As Eva Joly notes in the Guardian this morning:
On Saturday the Icelandic people vote in a referendum on whether the Icelandic state and thus the citizens should guarantee the so-called Icesave claim.
Icesave was a bank deposit account that promised market-leading interest rates. When the bank failed, the question arose if the Icelandic depositors' guarantee fund — a private institution financed by the banks — should have taxpayer backing.
Instead of letting depositors lose their money or even wait for compensation from the bankruptcy estate, the governments of the UK and Netherlands (where the Icesave products where marketed) decided to reimburse depositors from their own countries. The reimbursement included the full principal, while the recklessly high-interest profits of the risk-seeking depositors were thrown in as a bonus.
Then the British and Dutch authorities went to the Icelandic government and claimed, with reference to EU regulation, that the compensation was in fact the responsibility of the Icelandic taxpayer and that Iceland had to reimburse the British and the Dutch in full.
The claims on Iceland are huge, considering the size of its population — £3.5bn equals a claim on the British taxpayer of £700bn. The claim is contested; it has a doubtful legal basis, and an even more doubtful moral basis.
Eva is right to say that the people of Iceland should vote against this deal. Asa she says:
In a similar vein, the people of Ireland, Greece, Portugal and other EU nations have had to accept a total guarantee of all loans made by commercial lenders, thus leaving both financial institutions and bondholders free of all responsibility. Why is this? Has this been discussed properly? Is the idea that taxpayers should necessarily guarantee private lenders a commonly accepted proposition? Is reckless lending supposed to be without consequence?
Instead of applying the customary methods of writing off debt, it seems that an invisible consensus has been created — reminiscent of Chomsky's phrase of the "unconscious conspiracy" — that the financial excesses and reckless lending of the past decade shall be carried forward by the taxpayers into the unforeseeable future. As a result, citizens across Europe are facing extreme cuts in public services, tax rises and massive rises in unemployment.
This is madness: this is money before people.
Eva's position is simple, ethical, justified and right: people come first.
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Richard – I think you are wrong on this one. Iceland guaranteed the deposits up to a certain figure. It then welched on this guarantee – for foreigners – but repaid it’s own citizens.
Before the banks went bust the whole of Iceland benefited immensely from it’s financial services industry – you don’t honestly think that Icelands transformation from one of Europes poorest states to having one of the world’s highest standard of living was based on fish and tourism ?
Icelandic citizens were quite happy to suck in money from the whole of Europe to subsidise it’s rapid rise in it’s standard of living. When asked to stand by it’s guarentees – it wouldn’t.
You seem to be suggesting that if a British bank went bust then ordinary depositors should lose out.
Bob
I am saying if the UK and Netherlands wanted to cover the loss that’s their choice
But Iceland can’t
And if in future we restrict banking licences or that reason so be it
But we can’t impose debt on this scale ion Iceland – that’s absurd
And it is banking liability gone made with all the down side on ordinary people and the upside elsewhere
i still think you are wrong. It was the ordinary Icelandic citizen who benefitted from the icelandic’s banks ability to hoover up money from Europe. It was not just the elite who benefitted from this boom. We didn’t impose this level of debt on Iceland – it was the Icelanders who imposed this level of debt on themselves. At the height of the financial boom Iceland had one of the highest levels of per capita income in the world. The whole population was living on money borrowed from abroad. They made guarentees and didn’t stick to them.
I agree with you on many things. But on this you are sadly wrong.
Big fan, Mr. Murphy – and Joly is certainly doing an important job.
But on this you are wrong.
I am 50% British, but I was born in Iceland and lived there for 32 years – moved to the UK in 2005 when things were getting completely crazy….everyone taking out loans like there was no tomorrow, despite regular warnings in the media about the unsustainable borrowing (spending spree) of Icelandic families (ranked as worst in the world). If your neighbour bought a Jeep – you needed to buy two. That was the mentality, and it was widespread.
When the crash came, they saved everyone in Iceland – not just depositors (100%), but Icelandic investors as well. All foreigners, however, were told to get on their bikes. Before the crash, the PM, governor of the Central Bank and countless other officials promised the UK that they could (and would) repay depositors if anything went wrong. “We can swallow it”, the CB governor said on Channel 4, in March 2008.
When it became clear that Iceland was going under, the UK pleaded with Iceland to let them take over Icesave, so Iceland would no longer be responsible for the accounts. Mervyn King also spoke to the CB governor in Iceland, and offered to help to wind down the banking system.
All offers off help were turned down by Iceland, as if the UK would take over Icesave, Iceland would no longer be able to suck money from UK depositors back to Iceland.
Also: the amount today is far from the one Joly mentions, as 90% of the debt (careful estimate) will be paid by Landsbanki’s assets. Today, we are talking about around 170 million UK pounds – which is far from the 3.5bn Joly writes about.
This has nothing to do with the money. This has everything to do with nationalism and xenophobia (about 40-50% of the people suffer from this).
Let me know if you want me to translate a few paragraphs from the RNA report (Rannsóknarnefnd Alþingis), which is a parliament report that has (conveniently) not been translated to English. All of the above is clear, just from reading that report – you do not even have to read all the 9.000 pages!
But please — please, please, please — do not help in creating foot soldiers out of the Icelandic people. Joly may view them as “collateral damage” – I do not.