The FT slams UK/Holland over their handling of the Icesave affair today:
The British and Dutch governments’ incessant bullying of Iceland over Landsbanki’s Icesave acounts seems motivated by the bully’s usual reason – there is little to fear from picking on those sufficiently smaller than oneself. That premise is about to be tested now that talks between the countries have broken down.
With deplorable success, London and the Hague claim the dispute is about whether Iceland will meet its legal obligations. It is not. European law requires each country to have a deposit insurance scheme; whether it demands that taxpayers fully back the guarantees, as Icelanders are told, is an open matter.
The broader damage of the grotesque mishandling of this affair will be felt elsewhere. The political effects are both chronic and acute. The focus on Iceland’s responsibility deflects attention from the fact that European cross-border banking rules are powerless to deal with any large-scale bank collapse. The priority is to fix the system so that we can let banks fail without having to bail them out again.