helvítis fokking fokk!
this is why you should never go with the 2.0 - always wait for 2.1
so, er, funny thing happened...
the Icelandic President vetoed the law passed by Alþingi right at the end of 2009. The one that acceded to all UK and Dutch demands in the IceSave fiasco.
This is a first.
As you know, faithful reader, Iceland, as usual, lead the world last year,
into catastrophic banking crisis this time.
The grossly corrupt, overleveraged, Icelandic banks did a classic domino collapse, triggered in some sense by the Lehman Bros collapse in the US, through a classic bank run, and capped by the UK invoking anti-terrorist law to freeze assets of Icelandic banks.
It started when banks were deregulated, privatized and handed on a plate to old boy oligarchs who promptly decided to become kleptocrats. The banks expanded rapidly and were, on paper at least, very profitable - but built up insufficient capital reserves and overpaid dividends and bonuses and made questionable unsecured loans to Good Old Boy buddies: each other, nouveaux riche Russians, old money brits, secretive scandihoovian aristocrats - good old viking generosity.
When it all collapsed, depositors were of course insured, though the deposit insurance fund was not well capitalized. Individual investors, insured up to some cap per account.
Large depositors were of course on their own, they took the high interest and assumed the commensurate higher risk.
Right.
So, the Icelandic government fell, a conservative coalition of the ill-named Independence and Progressive party, but not before the stupidest man in Iceland managed to both nationalize the banks and offer an informal guarantee on full deposits to Icelandic investors.
Problem is, under EEA rules, such guarantees can not be discriminatory based on nationality, and IceSave was chartered in Iceland, not the UK/Netherlands.
So Iceland became liable for the full loss. Potentially about $5 billion if no assets were recovered in the protracted liquidation of the bank.
Iceland's population is about 1/1000th that of the US, so per capita that would be like the US assuming a $5 trillion debt, mostly owed to the Chinese - inconceivable, I know.
This is money stolen by a group of roughly 20 people, and some hangers on.
Is it theft if you get your buddies to legalise it first? Hmm.
Well, will it be theft if we change the law to take the money back?
The UK and Netherlands decided to end a domestic political issue by guaranteeing and refunding all deposits. And then they sent the Icelandic government the bill (at this point I personally feel Iceland ought to have printed some of our lovely pink paper bills, and paid up, in cash - but a strategic error was made, the currency printing is contracted to the UK).
So... the leverage is that the UK/NL blocked the IMF from coming to the rescue - coincidentally the IMF package, with some scandinavian central bank collaboration, is almost exactly what the UK/NL claim is owed.
The new center left/populist coalition government in Iceland collapsed like a wet tissue in negotiations and accepted responsibility - the money to be repaid in 5 years at interest that is high compared to government bonds (ie the UK and NL make a decent profit on the loan).
This was agreed by law in Iceland in August.
But... with total debt approaching 300-350% of GDP (it is not just IceSave), the servicing of the debt is unsustainable - so the August law ties in conditions on GDP growth and deferring payments if it can't be paid down in 15 years.
The UK and NL basically ignored those stipulations, and the Icelandic government folded, again, passing a new law.
This is what the President vetoed. Near unprecedented but indisputably within his power.
This sets the law to the status quo ante - Iceland accepts liability but unilaterally puts conditional terms on prompt repayment - and the new law goes to a national referendem, "as soon as practicable" - current sentiment would lead to the law being rejected by a large majority.
In the mean time, Iceland's credit rating was promptly downgraded from near-junk to pure junk, and the Usual Suspects started denouncing it, providing interesting spin on the whole situation (see links below, especially the comments).
Best case situation: Iceland holds fast, renegotiates conditional terms with UK and NL, gets long term loans from IMF and Norway to recapitalize foreign reserves and good times come back. Loan is paid, maybe in 20-25 rather than 15 years...
Worst case: Iceland folds, debt burden become impossible in a couple of years, but first the conservatives who caused the debacle get back into government for one more round of looting, economy collapses, Iceland defaults on loans anyway and becomes a barter economy with a small aristocracy in near-exile and collapse of the social system setting the economy back 30-50 years.
Then we wait for the rest of the world to catch up and restore parity after currency collapses and multiple sovereign defaults.
Lovely.
