Showing posts with label Iceland. Show all posts
Showing posts with label Iceland. Show all posts

12 April 2011

Icelanders shrugged

Taxpayers in Iceland are fed up.  They have in the past year or so faced two referenda on whether they, personally, should be responsible for the costs of bailouts of depositors of privately owned Icelandic banks.  Quite rightly they told the UK and Dutch governments (and the EU implicitly) to go fuck themselves.

So what is it about?
Well the Icelandic government set up a Depositors' and Investors' Guarantee for its banking sector.  It was set up as a legal obligation under the European Economic Area decision to follow EU Directives on banking guarantees.  In short, if Iceland wanted to maintain free access to the EU markets for its goods and services, it had to comply with EU laws demanding state guarantees for banks.

So it did.  One private bank, Landsbanki set up aggressively with branches in the UK and the Netherlands, offering retail bank accounts with highly competitive interest rates.  It attracted 300,000 customers in the UK and 125,000 in the Netherlands.  Another bank called Kaupthing Edge was also part of the Icelandic banking boom, but for simplicity let's leave that one out for not.

The long and the short of it is that Landsbanki collapsed.  It had been over leveraged with extensive foreign debt linked into banks outside Iceland.  The bank was put into receivership and the Icelandic Financial Supervisory Authority declared that domestic deposit holders would be protected.

For UK depositholders the situation was clear.  The UK government guaranteed them up to a relatively high limit, which meant they were safe from any risk.  However, the UK government wanted this guarantee to be born by the Icelandic Depositors' and Investors' Guarantee, which was effectively bankrupt.   So it confiscated the assets of Landsbanki in the UK, under anti-terrorism legislation, albeit rather late as Landsbanki had already moved most of its assets back to Iceland.

The dispute since then has been because the British government wants the Icelandic government to pay back its guarantees of British depositors.  It claims that under the EEA agreement, the Icelandic government agreed to do this, which may very well be true.  However, Icelandic taxpayers are not happy and don't accept it.

However, this raises the far more fundamental point - who are those who agreed to this and what right do they have to do so?

At a basic level UK and Dutch depositors took a risk in getting accounts with Landsbanki - a risk they largely unconsciously thought was not real because of national government guarantees of deposits. 

The UK and Dutch governments decided to guarantee those depositors regardless of risk, and have used their taxpayers' funds to do so.

The Icelandic government signed up to certain guarantees for deposits, up to 20,000 Euro.  However, there is not enough in the guarantee fund to cover this for UK and Dutch depositors.  Understandably, given it is taxpayers' money, the fund has covered Icelandic depositors as a priority. 

So the relevant governments argued and negotiated, but Iceland's government decided on only paying out 4% of the country's GDP to the UK and 2% to the Netherlands to pay up.   Both the UK and Dutch governments refused to accept this.   A new bill was submitted to the Icelandic parliament for Iceland's taxpayers to cough up 3.8 billion Euro over 14 years.   They were not amused. It comes to around 12,000 Euro for every man, woman and child.  They petitioned for a referendum on the matter.   It was held in 2010 and 93% of Iceland's voters said no.

The reaction from the bigger countries was despicable.  The Prime Minister Gordon Brown and Lord Myners (Financial Services Secretary) said they expected Iceland to meet its obligations, the Dutch Finance Minister said essentially the same.   Iceland's taxpayers had said enough.

The Icelandic government negotiated another deal, spread over 30 years at an interest rate of 3%.

Iceland's voters have just rejected this once more, but with a 60% to 40% margin.

As so they should.  Iceland's taxpayers primarily work in the fisheries, aluminium and manufacturing sectors.  They don't see why they should be responsible for those who risked their money in a private bank they had nothing to do with.  They don't see why their governments should bind them to bail out governments who decided to guarantee nationals of their countries for investment in a private bank.

They are right.

The Icelandic government should work for them.  It should accept that they, as productive, hard-working people don't owe their government, let alone foreign governments, anything.

Iceland has NOT defaulted on sovereign debt, it has not got a major fiscal problem.  It is not seeking a bailout because of years of socialist economics and bloated welfare.

The UK and Dutch governments should leave them alone.  THEIR taxpayers should be demanding the skin of the politicians who demanded they guarantee the deposits of those willing to invest in new banks with high rates of return.

It is especially galling at a time when the UK government is quite happy to throw taxpayers money at Portugal to help bail out its fiscal incontinence.

