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Parliament approves state guarantee for Icesave

This just in from the guv’ment press office:

Today, following 10 weeks of debate, Iceland’s Parliament, the Althing passed legislation authorising a state guarantee for the loans granted by the Governments of the United Kingdom and the Netherlands to the Depositors’ and Investors’ Guarantee Fund of Iceland.

According to the legislation, the state guarantee will be subject to certain criteria and preconditions. These are aimed at ensuring debt sustainability and allowing Iceland to restore its financial system and its economy while at the same time honouring Iceland´s international obligations.

Prime Minister Johanna Sigurdardottir welcomed the Althing’s decision:

“This is one of the largest financial and economic issues ever faced by Iceland and it has greatly preoccupied the Althing and the people since the collapse of the banking system last Autumn. The guarantee of the combined loans from the United Kingdom and the Netherlands constitutes the single largest financial commitment ever undertaken by the Government of Iceland. Therefore, as I am sure that every parliamentarian will appreciate, the Icelandic parliament has a solemn duty to ensure an economically sustainable future for the country. This has been its goal. Its conclusion of the matter aims towards securing the recovery of Iceland´s financial system and economy. This is for the mutual benefit of both lender and borrower.”

The Prime Minister also praised the tireless efforts by Parliamentarians in the Althing to reach as broad a consensus as possible and stressed the importance of political unity in difficult times.

Following the outcome of the parliamentary process, the Government of Iceland will now consult with the Governments of the United Kingdom and the Netherlands.

Prime Minister Sigurdardottir said that her Government was hopeful that the Icesave issue would now be concluded in a mutually satisfactory manner.

This went pretty much as expected, then. I don’t have much more to say about it than I’ve already said, i.e. the fact that we, the regular citizens of this land, have to pony up for Icesave sucks bigtime, but with the above-cited preconditions at least there is some understanding of the fact that you can’t get blood from a stone.

I have to say though that I rather chuckled at the “tireless efforts by Parliamentarians in the Althing to reach as broad a consensus as possible” remark. Here is an example of the aforementioned “tireless efforts”, recorded in the evening of Thursday, August 22, when the Icesave debate dragged on and on. As it happens, the “tireless efforts” of MP Sigmundur Ernir Rúnarsson included going out for a drink [or ten] and then returning to Althingi for the debate.

Particularly noteworthy in this regard are minutes 4.00-4.30 and 8.50-9.20.

This has the jokers referring to Althingi as “Ölthingi” – which translates rather nicely as “Alethingi”. The right honourable MP Sigmundur Ernir initially vehemently denied all allegations that he had been under the influence — but later admitted that he’d had “wine with dinner” and had made an error in judgment in returning to work. Er, yeah. *HIC*

IT’S A BEAUTIFUL PRE-AUTUMN DAY
As forecast, the rain has let up and we’ve got cooler weather with sunshine. It’s a little windy, so I suspect it’s also a little chilly. 11°C [52F] at the moment. Sunrise was at 5.57, sunset due for 8.58 pm.

MORE ON THE ICESAVE AGREEMENT:
On the status of the Icesave debacle
On becoming an Iceslave
Eva Joly: Iceland is being blackmailed
For freedom and life

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  • James August 28, 2009, 12:41 pm

    If “wine with dinner” helped pass the legislation in Iceland, then Gordon Brown should have some whisky with dinner before reviewing the “certain criteria and preconditions”.

  • kevin o'connor waterford Ireland August 28, 2009, 12:54 pm

    Best of a bad deal really,Iceland GDP €12 billion whatever, when times was good 2008, Icesave deal Brits and Dutch €4 billion loan thankyou very much at 5.5% mmm do the aforementioned countries pay that on their international borrowings I wonder.Well that works out around 30% of GDP which is pretty big hit as not everyone in Iceland has a job babies,schoolkids retired etc. Ireland was saved from this by the € ,We have zombie banks too Anglo-Irish,plus NAMA €90 billion.Interesting article explaining the whole thing
    http://blogs.ft.com/maverecon/2008/10/icelands-bank-defaults-lessons-of-a-death-foretold/

    How all that cash 4 billion for 300,000 people can be repaid without too much pain is another matter.Your probably going to boost your tourism industry as with the collapse in the Krona, Iceland has affordable prices as opposed to insane (just like rip off Ireland forty shades of greed).Also if you can stop foreigners taking over your Volcanoes Aka geo-thermal electricity,if it is technically possible lay a cable to export electricity to Scotland or better still here to Ireland as my electricity bill has arrived and its big €400 for 4 months and I am not very happy about it !!! You could become the Saudia Arabia of electricity payoff everyone and afterwards use the cash to build a sovereign wealth fund like Norway and say goodbye to the IMF,Brits and Dutch forever.