See:
Iceland Weather Report
Calculated Risk
Grauniad
and Defensive Icelandic dude in Grauniad
Read the comments.
- Log in to post comments
The freezing order was not made under anti-terrorism legislation. It was made under part 2 of the Anti-terrorism, Crime and Security Act 2001, which re-enacted and widened provisions of the Emergency Laws (Re-enactments and Repeals) Act 1964, which in themselves dated from the Defence (General) Regulations 1939. In the Lords debate the government defeated attempts to restrict the use of these powers to terrorism cases; and in fact they are not the powers used for freezing terrorism assets.
emphasis mine. you know, i always thought i rather enjoyed the subtle British sense of humo(u)r, but the difference --- if any --- indicated by that distinction must be a tad too fine for anyone not born in old blighty to quite grasp.
As I pointed out the freezing order was carried out under one of the security parts of the Act not a terrorism section. Indeed a different section is actually used to freeze terrorism associated assets.
The Act includes a broad range of measures only some of which are terrorism related as the act also covers crime and security issues. Part 2 re-enacted and widened provisions of the Emergency Laws (Re-enactments and Repeals) Act 1964, which in themselves dated from the Defence (General) Regulations 1939. These are emergency powers laws not terrorism laws.
and in neither case appropriate for the case
Brown overreacted and used emergency powers completely inappropriate for a civic action and completely precluded and restructuring or recovery for any of the banks, not just the IceSave subdivision
everyone calls it the anti-terrorism act, if they don't want that they should have named it the crime, security and anti-terrorism act instead - but then Parliament would probably not have passed the abomination, 'cause it sounds less scary
Iceland had indicated that it was not intending to honour its deposit insurance, the UK government both froze the assets of the UK subsidiaries of the insolvent banks and paid the Icelandic share of the deposit insurance; rather than just the difference between the upper limit of the Icelandic scheme and the much higher upper limit of the UK scheme (the Dutch scheme had an even higher upper limit). Under the circumstance, given the apparent Icelandic intention to expropriate assets without treating UK depositors fairly Britain acted first.
The Act covered a variety of measures, mostly consolidating existing law, so most sections, such as part 2, were fairly uncontroversial. Whatever the title the Labour majority of about 160 meant that it was always going to pass as it was a government bill.
The most amazing thing is that none of the 20 kleptocrats have been shot or manhandled by a disgruntled Icelander!
You should probably also take in account the (opportunity) costs of not being allowed to join the EU. What not paying up might accomplish.
Yeah, it is not clear if there is a majority in favour of joining the EU, nor if it is a net gain in the long run.
The overriding reasons why Iceland did not apply in previous rounds is the very real concern that EU fisheries policy is too politicized and used for horse trading, leading to catastrophic collapse of fisheries.
Cod and herring are probably more valuable than euros in the long run, but needs must.
@Dubar #5
Er, it was not an "Icelandic intention to expropriate assets"!
It was the alleged intention of a small number of individuals who happened to be of Icelandic nationality but who mostly split their time between their mansions in Surrey and their yachts in the Med.
Now, I would be not at all surprised to learn they did intend to loot the corpse of the banks and transfer the assets to numbered accounts in some UK dependency in the Caribbean, but it would be nice, very very nice indeed, if the UK would provide evidence for such illegal behaviour by actual individuals that triggered the use of emergency powers so we can prosecute the fuckers and seize all their assets.
There was actual evidence right? With names and amounts?
Wasn't it Gordon Brown hisself that got the EU to deregulate the cross-border bank operations in the first place?
The Icelandic government had indicated that it did not intend to honour the deposit guarantee to foreign depositors, effectively confiscating part of the foreign held assets in the insolvent banks.
No it had not, certainly not at the time the Anti-terrorism-and-other-random-powers act was invoked.
Further, the act was used against Kaupthing, not just IceSave, and the publicly proclaimed rationale was suspicious transfer of funds - Kaupthing was officially solvent at the time and its UK subdivision was chartered in the UK, not Iceland, so the same issue was not there.
Random Icelandic politicians at random times uncorrelated to UK actions made random pronouncements, some of which were wrong, some of which were stupid and some of which were balloons floated to see what the reaction would be.
Not the same as official statements of policy, nor statements by people actually in charge of what they spoke of.
I also think there were suspicious transfers of funds, lets see the evidence and prosecute the individuals involved.