Tag Archives: Icesave dispute

And Now; A Word From Iceland

The Icelanders voted “no” to the Icesave agreement with a solid 93% majority last night. Could this represent a treath to global financial stability? Here’s some comments from the Icelandic journalist Ragnhildur Sverrisdòttir.

“The Icelandic government doesn’t want the referendum either, as it faces defeat on one of its flagship policies. How can it cling to power having held a referendum while working towards a new and better deal?”

Ragnhildur Sverrisdòttir


“Many commentators think it could constitute a threat to the entire global financial system if people are allowed to vote their way out of massive debt,” Sverrisdòttir writes.

A notice hangs on the wall in a sports centre near Reykjavik. The centre will be closed on Saturday 6 March if a referendum is held on that day. With only days left until the scheduled vote on the fate of the Icesave proposal, no one knows if it will actually go ahead.

Few things shed as much light on the situation in Iceland as this notice. There might be a vote, but nobody has a clue what will happen if there is not. Will a new deal with the British and the Dutch see the vote called off? Will it be postponed to allow time to cut a deal? Will a better outcome be feasible once the votes have been counted, especially now that polls suggest the proposal will be rejected?

Is it true, as is rumoured, that the British would prefer it if the people of Iceland didn’t vote on Icesave, since a popular mandate would strengthen Iceland’s hand at the negotiating table? If that is the case, then at least Britain and Iceland agree on something – even if it is only that both consider the referendum a very bad idea indeed.

Government under pressure

Post-referendum, the government would find itself in the peculiar situation of the people having rejected a bill in which it has invested a great deal of effort and credibility. No surprise, then, that talk of a political crisis has become so loud that talk of the financial crisis that triggered it is now barely audible.

As with most elections, postal votes can be submitted for several weeks prior to polling day. Postal voters are usually a very specific category. After all, not everyone is able to turn up at a polling station on the appointed day. This time around, postal voters are asking if their votes will ever actually be counted – and they are not alone

Some people who are perfectly capable of making it to a polling station on the day are also demanding a postal vote. They want to make sure their opinion counts, whatever that opinion may be. They don’t want to be cheated out of a referendum if the authorities get their way and find a justification for calling it off.

New deal sought in London

So why a referendum? Late last year, the Icelandic parliament passed a bill about Icesave’s debt commitments after the British and Dutch rejected Icelandic reservations about the deal struck by the three states in the autumn. The reservations were financial in nature: the deal specified the amounts and times of repayments, despite the state of flux in which the Icelandic economy found itself.

The deal, which was totally in line with British and Dutch thinking, was put to the President. Early this year, he announced that he would refuse to ratify it, a stance backed by the signatures of around a quarter of the electorate. The ball was back in the government’s court. It had to decide what to do with this piece of legislation. The opinion polls suggested that the people had already made up their minds.

The necessity of reaching a new deal with the British and Dutch has been discussed ever since the President made his call. Signs of progress have emerged in the last few days, with the British and Dutch responding to a new Icelandic proposal with a counter-proposal of their own – one they claimed was their final offer.

Iceland had stressed that assets from the Landsbankinn bankruptcy settlement should be used to repay Icesave debts. The British and Dutch wanted to hold the Icelandic state responsible for those repayments. To sweeten the pill, they offered variable interest rates this time, instead of the fixed 5.5% stipulated in the deal being put to the referendum.

This offer was initially described as final until Iceland rejected it – or at least until Icelandic representatives arrived in London for new talks at the behest of the British government. This time, the Dutch looked on from the sidelines, with most observers agreeing that their absence had more to do with the collapse of their own government than any reluctance to negotiate. Iceland has submitted a new proposal, based, it says, on ensuring that the British and Dutch do not make money on Icesave by charging excessive interest rates.

Media changes tone

The tone of overseas media coverage of the Icelandic stance has changed radically in recent weeks. The presidential veto caused many to reflect on the implacability of the British and Dutch approach. On Friday 26 February, the Financial Times published an unusually caustic editorial, slating the British authorities for taking an unnecessarily tough line and for their ‘grotesque mishandling’ of the whole affair.

According to the FT, the focus on Iceland’s responsibility has diverted attention away from the reality that European banking regulations are not designed to cope with large-scale international bank failures.

Many commentators connect the editorial with the British resumption of negotiations the very next day. It is believed that the British team fears a chain reaction across Europe if the Icelandic referendum rejects the deal.

According to the FT, if Iceland is deemed to be the main culprit but rejects responsibility, investors would no longer consider state bankruptcy to be quite so inconceivable. The wrath of the Icelanders, as the editorial describes it, might encourage the people of other countries to refuse to repay debts for which others bear the real responsibility.

