peace and solitude in this beautiful country.

  • Lee June 29, 2009, 9:44 am

    coalition parties and the opposition have completely switched roles in parliament

    That’s not really surprising if a government’s primary goal is to stay in power and an opposition’s primary goal is to get into power. I assume whichever government is in power would soon fall if parliament rejected the Icesave agreement. The bankers exploited Iceland’s future for their own ends; I guess it’s now the turn of the political parties.

    By allowing the moguls to get off scot-free and making us, the Icelandic people, responsible for their mess – and their debts

    That point that still surprises me. In almost any other country, they would have started to be held to account by now with arrests and prosecutions. If Bernie Madoff had been an Icelander in Reykjavik, he’d probably now be holidaying on a yacht in the Mediterranean and wondering whether to apply factor 8 or 12 suntan lotion this afternoon.

    the directive was flawed and was never intended to be applied to extreme circumstances such as this

    I never understood that argument because I thought the whole point of the insurance deposit scheme is that it’s specifically intended to be applied in the extreme circumstances of when banks collapse. They seem to be arguing that the occurrence of the event being insured is itself a force majeure, so I guess it’s no real surprise that the EU’s 22 member states unanimously disagreed with that argument.

    I doubt any EU country can ever let another country off its insurance deposit scheme obligations; to do so would risk cascades of collapses in future as the whole financial edifice is built on countries being held to account for such obligations. So, the best overall outcome may have been confirmation of the original obligation but with an interest rate acceptable to the Icelandic people. It’s a pity that the British and Dutch negotiated hardball on the interest rate; I wonder if there remains scope for that rate to be renegotiated if parliament rejects the current agreement…

  • Bromley86 June 29, 2009, 11:37 am

    It’s a pity that the British and Dutch negotiated hardball on the interest rate; I wonder if there remains scope for that rate to be renegotiated if parliament rejects the current agreement…

    I was wondering about this myself. If the rate was 3% in the agreement, you’d possibly still have half the Althingi saying they’d vote against it. From what I’ve read, there remains a substantial chunk of the the Icelandic political class (to say nothing of the general population) that are opposed to accepetance of the guarantee debt by the state. And that’s despite the IP agreeing to take it on back in November.

    This way, the Althingi can look tough for the domestic audience as they bargain down those tough, imperial negotiatiors.

    It doesn’t really scan when I think it through though. After all, just as I’ve been saying that Iceland benefits not at all if the UK economy goes down the tubes, the opposite is just as true. It’s not in the UK or the Netherland’s interest for the Icelandic economy to take longer to recover. So deliberately extending the period before the agreement is reached, and thus extending the period before the IMF & related loans are made, can’t be helpful.

    One thing though. I’m not sure what it’s like over in the Netherlands ATM, but the UK is borrowed to the hilt. Without knowing what we’re paying on that, I think it’s about 4%, and that factors in a risk of UK sovereign default. Presumably the risk of Iceland doing likewise is higher.

  • Ljósmynd DE June 29, 2009, 12:56 pm

    The following article on BBC refers to an interview with Tryggvi Þór Herbertsson about the issues mentioned:

    http://news.bbc.co.uk/2/hi/programmes/moneybox/7652519.stm

    I think, finger-pointing at those moguls, who ran Iceland to ground, is not enough. I would consider it essential for Iceland’s external credibility to have them hunted down – like the Americans do with Madoff. Without bringing the alleged culprits to court, the relevance of saying “it wasn’t us, who indebted the country” is restricted to purely domestic purposes.

    It might be fine for the Icelandic politicians to have the billionaires as scapegoats at hand, without further venturing into the role of the politicians themselves, who made the laws. Which is possibly the reason, why they are not too eager to press hard. But this is not in the interest of the Icelandic people.

  • Jónas Thor June 29, 2009, 3:26 pm

    A very good summary again. I am very concerned that Mr. Brown has not implemented the so call Terrorist Act on Iran after the incarceration of British deplomants. Is Iran too powerful and too hot for Mr Brown to handle. It was very easy for him to throw Iceland around as there was never any fear of retaliation.

  • Bromley86 June 29, 2009, 6:44 pm

    Don’t be a fool Jonas. Once you get past the self-pitying spin, you’ll notice that the Act allows the freezing of assets in non-terror cases.

    Likewise what Iran is doing doesn’t fall under the ATCSA. And they’re not British diplomats, they’re Iranian nationals.

    Meanwhile, back on planet Justsaynototrolls, Madoff got his 🙂 .
    http://news.bbc.co.uk/1/hi/business/8124838.stm

  • Lee June 29, 2009, 9:03 pm

    > Is Iran too powerful and too hot for Mr Brown to handle

    A nuclear Iran may well be too hot for anyone to handle! The UK usually has few qualms about entering spats with Iran, but Brown is currently under huge pressure from Obama’s administration to not inflame the current situation in order to not derail the subsequent nuclear negotiations. However, if Iransave were to go bankrupt… 😉

  • alda June 30, 2009, 12:10 am

    Thanks for the feedback and discussion, everyone.

    Bromley86 – This totally cracked me up: If Bernie Madoff had been an Icelander in Reykjavik, he’d probably now be holidaying on a yacht in the Mediterranean and wondering whether to apply factor 8 or 12 suntan lotion this afternoon. 😀

  • Bromley86 June 30, 2009, 8:14 am

    Just in case you were crediting me, Lee is the funny one 🙂 .

  • alda June 30, 2009, 10:05 am

    D’OH!!

    Sorry about that. That will teach me to write comments five minutes before bedtime when my eyelids are drooping.

    Lee it is!!

  • JoeInVegas June 30, 2009, 9:40 pm

    So then, no one in the Iceland bank schemes has been arrested, or had assets confiscated? Does it look like it will ever happen?
    And yes, those agreements are only made for times like this, in easier times they are just promises and not called upon.

  • colin buchanan June 30, 2009, 10:32 pm

    Great article , Alda!!

  • MichaelL July 21, 2009, 8:45 am

    Read this with interest. What we have in the UK is
    a disgusting government. Years ago an investment
    bank called ‘Barings’ went bust. The late governor
    of the Bank of England did a wonderful thing: he let
    it go bust. Cost to taxpayer: nil.
    Now remember ‘Long term capital management’
    that was a US hedge fund that the FED bailed out.
    Big mistake – capitalism works by recycling assets.
    The seeds of the credit crunch were sowed in that bailout.
    Here in the UK we have a laughable dependence
    on house prices: so taxpayers, savers and pensioners
    are now paying for those that borrowed too much.
    I work for and investment bank myself – not one
    that required state funding – what Brown did was
    to the discredit of an entire nation. True deposits
    up to a level should be protected but failed banks
    should fail – losses should not be socialised.