    Ah if only it was that easy, Anyway look forward to my holiday in Iceland in few years when I have finished paying all these pesky electricity bills.

  • Karen August 28, 2009, 12:54 pm

    Iceland Review noted that 34 voted in favour, 14 against, 14 _abstained_ and 1 MP was absent.

    That’s hardly a ringing endorsement of the legislation. 14 absentions!? 14 MPs said to themselves “well the people will hate me either way so I’ll run and hide instead?”

    Why it sort of resembles Canada’s voter turnout….

  • Fred August 28, 2009, 2:11 pm

    The government is completely gutless for agreeing to such a deal.
    The Icelandic people,who did so well in ousting the previous regime,are crazy for allowing this to happen.
    This will cripple several generations here and all for the sake of EU membership.Why be part of an organisation which allows you to be bullied and blackmailed into something which will result in many more people leaving the country?
    The British and Dutch governments must be laughing at this government’s incompetence.No other country would ensure its citizens have to pay off the debts of a foreign based private company.
    What’s equally outrageous is the meek manor in which Icelanders have accepted this.This was the time to show some backbone and protest for something that had to be changed.However the efforts were half hearted,as though they had nothing left to give.This deal will ensure many people have nothing left to give anyone for a long long time.

  • Ljósmynd DE August 28, 2009, 3:33 pm

    It seems that some people need to be boozed up to endure this whole Icesave stuff any longer. So, it was time for a final stroke in parliament.

    No account can be found, how many of the voters exceeded the drink-vote limit.

  • Mark-Jan August 28, 2009, 4:03 pm

    Well, saying no to the deal was never really an option for Iceland…They could but then it would be a be a phyrrhic victory for Iceland.

    Save some money now but pay that back later with much more expensive loans.
    Noone wants to buy bonds/state-obligations from a country that does not comply with her promises, and if they do, those buyers want to see much higher interest rates then normal.

    If they can/ever have to pay the loan back is another story….

  • Dave Hambidge August 28, 2009, 6:40 pm

    I feel very sad for the nicelanders who have been bullied into this dreadful deal.

    But, take heart, most of the ‘punishment’ imposed on the Germans by the Allies after WW1 was never paid up.

  • James August 28, 2009, 8:00 pm

    “Well, saying no to the deal was never really an option for Iceland…”

    Actually, Iceland’s parliament just said no to an agreement that its government signed a couple of months ago with the UK and Netherlands. Instead, Iceland’s parliament approved a counteroffer containing a very different set of conditions. However, with the government and parliament now in unison, at least the Icelandic side of the negotiations finally knows its own negotiating position. If this goes on for much longer, everyone will need “wine with dinner”.

    “If they can/ever have to pay the loan back is another story….”

    Note that Iceland hasn’t commited to pay back the loan in full. One of the new conditions in the counteroffer is that, if Iceland can’t afford to pay back the loan within a certain number of years, then the remainder of the loan will be written-off.

  • Mark-Jan August 28, 2009, 9:48 pm

    Yeah,

    The official stance here is that we are glad with the “Icesave-law”. According to Bos (minister of finance) the Dutch taxpayer is one step closer recovering the money.
    Bos wants to hear firstly of the Icelandic goverment how its interprets the situation now, “because we have an agreement with the government and not with the parlement”.

    Same sound is comming from the dutch ministry of finance:
    On 6 June we reached an agreement with the Icelandic government concerning repayment. But the Icelandic parliament, the Althingi, still had to agree with the Icesave-law. That has now happened.
    We are awaiting the response of the Icelandic government. That is our partner.