Government held hostage by opposition

An extraordinary situation has now arisen, in which Icelanders want to vote on a deal that nobody actually intends to go through with.

The British and Dutch have already offered more favourable terms than those stipulated in the referendum bill. So won’t everybody want to reject the old deal, secure in the knowledge that a better one is in the offing?

Well, not everyone, it would seem. Not the Minister of Finance, for example. He will vote for the worst of two possible outcomes, despite acknowledging that the referendum is past its sell-by date now that a better offer is on the table.

It is a difficult attitude to understand – perhaps he is unwilling to sever emotional ties with a bill upon which he placed such exaggerated emphasis, but it is far more likely that he just does not actually expect to have to cast his vote.

Þorsteinn Pálsson, a former prime minister and ambassador to London, fails to see how rejecting the deal in a referendum is supposed to strengthen Iceland’s position. On 28 February, he said that the right thing to do would be to cancel the referendum and simply declare the law invalid.

In any event, a new deal would render the law irrelevant. After all, the British and Dutch have already made a better offer, and the opposition in Iceland now has the final say on any new deal. The British and Dutch have made political unity in Iceland a precondition, knowing full well that the government lacks the strength to push through a deal on its own. A political crisis of this nature shows up weakness, not strength.

High-level hypocrisy

Professor Harry Mintzberg (Canada) joined in the chorus of criticism of the UK and the Netherlands with an article in one of the Icelandic papers on 1 March. He described the Icesave case as ‘oppression’ and said that it was ‘hypocritical’ to hold the people of Iceland responsible for losses on a venture from which they would not have profited if all had gone well. He called on the people of Iceland to vote ‘no’ in the name of the free market, capitalism and internationalisation.

Naturally, the British don’t want the Icelanders to throw out the December Icesave bill in a referendum. That could lead to the very situation the FT warned about: People power turning against governments all over the world for pumping money into failed banks.

Ragnhildur Sverrisdottir

The Icelandic government doesn’t want the referendum either, as it faces defeat on one of its flagship policies. How can it cling to power having held a referendum while working towards a new and better deal?

In the meantime, the ordinary man and woman in the Icelandic street still want the opportunity the make their feelings known in a practical way – by exercising their democratic right to vote.

Ragnhildur Sverrisdóttir is Icelandic journalist and her article first appeared in the Nordic Council of Ministers’ newsletter “Analys Norden”. (Translation by: Tam McTurk/EUobserver)

Related by the Econotwist:

Where Exactly Is “Money Heaven”?

Iceland Refuse To Accept Debt

Iceland Voting Over Icesave Repayments

Iceland Debt Talks Collapse

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Where Exactly Is "Money Heaven"?

When one of the billionaires behind the collapsed internet bank Icesave in relations to a new film was asked what happened to all the money, his answer was astonishingly nonchalant: “A lot of money goes to money-heaven,” shrugged Björgólfur Thor Björgólfsson, the Londonbased investor who co-owned 41% of Icesave’s parent bank, Landsbanki.

“They have evaporated. It’s a common misunderstanding to ask;  where did the money go.”

Björgólfur Thor Björgólfsson


No wonder the people of Iceland are really pissed off. Sure, the money has “evaporated”, but Icesave’s €4 billion debts remain and are now the subject of fury in Mr. Björgólfsson’s home country.

Icelanders were set to become the world’s first rebels against the idea of clearing up after the mess made by a reckless private bank.

This popular insurrection has been watched anxiously by the governments in Greece, Ireland, eastern Europe – and even Britain – concerned that this defiance could become contagious.

Almost 18 months after its financial system, currency and government went into meltdown, the country is still spiralling downwards into what one economist has called a “vortex of debt default, unemployment, and an exodus of people”.

Public outrage has been brought to a peak by the fact that there are now 43 cases of alleged criminal activity under investigation in connection with the country’s scandal-hit financial institutions, including Landsbanki, and, in the country’s first referendum, the 320,000 people of the island were expected to vote against a deal to compensate the UK and the Netherlands for the failure of Icesave.

So,what really happened?

Here’s a little – but very interesting – piece of news broadcasted by Iceland Radio on October 15th 2008:

“Islands Radio reports that the Icelandic Finance Council was started to investigate a series of mysterious transactions prior to the collapse of Landsbanki.”

“17 percent of the bank’s shares changed hands on October 3. The price was 5 percent above market price. October 3, 2008 was the last day of trading with the shares of Landsbanki. The day after the authorities suspended trading, and four days later the bank was taken over by the Icelandic government. According to Icelandic radio, it is unclear who has bought or sold shares in Landsbanki.”

