Iceland

[Hazir]

Well they held a referendum today on the pay back of roughly €3 bn to the UK and The Netherlands and the deal was rejected by 98% of the voters. Now, I think it was always a bit funny to have a vote by debtors on whether or not they want to pay back their debts, but here we have it confirmed; the Icelanders don't want to pay back source

I guess that's going to hurt them more than us, for 'us' the sum is relatively minor, but it is a matter of principle and even more so now that both in the UK and The Netherlands we're going to have elections which almost certainly will be followed by severe cuts in spending in both countries. In such a situation it's not going to be popular to use tax-money to bail out yet another irresponsable society. The Greeks are in the EU and already are learning the boundaries of solidarity, but Iceland isn't part of the EU, as a matter of fact it stands all on its own and an Icelandic default isn't going to hurt quite as much as a Greek default.

On the other hand it may be a good lesson for the Greeks and other southern European countries to see what happens to your economy if the state goes into default. That may even be a reason why some EU governments don't really think it's all that bad if Iceland is pushed over the rim.

What will happen after this weekend is everybody's guess, but I think the least we can expect is a downgrading of Icelandic sovereign debt to junk status, a freezing of funds that were reserved for Iceland both in the scandinavian countries (if Iceland is not going to pay back they can't afford to lend), likewise in the IMF and I think that regardless of what the fancy of the day is in Iceland (one day they all want to be members, the next day they are against it in a huge majority) EU membership is not going to happen for at least another decade. If not longer.

[wiggin]

Uhm, correct me if I'm wrong, but doesn't this have nothing to do with sovereign debt? As I understood it, the Dutch and UK governments compensated their citizens who happened to have money in Icelandic banks (not Icelandic government bonds) which went under. It seems that the deposit guarantee system is hardly well characterized, and it's unclear exactly who should be paying and how much (in contrast, the FDIC system is extremely well defined compared to some vague EEA directive). I find it likely that Iceland still has some sort of obligation to fund the first 20k Euros for each depositor, but it's not like they are defaulting on sovereign debt.

[GGT]

They're still angry about WWII and the fish wars? omg


http://www.bloomberg.com/apps/news?p...d=aGsEaEVbP4nE

March 7 (Bloomberg) -- Icelanders rejected by a massive majority a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank.

Failure to reach an agreement on the bill has left Iceland’s International Monetary Fund-led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached.

[RandBlade]

Well they held a referendum today on the pay back of roughly €3 bn to the UK and The Netherlands and the deal was rejected by 98% of the voters. Now, I think it was always a bit funny to have a vote by debtors on whether or not they want to pay back their debts, but here we have it confirmed; the Icelanders don't want to pay back source

The Icelanders are not debtors. They have no duty, honour or obligation to pay back corporate debt, just because another nation chose to.

Personally I had a look years ago at what bank to put my money into, Icesave came on top of all the price comparison websites. Yet I chose not to invest: why? Well partially because it was Icelandic. There were no guarantees. Invest my money in a British or European bank and the government had a guarantee to back it up. No such guarantee existed with Icesave.

Greedy people took the highest possible saving rate on the price comparison websites, without looking into the risk.

It was our government that chose to repay the money they chose to risk. The Icelandic government and Icelandic people promised nothing.

I guess that's going to hurt them more than us, for 'us' the sum is relatively minor, but it is a matter of principle and even more so now that both in the UK and The Netherlands we're going to have elections which almost certainly will be followed by severe cuts in spending in both countries. In such a situation it's not going to be popular to use tax-money to bail out yet another irresponsable society. The Greeks are in the EU and already are learning the boundaries of solidarity, but Iceland isn't part of the EU, as a matter of fact it stands all on its own and an Icelandic default isn't going to hurt quite as much as a Greek default.

And the Icelandic government bailing out the UK and the Netherlands for having bailed out their citizens who invested in a private company will just push Iceland further towards default.
[QUOTE=wiggin;12879]Uhm, correct me if I'm wrong, but doesn't this have nothing to do with sovereign debt? As I understood it, the Dutch and UK governments compensated their citizens who happened to have money in Icelandic banks (not Icelandic government bonds) which went under. [/quote[ Exactly.

[Flixy]

Uhm, correct me if I'm wrong, but doesn't this have nothing to do with sovereign debt? As I understood it, the Dutch and UK governments compensated their citizens who happened to have money in Icelandic banks (not Icelandic government bonds) which went under. It seems that the deposit guarantee system is hardly well characterized, and it's unclear exactly who should be paying and how much (in contrast, the FDIC system is extremely well defined compared to some vague EEA directive). I find it likely that Iceland still has some sort of obligation to fund the first 20k Euros for each depositor, but it's not like they are defaulting on sovereign debt.

Iceland guaranteed the first €20.000, and should pay them back. Dutch and UK government paid it up front and now want their money back that was supposed to be guaranteed by the Icelandic government, who also had the duty of controlling the bank in the first place. Especially since they are paying the icelandic savers, but not foreign ones.

[Unheard Of]

Personally I had a look years ago at what bank to put my money into, Icesave came on top of all the price comparison websites. Yet I chose not to invest: why? Well partially because it was Icelandic. There were no guarantees. Invest my money in a British or European bank and the government had a guarantee to back it up. No such guarantee existed with Icesave.

