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“Of course we are being bullied. Of course.”

So, the three-party musketeers who set sail for the UK and Holland a couple of days ago have returned and seem rather pleased with what they accomplished.

Even Sigmundur Davíð Gunnlaugsson from the Progressive Party, a.k.a. The Great Fearmonger in Parliament, has had to acquiesce that the British and Dutch were rather amenable to finding a solution to the Icesave dilemma.

What that means, however, isn’t quite clear. I find James Wilde’s interpretation in the comments to this post worth a ponder, though:

This supports the thesis of Johannes Björn on his site, vald.org, that the politicians of the creditor nations are dead scared that the Icelanders will take the Icesave case to the European court and win, because this will give the Baltic states, Ireland and Spain, not to say Greece reason to try the same course, which would be disastrous for the banking systems of the creditor countries, and could spark off a second wave of economic disaster to rival the one some people say we are now coming out of.

Meanwhile, the Icelandic media has been buzzing today over an interview that President Ólafur gave to CNN yesterday, in which he accused the UK and Holland of bullying Iceland financially.

We are being bullied. The British and the Dutch are using their influence within the IMF to prevent the IMF program from going forward,” Grimsson told CNN’s Richard Quest. “We have a situation, where a small nation is in fact ready to shoulder part of this burden but doesn’t want to be put in a corner where the very survival of its economy in the next 10 years would be at stake.

CNN doesn’t allow me to embed the video, but you can watch it here.

Comments

comments

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  • James January 30, 2010, 5:32 pm

    Debtors who don’t want to pay usually state they’re being bullied by their creditors, so his statement isn’t surprising. However, he should have been specific about why he thought Iceland was being bullying (such as being explicit that the 5.5% interest rate was too high in the current low interest rate world), otherwise it seems just general wingeing.

  • James January 30, 2010, 5:33 pm

    Correction: “why Iceland was being bullied” – not “bullying”!

  • alda January 30, 2010, 7:09 pm

    Actually, James, he said Iceland would pay. It is just a question of terms.

  • Rod January 30, 2010, 7:13 pm

    Is Olafur Ragnar running for public office? Making controversial statements like he did, especially if it involves another sovereign country, is the job of the prime minister or the foreign minister. In a parliamentary democracy, the job of the head of state is to be least offensive to your neighbors and fellow citizens. Granted that 60% of the Icelandic population are against the Icesave bill, Olafur Ragnar just offended the 40% who are in favor of it.

  • Andrew (the other one) January 30, 2010, 7:27 pm

    Both the British and Dutch have been in the international trade business for centuries and they realize that defaulting on debt would be a very bad thing. They will negotiate a more reasonable settlement. It’s “only” about terms of repayment, not whether there is going to be a repayment, after all.

    However, it is probably a good thing that the president is not on the negotiating team; I’m sure he will be the first to claim all the credit when a successful outcome is achieved.

  • idunn January 30, 2010, 8:34 pm

    I’m really liking your President Grimsson. Thank you for the interview. President Grimsson seems to have a proclivity for telling things as he sees them (as in the truth), which is most refreshing.

    I’ve only vaguely heard of the dire financial problems in Greece, but am far more familiar with certain mountain rivers in the USA which are being wantonly polluted. If this seems an odd comparison, they both derive from the failings of mankind. Perhaps Greece mucked up her own economy, but she might have had some assistance from the international financial system. The very same one pressuring Iceland right now. The very same guys, some of them, who would gladly take your natural resources in lieu of the debts they helped impose upon you.

    Far be it for me to know or suggest if Iceland should at last take this entire matter to the World Court. But I’m fairly sure she is not the only nation played with unfairly by banks and others whose only God is gold.

    Put another way: If most of Iceland’s waters are pristine, they should remain that way.

  • sylvia hikins January 30, 2010, 9:41 pm

    Keep on rocking! (after all, it is Saturday night!)
    sylvia from viking wirral

  • Joerg January 30, 2010, 10:27 pm

    The President is presenting himself as a beacon of democracy against the dark powers of the financial markets. Given his poor track record during the boom years preceding the crash this is ridiculous, populist and insincere.

    I think, he should tone down his accusations considerably. For him it’s not without danger. There are lots of examples, when he endorsed the activities of Iceland’s overhyped bankers or alienated even Iceland’s closest allies. I suppose, he is addressing the Icelandic public by his actions, rather than actually supporting Icelands case abroad, in pursuit to blot out his image as lapdog of the bankers’.

    Btw., did he ever apologize to foreigners, who had lost parts of their savings, when depositing with Icelandic banks? How do they fit into his newfound view of the world?

