As expected, Iceland's voters overwhelming rejected legislation to settle their country's dispute with the United Kingdom and the Netherlands regarding the government's liability for losses suffered by the depositors of the IceSave accounts when its parent--Landsbanki--collapsed in 2008.
The voters are rightfully angry about the matter. The Icelandic financial regulators failed to assert any meaningful control over Landsbanki's rapid ascension in the 2000s. When the house of cards began to fall after Lehman Brothers default, Landsbanki offered high interest saving accounts over the internet for depositors in a last-ditch effort to maintain liquidity. The Icelandic government at least implicitly guaranteed the deposits, as required under European Economic Area (EEA) rules, but failed to properly evaluate the level of risk or to charge the bank an appropriate premium. As a result, the deposit insurance fund was incapable of meeting the 20,887 euro guarantee, or about 3.7 billion euros for the non-Icelandic accounts. The British and Dutch governments seized Landbanki assets within their countries, immediately paid their domestic depositors to avoid a run on their banks, then asked how Iceland intended to repay them.
There is little doubt that the initial IceSave settlement agreed was unrealistic. It called for a high (5.5%) rate of interest. It did not spread responsibility for the lack of regulation to the British and Dutch regulators. The Icelandic negotiators did not effectively point out that the sum being sought would impoverish their country for a generation.
"The Icelandic Economic Wonder." Courtesy of Halldór Baldursson, www.mbl.is
The voters also feel that holding the entire nation liable for the actions of a few incompetent and/or corrupt bankers is deeply unjust. Any repayment, it appears, would let them off scot-free. Not one banker has been sent to jail or forced to regurgitate any ill-gotten gains. Not one regulator has been fired. The politicians who oversaw (and profited from) the bank deregulation remain in power and, if anything, they and their buddies are in a better position than ever.
The British, in particular, have been demonized for their actions in this matter. Their invocation of anti-terrorist legislation to freeze all Icelandic bank accounts after Glitnir collapsed is seen by some to be the cause of the collapse of Landsbanki and Kaupthing. The fact that Iceland has been a NATO ally for decades was seen as meaning nothing, and this was seen as a personal insult to the Icelandic people.
It is widely rumored that the seized assets will be sufficient to cover nearly the entire IceSave debt. As a consequence, the British and the Dutch are seen as bullies, kicking a weaker neighbor while it's down, for no reason.
So the voters were right on nearly every front. The UK and Holland should accept some responsibility for the debt. The agreement was unconscionable. The Icelandic nation should not be left destitute to cover debts that amount to very small fractions of those countries GDP. The wrongdoers should be forced to pay for their wrongdoings.
In the end, however, I am reminded of King Pyrrhus's response to congratulatory messages he received after suffering heavy losses while defeating the Roman army at Asculum in 279 BC: "Another such victory and I am undone."
It is almost certain that Iceland's access to desperately-needed capital will be cut off. It is unlikely that the IMF (or anyone else) will provide any additional funds until the matter is resolved. Iceland's already low sovereign rating will be downgraded even further, requiring the government to pay even higher interest rates. Iceland will never get into the European Union without support from the United Kingdom and Holland.
Of equal importance is the fact that the ruling coalition has been gravely damaged. The petition for a referendum was spearheaded by the opposition parties. It is a very distinct possibility that the parties that got us into this mess will be returned to power in short order.
The IceSave matter has taken the country attention away from many other pressing matters. While we have been endlessly debating IceSave, our unemployment rate has continued to climb, the number of insolvencies has continued to increase, and the number of public services has continued to decrease. Other scandals of comparable magnitude and abuse of taxpayer money--but involving only Icelanders--are being ignored by the Icelandic media.
We scored some points by rejecting the IceSave agreement, and we'll probably get a marginally better deal from the Brits and the Dutch. Unfortunately, though, we're probably worse-off overall financially, and we've lost valuable time, energy, and focus as a result. Any more "victories" like this, and we'll be next to King Pyrrhus in history's waste bin.
Follow Iris Erlingsdottir on Twitter: www.twitter.com/elluskott
Ann Pettifor: Iceland's Referendum -- At Last the People Can Choose
This referendum is about whether to authorize the government of Iceland to give a sovereign guarantee that the British and Dutch will be repaid -- including high, profiteering rates of interest.
is just a shambles, all its says it EU20,000 (or 50,000 now). Doesn't specify how it should be funded or any eventualities if its not. One thing which shouldn't be forgotten is that the UK FSA has some responsibilities to check the adequacy of the Icelandic deposit guarantee scheme due to the fact that the Icelandic banks were operating as branches rather than subs....
"Member States shall check that branches established by a credit institution which has its head office outwith the Community (EU) have cover equivalent to that prescribed in this Directive. Failing that, Member States may, subject to Article 9 (1) of Directive 77/780/EEC, stipulate that branches established by a credit institution which has its head office outwith the Community (EU) must join deposit-guarantee schemes in operation within their territories.”"
This is one part you could have fun with. On one hand you say the UK FSA didn't check, on the other you can say they did and the Icelandic regulator sent them a letter saying "Everything is fine!"
Banks in many countries have done so, and still gone bankrupt. Happens. Depositors should have been more careful with what happens to their deposits. Fortunately for them, the English govt bailed them out.