    “It can’t be this way that as a result of the Icelandic requirements the dutch taxpayer is having to pay the money” “If needed they take a couple years longer”

    The Icelandic amendments, short version is that those guys are not amused…

  • Easy August 28, 2009, 11:51 pm

    The british finance minister said it like 2 weeks ago, “whatever notes they put on the contract, have no legal value, the agreement was made on june 6th and what maters is to sign the agreement”, and the cuotes from Mark-Jan confirm what I was saying for like 2 weeks, but the Icelandic media both official and “independent” didn´t want to even mention a thing. There are no such a thing as emandments on the contract, ther is a contract and thats exactly what they sign. If you owe money and you sign you owe it, the other party can forever legally persue the repayment of the money, no mater what, no mater what you put in the contract, the fact of the matter is that you accept you owe that money.

  • alda August 28, 2009, 11:59 pm

    It’s “amendments”.

  • Gwrhyr August 29, 2009, 12:30 am

    At least the Icelandic preconditions passify both sides of the issue for the time being so that Iceland can move on to economic reconstruction and the Dutch and British can sit happy that an agreement was made; all the while giving Iceland leverage room within the agreement when several years pass and the payment phase is actually happening. When that time comes the British and Dutch can say all they want about their version of the agreement, but the Icelandic government will be in a better position to stand by what its own parliament decided, and thus in a better position to enforce the Icelandic conditions at that time. Everything surrounding the Icesave issue in the Netherlands and the UK will most likely be much calmer then and both governments will face less domestic pressure to take a hard line against Iceland.
    A lot of people are taking the view that the statements from British and Dutch officials show that they absolutely do not and will never recognize the Icelandic preconditions and that the Icelandic parliament’s actions are just to make the agreement palatable with Icelandic voters, but what about the idea that those very statements are meant to pacify British and Dutch voters and give them the image that their governments are pushing a hard line, when in reality, when the time comes, they may not actually take that hard line. I think it’s a bit of both, a two-way street, and the real showdown will be in a decade when it’s time to implement everything.
    Iceland may not feel like it can say no to the agreement now, but the Icelandic preconditions give Iceland a good chance of basically saying enough is enough down the line when there is less for Iceland to lose by standing its ground (Iceland may by that time be in the EU and using the Euro and so there would be less threat of isolation from defying the UK and the Netherlands).

  • geo8rge August 29, 2009, 1:02 am

    Let us all pray for a “Stirling Crisis”.

  • wally August 29, 2009, 2:02 am

    Easy I think you will find that the Icesave contract would have been signed pursuant to it being agreed upon by the Althingi. Anything less would have been totally negligent. (Which actually would not surprise me).
    If the Althingi hadnt approved it, the contract would have gone back to the drawing board. I am happy a well thought out offer is on the table. Lets hope the Dutch and British have enough common sense to accept it.

    Correct me if I am wrong about the whole having to get Althingi to approve it thing.

  • Flygill August 29, 2009, 9:06 am

    Sorry, Easy, I know you are cynical about your gubment, and you have the right to be cynical, but these amendments are as binding as anything in the original agreement and the amendments and original contract are inseparable. What matters in a contract is the intention of the parties and the intention of the Icelandic gubment was clearly ONLY to sign the agreement with the amendments. These amendments are not scribbles in the margins. The Icelandic government has rejected the original offer and made a counteroffer. There is no agreement of any sort unless and until the British & Dutch government signs the amended agreement — which of course they will not do.
    So now everything is back at point zero. No Icesave agreement, no IMF or other loans, the British Dutch and others will continue their lawsuits, EU membership is dead, maybe Iceland will get kicked out of EFTA. Iceland continues on the road to isolation and starvation.
    If anyone takes the amended agreement before a British court, the court will conclude that the amendments conflict so much with the original agreement that the entire amended agreement is null and void.
    So really, this new agreement has been nothing more than political theatre. The Icelandic government is trying to make the British and Dutch look like greedy bullies (which they are) and appease the EU, and trying to appease (and fool) the Icelandic people by making it look like they have an agreement. You can’t blame the goberment, really it has no other choice.
    The Icelandic gubment has another trick in mind, too. If they pay the British & Dutch any money, and if the brit-dutch accept it, then Iceland can argue that there is a valid contract, and that this contract is the amended agreement. It won’t work, but it’s worth a try.
    In a few years from now, when EU membership is at stake and the guberment is really desperate, they will sign the un-amended agreement and the sale of energy resources to the British and multinations will begin. By that that time the icelandic populace will be so worn out and worn down, desperate, bitter, and hopeless, that they will quietly accept anything that promises improvement.