    The development in the Icesave case is certainly quite interesting. As there are now many countries on the brink of bankruptcy, Iceland certainly doesn’t have to feel as lonely as it was a year ago.

    And something completely OT: I just noticed, that on the shirts of the Icelandic handball team there is an advertisement of “Arion Banki”. The last time Icelandic banks were advertising abroad, was, when they were collecting money on internet accounts. How lucky, that Kaupthing has changed its name and nobody knows about Arion.

  • James January 30, 2010, 10:47 pm

    “Actually, James, he said Iceland would pay. It is just a question of terms.”

    Yes, but the terms define how much Iceland would pay… My point was merely that he should have been explicit about what Icelanders want to pay (eg loan principal) and what they don’t want to pay (eg interest at the high 5.5% rate agreed between the British, Dutch and Icelandic governments). I suspect the British public expect the principal to be repaid, but don’t really care whether the interest rate was 5.5% or 3.5%…

  • Andrew (the other one) January 31, 2010, 12:07 am

    @James

    I agree, I think the principal would be sufficient. At least they aren’t asking for price indexation, which the nationalized Icelandic banks have inflicted on their domestic customers.

    Alda, has there been any protest about this? The banks are nationalized (owned by the people) so why are they able to do this. Most banks in most other places don’t.

  • alda January 31, 2010, 12:26 am

    Yep, there are protests every Saturday at 3 pm.

  • Lino January 31, 2010, 12:55 am

    it’s not THAT simple saying” pay the principal and drop the rest”, especially if paying the principal takes several years… money depreciates, interest are not just second class or Monopoly money, it’s money exaclty like the principal. The distinction is purely fictional or “moral”.

    The same for casually saying ” instead of 5.5% pay 3.5%”: anyone who ever attended a financial math would know that.

    I’m curious, why did they agree on 5.5%?

  • sylvia hikins January 31, 2010, 12:59 am

    I’ve just looked at the CNN broadcast. President Grimsson’s agressive rhetoric is not helping the situation. It needs a united political front and cool, clear, resolute but polite re-negotiation of the Bill fully passed by Parliament in August. You are not without friends and sympathisers in the UK. Grimsson’s approach may alienate those who want to find a reasonable settlement to this God aweful mess.
    sylvia from viking wirral

  • Bromley86 January 31, 2010, 10:02 am

    >The banks are nationalized (owned by the people) so why are they able to do this.

    True, but there are a number of issues:

    (1) The state owes an eye-watering amount of money (even without Icesave). Any reduction in assets in the bank must, effectively, be funded by the state. So the state simply cannot do too much to damage the banks.

    (2) To shift this problem (and other), the state has given 2 out of 3 of the banks to foreign creditors. If Icelanders might not be expected to want to shoulder the burden of missold or imprudently-taken financing to other Icelanders, foreign creditors who’ve lost so much already are definitely not going to.

    (3) From what I’ve been able to gather, Icelandic mortgages are usually at a rate well below what the market would offer if indexation wasn’t present. Not a defence of indextion mind, just pointing out that it hasn’t all been lose-lose for the Icelandic consumer (although the effective transfer of part of the headline rate from the front page presumably also fueled over-borrowing).

  • Bromley86 January 31, 2010, 11:17 pm

    Follow-up to (3). Mike posted at about the same time over on EDA with an estimated mortgage rate 2001-2008 if Iceland had been a non-indexed country (in reality it was ~5% + indexation). This is what I meant by transferring part of the rate from the front page – a mortgage of 5% sounds a lot less scary to the average person than a mortgage averaging 15%!

    2001 17%
    2002 14%
    2003 11%
    2004 11%
    2005 14%
    2006 16%
    2007 19%
    2008 21%

    http://www.economicdisasterarea.com/index.php/features/solving-the-wrong-problem/

  • Eliza February 1, 2010, 11:07 am

    I don’t how Icelanders got the impression that a 5.5% interest rate for Icesave was high. I know financial culture is not so widespread, esp. in Iceland, but we are talking about a 15-years loan. Even if *short term* interest rates are very low, long term interest rates are not.
    Greece, which has about the same fiscal deficit as Iceland, but is a member of the eurozone and whose financial system has not (yet?) collapsed, pays around 7% for its 10 years debt. So 5.5% for a 15 years debt is indeed very nice, esp. considering that nobody in its right mind would lend billions of euros to Iceland at the moment.

  • Lino February 1, 2010, 1:36 pm

    Eliza,
    actually, I would NOT lend billions euros to Greece either at the moment…

  • Lino February 1, 2010, 1:45 pm

    Bromley86,
    thank you for the link

    http://www.economicdisasterarea.com/index.php/features/solving-the-wrong-problem/

    looks very interesting (the post and the comments)!