All the three major Icelandic banks, Landsbanki, Kaupthing and Glitnir, was later declared bankrupt.

We have never heard another word on what happened to the investigation of the mysterious transaction.

But it gets even better

“Landsbanki’s biggest owners, Mr. Björgólfur Thor Björgólfsson, and his father, the ex-owner of West Ham FC, Björgólfur Gudmundsson – two Icelandic businessmen with close links to the country’s ruling Independence Party benefited from Iceland’s move to privatize its banks in the early 1990s, despite the fact that Mr Gudmundsson had a conviction for false accounting, following the collapse of his shipping empire in 1985,” according to The Telegraph.

The pair had no experience in banking and were not the highest bidders. However, the privatization helped catapult Mr. Björgólfsson on to the Forbes list of richest people.

At the peak of his wealth he had an estimated fortune of $3.5bn – now an estimated $ 1 billion.

No one quite knows how Landsbanki and the other Icelandic banks managed to grow so big, so quickly. But it is now well-documented that some of the biggest shareholders of the banks were lending each other vast sums of money in a complex network of mutually beneficial business relationships.

This had begun to worry financial observers by March 2006.

Richard Thomas, an analyst at Merrill Lynch, said at the time: “We are seeing the classic signs of a over-leveraged banking system and this has flashed a red alarm signal.”

And there’s  more

In September last year The British Serious Fraud Office sent a team of investigators to Iceland to get to the bottom of the suspicion that there had been any criminal offense in connection with the collapse of the banks, and whether it had any connection to London.

As expected, very little have come out of this investigation, so far.

More than 30 houses on the Island have been ransacked by police and more than 60 people have been brought to interrogation.

The international corruption investigator, Eva Joly, who is brought in as a consultant for the Icelandic government, believe this might be the biggest criminal case Europe has ever seen.

Eva Joly told The Telegraph last year that the British authorities must take their share of responsibility because they have did not have a good enough supervision of the Icelandic banks.

“They received several warnings about banks, but they did nothing. In my opinion that has been very harmful,” she said.

Personally, I can’t wait for the next shoe to drop in this case, (and perhaps somebody finally will tell us where money-heaven is – that answer is long overdue.)

In the meantime; the hardworking people of Iceland needs our support.

Related by the Econotwist:

Iceland Refuse To Accept Debt

Iceland Voting Over Icesave Repayments

Iceland Debt Talks Collapse

På (litt) lenger sikt

BBC:

Iceland rejects plan to repay Icesave debts

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Iceland Voting Over Icesave Repayments

Around 230,000 people in Iceland are voting in a referendum Saturday on whether to repay £3,9 billion pounds to Britain and the Netherlands. Iceland’s Prime Minister says she will not be casting her vote.

“I will not vote because we have a better, more favorable solution to the problem.”

Johanna Sigurdardottir


Around 230,000 people in Iceland are voting in a referendum today on whether to repay billions of pounds to Britain and the Netherlands. The two governments are claiming the money after refunding savers in the collapsed internet bank, Icesave, in 2008.

The deal that Icelanders are being asked to vote on has been superseded in negotiations between Britain, Iceland and the Netherlands over the past two months.

The Icelandic government had hoped to avoid the vote by agreeing the new repayment plan before the weekend.

According to the latest opinion poll, 75% of voters will reject the agreement, which was passed by parliament in late December.

Some voters may use the vote as an opportunity to express their frustration over their country’s dramatic fall grace.

A “no” vote would create another obstacle on Iceland’s difficult road out of a deep recession, jeopardizing its credit rating and make it harder to access much-needed bailout money from the International Monetary Fund. It could also harm Iceland’s chances of joining the European Union.

But supporters of the deal say a ‘no’ vote could jeopardize an International Monetary Fund rescue package, as well as EU and euro membership talks.

The Netherlands said today that it will take negotiations with Iceland over a bank debt dispute into account when considering Iceland’s hopes to join the EU.

“We have been negotiating with Iceland about the Icesave matter. I assume it will be resolved,” Dutch Foreign Minister Maxime Verhagen says.

“This issue will be part of our considerations when deciding about the opening of accession negotiations with Iceland,” he add.

Iceland has said it hopes to conclude the talks and join the EU by 2012.

Johanna Sigurdardottir

Prime Minister Johanna Sigurdardottir has said she will not be casting her ballot today because she felt it was “meaningless” and that further talks were the way to resolve the Icesave problem.

“I will not vote because we’ve a better, more favourable solution to the problem,” Ms Sigurdardottir told reporters.

Source: RTE News Iceland

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Iceland Debt Talks Collapse

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