  • James August 29, 2009, 10:54 am

    “If you owe money and you sign you owe it, the other party can forever legally persue the repayment of the money, no mater what, no mater what you put in the contract, the fact of the matter is that you accept you owe that money”

    The loan agreements signed a couple of months ago had several explicit preconditions, such as the agreements not being binding unless various Icelandic parliamentary approvals occurred first. Therefore, Iceland is not breaching those agreements – they never became binding. The legal recourse could be to laws and regulations (EU, EEA, and Iceland’s own) to clarify the relationship between deposit guarantees and state guarantees, but not to enforcing civil loan agreements which never became binding.

  • alda August 29, 2009, 11:52 am

    Thanks for the comments, everyone.

    As a number of you have mentioned, the original agreement was always pursuant to the Althingi ratifying it, so there has been no binding agreement to date.

    It will be interesting to see what British and Dutch authorities say. So far they have been resolutely silent. It is in no way in their interests for Iceland to be completely driven into the ground by this debt, so surely they will see the sense in having these preconditions – even if they cannot be seen to give in without a struggle.

    And Flygill – I would not even begin to have the imagination to construct the scenario you set up. Even just reading about it makes me utterly confused.

  • Easy August 29, 2009, 1:23 pm

    Flygill very good post, you acctually make alot of sense, Iceland is just trying to gain some time. Now, as alda says we will have to wait and see (lets hope our media keeps us well informed) but I wouldn’t be surprised if it goes something very much like you predict assuming the preconditions that james mention are there, now if the preconditions are there, the declarations of the british finance minister on “the amandments having no legal value infront of a british judge” would mean that he is not well informed of the contract they sent, could it be? wel still few day ago Geir said he had no idea what was going to happen, when the system collapsed, and everybody knew it would.

  • Easy August 29, 2009, 1:35 pm

    Flygill, in this comment: “The Icelandic government is trying to make the British and Dutch look like greedy bullies (which they are) and appease the EU, and trying to appease (and fool) the Icelandic people by making it look like they have an agreement.”
    You forgot to ad: (which they are doing) after, “and trying to appease (and fool) the Icelandic people”
    Because people really belive that something was achived by althingi yesterday. People have this very proud feeling of “yes, we signed it but with amandments, nobody is going to bully us, hmm”. “take it brown”.

  • santiago August 29, 2009, 5:20 pm

    “No other country would ensure its citizens have to pay off the debts of a foreign based private company” – quoting Fred.

    Wrong. We Argentineans did it, and more than once. Just, look at the results, of course. I´m 26 and already lived through 2 kreppa-like things, one in 1989 and one in 2001. Hope the icelanders do it better

  • James August 29, 2009, 5:34 pm

    “surely they will see the sense in having these preconditions”

    I think the precondition least likely to be accepted concerns the remainder of the loan being written off if Iceland can’t afford to pay it back within a certain number of years. That precondition is more difficult to justify because it seems opposed to usual lending principles of “ability to pay”: it effectively prevents repayment over a longer period if required! It may be a pity if the overall counteroffer is rejected primarily because of that one suspect precondition.

  • Mark-Jan August 29, 2009, 5:37 pm

    In about 7 years the Icelandic debts are 1.935 M€ to the NL and 3.635 M€ to the UK. From 2016 they have 8 years the time to repay their debts. The first year alone they will get a reminder to please transfer 306M (interests) & 306M (loan) to the other side of the pond.

    Anyone can do the math….the Icelandic GDP will shrink something like 10% in 2009 and after that the IMF will see stagnation.
    Somehow i don’t think the NL & UK goverments are gonna agree with the ‘no more then 6% of the Icelandic GDP’ part.