But the English govt has no right to go after the govt of Iceland or its people for this bogus 'd'e'b't'
The two that matter are 89/646/EEC Second Banking Directive and 94/19/EEC Deposit Guarantee Schemes Directive.
The 89/646 is passporting, get approved and authorised as a bank in any EEA country and you're good to go anywhere else in Europe. Meaning the system is only as safe as the worst regulator in Europe. The incompetence, naivety and under resourcing of the FME can't be overstated. 47 employees supervising an industry with 900% of a countries GDP. In 2007 when the Icelandic banks were operating in 20 countries, the FME had managed to conduct 1 overseas visit.
My two cents: Everyone is to blame but the Icelandic authorities should go through the emails of the banks and find the persons responsible who decided that their retail operations in the UK and NL should operate as branches rather than subsidiaries, this was the decision which exposed Iceland to huge amounts of risk.
The poor or criminal biz decisions have NOTHING to do with the Icelandic govt, nor its people.
94/19/EEC is really clear. Maybe you are reading a different document? Seems to me the regulatory requirements, which was that a scheme must be in place, were followed. That the scheme was poorly conceived or fell apart does not negate the fact that it was in effect, which was the requirement of the law.
Banks sometimes collapse, as they did in this case. The scheme does not allow for te people or the govt of Iceland to be on the hook. There i've done my good deed for the day, and improved your thesis grade.
Looking forward to more comments from you, and a link to your final thesis .
Hafau pad gott (have a nice day)
And at this point WHY would Iceland want into the EU?
So they can be abused again? but this time with no recourse?
What is unbelievable is that Iceland got to vote on the deal......
In the USA there would be no vote and the outcome would be to bankrupt the average american while letting the banksters grab more and more - until we all are happy to be making 8.00 per hour.....
and beleive me that's the plan and without a huge fight against BOTH the democrats and republicans it WILL HAPPEN!
hold onto what you have cause the banksters are coming for it!
which is exaclty what the limo-chauffered, cavier eating banksters are saying!
“The Icelandic government implicitly guaranteed the deposits, as required under EEA rules”:
The EXPLICITLY require the guarantee in exchange for allowing bank branches abroad to be regulated by home authorities. The rules barred British and Dutch regulators from doing anything with Landsbanki (further down the article). Landsbanki threatened to sue the British regulators for getting involved in a very minor way.
The British “invocation of anti-terrorist legislation to freeze all Icelandic bank accounts after Glitnir collapsed” :
The British Government temporarily froze UK assets of just Landsbanki (parent of the UK IceSave operation) because the Icelandic Government declined an unequivocal assurance to treat foreign creditors on a equitable basis with Icelandic ones, as they are required to do under EEA rules. The UK didn’t “seize” the assets (they were eventually unfrozen) nor did it use the assets to compensate Icesave customers who lost their savings. Note that Iceland has indeed compensated domestic savers. The question is what is going to do about foreign savers that they are obliged by treaty to deal with in the same way.
There are many more misstatements in the account, but this will do for now.
Are you saying that that is not correct?
What I read implied that the regulators in the UK and the Netherlands failed to do their jobs by failing to regulate the subsidiary in their jurisdiction.
Is this incorrect?
Are you saying that the Iceland government could and did accept complete regulatory responsibility for the foreign branches by telling the UK and the Netherland governments that they (Iceland) would be completely responsible?
Can you provide sources or links for this?
The contentious aspect of the EEA regulations is whether the State of Iceland is obliged to honour the guarantees made by the Deposit Protection Scheme that it set up under these rules. The Icelandic Government agreed with the UK and the Netherlands to consult a panel of experts within the EU. Their guidance was that Iceland was liable. (http://www.channel4.com/news/media/2010/02/day25/icelandlegaladvice.pdf) Iceland then proceeded with negotiations without conceding liability. Many in Iceland think that the country doesn't have obligations to compensate foreign savers under the EEA rules. Many more, not just in Iceland, think the rules themselves are incompetent.
Whether Iceland is formally obliged or not, a lot is riding on putting the Icesave issue to bed. Further loans as well as Iceland's credit rating are dependent on it.
There's a good review of the issues here: http://reservedplace.blogspot.com/2010/03/on-thin-ice.html
The terms and conditions of the deposit protection scheme are very clear, anyone trying to get money form Icelands govt or people either 1) hasn't read it and is giving a misinformed opinion 2) has read it but has an IQ that makes them an id-i-ot , or 3) lying for whatever purpose suits them
simple really.
The English government is only concerned in ensuring that London remains a hub for white collar crime... I mean International settlement of transactions.
The taxpayers of Iceland should not pay a single cent.
If it's any consolation to the Icelanders, being denied membership in the EU over this so-called debt won't be a big deal. it would be better off in Iceland's favour for them to stay out of the undemocratic, corrupt filled EU.
Your Family currently has debts and obligations of £xxxx should your family repay ?
please tick
Yes
No
"The last person to leave the country, please turn off all the lights.".
Though, just as in Iceland, voters around the world have been made to pay for "the actions of a few incompetent and/or corrupt bankers". And "Not one banker has been sent to jail or forced to regurgitate any ill-gotten gains. Not one regulator has been fired". It is an international disgrace.
If it makes Icelandic people feel any better (it won't) there have been no changes to the casino capitalism system and the wild risk taking has continued. Much of the rest of the west will be joining Iceland in their economic plight shortly.