Hats off to Iceland for a second time for telling the IMF, the UK, and Netherlands to “Go to Hell” over the most recent Icesave proposal, better thought of as Ice Torture.
Please consider Iceland’s President Vetoes Icesave Deal
For the second time, Iceland’s president vetoed a bid by the island nation’s Parliament to repay the U.K. and the Netherlands more than $5 billion lost by depositors in Iceland’s epic 2008 banking collapse—sending the matter to a referendum by a deeply skeptical public and complicating the country’s application to join the European Union.
The dispute over Icesave—the online arm of a failed Iceland bank that took deposits from British and Dutch savers—has percolated for more than two years, reflecting the Icelandic people’s dissatisfaction with paying the price for what is almost universally regarded as the hubris of a few bankers.
A first attempt at a repayment deal in 2009 faced stiff opposition in the Icelandic parliament. A modified bill passed later that year, but President Ólafur Ragnar Grímsson vetoed it in early 2010, triggering a referendum, which failed.
The new deal carries substantially better terms—Iceland has until 2046 to repay, at an interest rate of about 3%—but Mr. Grímsson said in a statement issued Sunday that the Icesave issue is so weighty and so contested that it wasn’t up to Parliament to decide.
“There is support for the view that the people should once again, as before, act together with the Althingi as the legislator in this matter,” Mr. Grímsson said, using the local name for Iceland’s thousand-year-old Parliament.
The presidential veto is rare. It has now been used just three times since Iceland’s independence from Denmark in 1944. The Icelandic president approves nearly all bills passed by Parliament; under the constitution, he may only approve or call a referendum.
If history is a guide, the deal once again faces nearly certain defeat. In the first plebiscite, 93.2% of voters, or 134,392, rejected the bill. Just 2,599 picked “yes,” badly trailing even the 6,744 who left their ballots blank.
The British and the Dutch governments stepped in in 2008 to compensate depositors in their countries who had placed money with Icesave, since Iceland’s tiny deposit-insurance program was woefully short of cash. The two nations soon demanded their money back—about £2.35 billion ($3.8 billion) for the U.K. and €1.32 billion ($1.8 billion) for the Netherlands.
The total amounts to about half a year’s economic output.
Iceland repayment talks collapse
The BBC Reports Iceland repayment talks collapse
Talks on how Iceland will repay more than 3.8bn euros (£3.3bn) of debt it owes to the UK and the Netherlands have broken down without agreement.
The collapse of the Iceland-based Icesave online bank in October 2008 hit savers in both countries.
The UK and Dutch governments are seeking repayments from Iceland after they compensated savers themselves.
However, the three governments have been unable to agree on revised payment terms after a week of negotiations.
“We had hoped to be able to reach a consensual resolution of this issue on improved terms, but this has not yet been possible,” said Iceland’s finance minister Steingrimur Sigfusson.
In a statement, the UK and Dutch governments said they were “very disappointed that despite all the efforts over the past year and a half, Iceland is still unable to accept our best offer on the Icesave loan”.
Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government is hopeful it can reach a different deal ahead of that.
Opinion polls suggest that a majority of Icelandic voters would reject the repayment plan.
The dispute has delayed International Monetary Fund help for Iceland, which Reykjavik needs to shore up its stricken economy.
The country’s parliament voted for a referendum on the Icesave bill after President Olaf Ragnar Grimsson vetoed the repayment to the UK and the Netherlands.
Opponents say the repayment plan forces Icelandic taxpayers to pay for bankers’ mistakes.
The dispute has also overshadowed Iceland’s application to join the EU, which was submitted in July.
Iceland’s economic crisis persuaded many of its politicians that it would be better off inside the 27-nation bloc.
Arrogance of UK, Netherlands
Note the arrogance of the UK and Netherlands issuing a statement “Iceland is still unable to accept our best offer on the Icesave loan”. It is up to Iceland to make its best offer not for the UK and Ducth governments to make demands of 100% repayment.
Why should Iceland crucify its taxpayers with a “loan” when the correct procedure is a massive haircut.
Iceland should immediately counter with its “best offer” of one cent on the dollar. That will set the tone for reasonable expectations.
Somehow the Icelandic Parliament does not get it. Fortunately the president does.
Commending Iceland’s President
I commend the decision of the president to send this to the people to vote. Moreover I encourage Icelandic voters to vote the same way they did last time.
Here’s the deal. When you make stupid investments, don’t expect to be bailed out. There is no reason the people of Iceland should have to pay for the stupidity of others.
If the UK and Dutch governments were dumb enough to guarantee those deposits, then the UK and Dutch governments should pay the price, not Icelandic citizens.
Mike “Mish” Shedlock
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