    Wouldn’t be surprised if they will use the IMF ..eeeuh…propose that the IMF will determine what Iceland can pay back each time.
    Makes the NL and the UK somewhat looks less what Flygill called “greedy bullies’. However we all know who’s pulling the strings there at the IMF..hint it isn’t Iceland.

    On another note…really curious what will happen with the first IMF review and if they release the SDR 105 million. Imo that will say a lot what the real NL/UK opinion of the document is.

  • Mark-Jan August 29, 2009, 5:41 pm

    Small correction to the post above, it should be: 306M (interests) & 696M (loan)

    Alda wrote: “It is in no way in their interests for Iceland to be completely driven into the ground by this debt, so surely they will see the sense in having these preconditions”

    I wouldn’t be so sure….2008; seizing Icelandic assets in the UK under the Anti-terrorism, Crime and Security Act 2001.
    Argentina 2001-2002; the IMF and other IFI’s & countries going for the final squeeze to satisfy investors and bankers.

  • Easy August 29, 2009, 6:31 pm

    I see the IMF sending the next 155 million next month to apeace public international opinion, and after that no more, untill this amanded contract is dealed with, just exactly the same we have seen untill now. Iceland has played the “we are so small” card very well, as we are experts when it is convenient, when its not “we are strong unique vikings, the best of the world”

  • David Raven August 30, 2009, 8:16 am

    As a UK tax payer I can only say – “There but for the grace of god go us.” And of course there is still plenty of time for it to happen, since we came very close to an Argentinean banking crisis only last year. I’m angry that my own local council invested $13million into the Icelandic banks – which has not been repaid by the UK government and is part of $1.4billion still owed to local councils in the UK – which I don’t think is covered by the government guarantees. This will impose higher taxes and worse living conditions in my neighbourhood. (I mention this only by way of relating we are not all insulated from the crisis) Nevertheless, I don’t believe the right decision is to effectively punish Icelandic citizens for generations to come. We are so deeply in debt our selves it would be a better investment to work closely with the Icelandic peoples for the longer-term and solve these problems through trade. I have never met a single person in the UK who has a bad word to say about Icelandic people who are considered with real affection. The tourist potential is huge and Iceland needs to find the cash for effective PR in the UK. Did you know for example that one of the largest membership groups in the UK is the RSPB with over 1 million members? These are people who love nature and wildlife (we are not all drink crazed weekenders) Iceland is less than 3 hours by air from London, bird watching tours and the countries natural environment should be of huge interest.

    Excellent Blog one of the best I visit.

    Dave

  • Silvia Planchett August 30, 2009, 9:01 pm

    The Dutch will not agree to this. They are beyond a shadow of a doubt the most frugal folks on this planet. Their stinginess defies description. They would would sell you their first born if the price was right! I know them inside and out and I can assure you that I am not exaggerating!

  • alda August 30, 2009, 10:56 pm

    Silvia – that may be your experience, but it is certainly not mine. One of the most generous donations I have ever received on this blog came from a Dutch Icesave depositor.

  • Fred August 31, 2009, 1:07 am

    There seem to be two “Fred”s in here. This could get confusing.

  • Melvin Godfried August 31, 2009, 9:05 am

    I have to agree with Silvia regarding the frugality of the Dutch. I lived their for 7 years and can offer that your experience is a one-off.

  • Edo August 31, 2009, 10:35 am

    @Flygill: Don’t forgot that the reason Iceland is in this situation is not because of the Dutch nor the English; perhaps they will be viewed as bullies, but the same type of people will argue that the Icelandic people are greedy and bad losers in the capitalistic game.
    The Icelandic people enjoyed unrealistic growth over the past decade and benefited from it without questioning its source or methods. Their prosperity was financed by the same nations that now demand their money back; was Iceland also so humble during these years when local banks in these nations fell because of Icelandic competition?
    Arguing that because of a few, Iceland now has to suffer as a whole is not without precedent in history; on this scale more often then not a lot will pay for the failure of a few.

    @Silvia Planchett: According to this chart The Netherlands is the world’s third biggest donor of Economic Aid per capity: http://www.oecd.org/dataoecd/42/61/31504039.pdf. Sorry your experience is such a harsh one though.