Icelanders have told the world that they are not responsible for governments promising to use their money to rescue those who chose to invest in a privately owned bank.  They are right.  They shouldn't be bullied to give up their money as a result.

07 January 2010

Iceland's revolt

Iceland has suffered more than most countries in Europe from the recent recession, not least because it became the host for a series of financial institutions that have since failed. The most notable one is Icesave, which borrowed heavily to establish itself as an institution engaged extensively in providing credit for property and offering high interest bearing bank accounts.

Like other banks that have failed in this part of the world, none of those in the sector drew any attention to the nature of the operation, and the UK regulator - the Financial Services Authority (FSA) - happily rubber stamped it all. In other words, what it did was officially approved as being robust. With Icesave, among others, very highly leveraged, the financial crisis saw it unable to rollover its debt facilities, so it all came to a tumbling end. Hundreds of thousands of depositors in the UK, Netherlands and Germany found their accounts frozen, all assuming that with state "endorsement", their money would be "safe". So the UK government decided that other UK taxpayers should bail out the depositors. Not for a moment did Gordon Brown argue that depositors should have thought more carefully, not for a moment did he seek to fire the FSA for being effectively useless, not for a moment did he think about taxpayers over investors.

So having done this, the UK looked to recover some of this from Iceland, effectively demanding Icelandic taxpayers pay the UK for its policies. Quite what Icelandic taxpayers have to do with a private Icelandic company is beyond me, after all it was a policy choice by Gordon "borrow" Brown to bail out depositors. The Icelandic government agreed to cover a portion of the deposit costs, under significant pressure, but Iceland's taxpayers have turned on their government.

The total cost of this foolish promise is £3.6 billion, for a country with the population of greater Wellington. Allister Heath in City AM points out the scale of this, which explains why nearly a third of Iceland's adult population has signed a petition demanding the President veto legislation authorising the deal:

the proposal will now be put to a referendum and crushed. The sums involved are huge: 40-60 per cent of Iceland’s national income, taking the national debt to 200 per cent of GDP. Each of Iceland’s 304,000 citizen would have to pay £11,700 without getting shares or any assets in return. The money would be gone for good. Imagine if UK taxpayers were asked to pay £700bn to overseas governments because one of our banks had messed up. We too would be up in arms.

Yes, the bank was irresponsible, but it was a private entity.
Yes Iceland's government shouldn't have agreed to help pay part of the bailout to the UK and Dutch governments, but then given the UK economy is 144x the size of Iceland's how could the UK expect much from it?
A better response from Iceland's government would be to state that its banks operate in a free market are not government guaranteed so creditors beware.

So Iceland's taxpayers, who didn't own the failed bank, didn't invest in it and never promised to bail it out and saying "enough". Good for them. Whilst some noise was made about Iceland voting in a new leftwing government, which has supported the deal, the protests have clearly rattled both it, and its belief that taxpayers are there to be fleeced for "their own good".

Big bully Brown is threatening to veto a forthcoming Icelandic application for EU membership. Iceland ought not to be too concerned, since all such membership will do is mean Iceland, as (still) a relatively wealthy European country will probably be a net payer to the socialist subsidy schemes of the EU, and Iceland's ample fisheries would be plundered by the parasitical subsidised fishing fleets of France, Spain, Portugal and the UK.

As Allister Heath continues: "The bankers were incompetent, as were the Icelandic authorities, the UK authorities, the EU and the depositors who didn’t do their research. Egged on by price comparison websites and personal finance pages, the public assumed regulators would ensure every newfangled online bank was safe and forgot that high returns often mean high risk. Instead of acknowledging this, Brown is pursuing a vendetta against Iceland, trying to recoup all of the cash from its government."

Iceland's voters will no doubt say no in a forthcoming referendum, not wanting to put themselves and their children under enormous state enforced debt. If it means pariah status from the IMF and the EU, Icelanders are likely to prefer that to being under servitude to bail out policies from other governments.

As the Daily Telegraph points out, this marks a new low in relations with the UK since the Cod Wars. The UK government classified the Icelandic Central Bank alongside Al Qaeda, under anti-terrorism laws, just so it could seize its assets. Iceland is a member of NATO.

So Iceland has served as a warning, that taxpayers will only take so much from governments claiming to speak on their behalf. Sadly, the UK is too big, and British taxpayers too inert to revolt against state kleptomania.