When we invested with Icesave it had the same level of guarantee as any other retail bank operating in the UK - up to £50,000 in the event of a bank going into liquidation. The fact that it was Icelandic was immaterial.

[Loki]

So you expect a higher return for the same amount of risk?

[ar81]

Hehe, so someone is trying to make Islander taxpayers to pay the failures of others, just like TARP in US or the Greek economic tightening in Greece?

[Lewkowski]

Wasn't Iceland listed by Time as one of the best places to live a few years back... LOL.

[wiggin]

Iceland guaranteed the first €20.000, and should pay them back. Dutch and UK government paid it up front and now want their money back that was supposed to be guaranteed by the Icelandic government, who also had the duty of controlling the bank in the first place. Especially since they are paying the icelandic savers, but not foreign ones.

Yes, under some complex European legal regime they had a guarantee. But that just means that the insurance fund the banks paid into in Iceland should back it. Since that fund is completely exhausted, I don't think it's entirely clear that the burden then shifts to a sovereign obligation. The UK and Dutch assumed it did, and covered it all (well beyond the first 20k Euros, in fact). That doesn't necessarily mean the Icelandic government is wholly responsible to foot the bill.

Now, I'm sure the legal experts are having a field day with this, but I'm not sure that the case is clear cut from either side. Based on the evidence I've seen, I'm inclined to think that Iceland has some level of obligation to guarantee the first 20k, but I don't think it's a 100% perfect case.

Of course, having a referendum about the issue is largely silly and has to do with domestic Icelandic politics, but they have a legal position that is at least somewhat defensible.

[Hazir]

Uhm, correct me if I'm wrong, but doesn't this have nothing to do with sovereign debt? As I understood it, the Dutch and UK governments compensated their citizens who happened to have money in Icelandic banks (not Icelandic government bonds) which went under. It seems that the deposit guarantee system is hardly well characterized, and it's unclear exactly who should be paying and how much (in contrast, the FDIC system is extremely well defined compared to some vague EEA directive). I find it likely that Iceland still has some sort of obligation to fund the first 20k Euros for each depositor, but it's not like they are defaulting on sovereign debt.

You are correct and Randblade is talking out of his backside. The official default part is going to come later iirc late 2010 when they need to refinance close to €1 bn in sovereign debt, which they won't be able to do if no solution can be found.

As for the system; it's actually not so complicated and Iceland indeed has the duty to pay that first 20k for British and Dutch savers just like it did for its own citizens. Actually what was totally illegal and immoral was that Iceland gave its own citizens preferential treatment.

[Hazir]

What I don't quite understand is how some people (in Iceland) seem to think the referendum is going to strengthen the hand of their government in the negotiations with The Netherlands and the UK. Are they under the mistaken impression that they are dealing with the EC or something? The referendum has already been declared 'an internal affair' by the Dutch FM, and with elections coming up I don't think any politician overhere would be willing to promote something as unpopular as being lenient on the Icelanders while cutting benefits of Dutch voters.

If you would organise a referendum on the Icesave deal in Holland people would vote for anything that would mean Iceland is punished for having a scam for a banking system (including oversight).

[Hazir]

Appearantly there is a debate going on in parliament about the Dutch vote on starting talks with Iceland for EU-membership. Four relevant parties are against starting the talks at all. The other 2 are not against the talks as such, but against Icelandic membership untill the Icesave situation has come to a satisfactory conclusion. Iceland was named an 'unreliable party' by the spokesperson of the VVD (conservatives).

[Dreadnaught]

Well that was kinda predictable I suppose -- I mean, given the whole Greece thing who wants another lemon in the club?

[Hazir]

Well that was kinda predictable I suppose -- I mean, given the whole Greece thing who wants another lemon in the club?

That plays into this too, but what's more important; politicians in Holland too have the hot breath of the voters in their necks and can't really afford to ignore them on something as controversial as the Icesave deal. Where under normal circumstances €1 bn is something that could be swallowed quite easily, it now makes people mad as hell. And that referendum in Iceland didn't make it any better, regardless of what politicians there seem to think.

Virtually nobody is falling for the trick they are pulling; saying they are going to repay but refusing any agreement on the actual payment.

[Dreadnaught]

Well, you know the best ways to get people to agree to EU terms. Just have them vote on it over and over and over until you get what you want.

[Hazir]

Well, you know the best ways to get people to agree to EU terms. Just have them vote on it over and over and over until you get what you want.

Well, I think in Dutch politics you'd have to be suicidal to be soft on Iceland these days. And for Iceland that means no money from either IMF or Scandinavia, nor a EU membership. At the moment that seems all bearable, but it won't be long before this mess means their state is going to be forced into defaulting on its debts and a collapse of its currency. Waiting hurts them more than it hurts angry Dutch voters.

By the way, this was the first referendum in Iceland. And obviously the voters were under the impression they could vote away their international obligations without punity.

Ministers of Finance of the Scandinavian countries that will supply a lot of the money Iceland needs to deal with its predicament beg to differ. source