Today, Saturday March 6, Icelanders go to the voting booths to have their say on the law on payment for the so-called Icesave debt. The British and Dutch governments claim that they lent money to Iceland to pay for the default of Landsbanki, an Icelandic bank that took deposits in both countries. Almost every aspect of the case is very controversial. Nothing means the same thing to any two individuals. But the case has made very unusual allies in Icelandic politics. Old comrades are no longer on speaking terms while former foes are now on the same side of the issue.
First of all the original problem is due to the fact that Landsbanki opened a high interest savings account in England and Holland. The bank was poorly managed and took high risks. The branch in London operated for about two years, while the Dutch office was only running for a few months. The principal owners of the bank, Björgólfur Gudmundsson and his son Björgólfur Thor Björgólfsson had borrowed intensely from the bank and another bank in Iceland that they were the biggest owners of, Straumur. Among their operations were West Ham United and Excel-travel in England.
Financial authorities had been pressing them to start a local company in England to take over the deposits so that they would be covered by the local deposit insurance fund. They declined, mostly because they did not have enough assets to cover the deposits. In Holland it seems that the bank could not get the money out of the country fast enough. In about four months the bank took more than a billion Euros out of the country.
Not many people dispute the fact that the operations of Landsbanki was very risky, to put it mildly. After that it is hard to find agreement on anything.
The Icelandic deposit insurance fund could pay less than 1% of the claims on it after all Iceland banks collapsed. The Dutch and UK government decided unilaterally to pay all depositors the minimum amount of 20.887 €. There was no obligation on their part to do this, but this was done to avoid a run on all banks, which was not unthinkable at the time.
The EU-law on deposits is vague. All member-states of the European Economic Area are obligated to have an insurance fund. However it is clear than no such fund can work when the whole system collapses. This would be like insuring against an atom bomb falling on a big city. Everyone knows that not insurance would cover such an event.
Icelanders were in shock after the crash. The government agreed under intense pressure from the international community to pay for the minimum insurance. The whole amount is close to 60% of the GNP of Iceland. However, the Landsbanki assets might cover part of the amount. Estimates fluctuate widely on how much, from 30% up to 90%. At any rate the British and Dutch governments want to charge interest from 5.55% on the whole amount. This means that just the yearly interest payment would amount to about one third of the cost of the National Health Service in Iceland. This comes at a time that about 20% of Icelandic families are facing severe financial difficulties and the state has to cut back expenditure by about 25% in a three year period.
A Fantastic Agreement
The current Icelandic government decided to take up negotiations in the spring of 2009 with the two nations and appointed Ambassador Svavar Gestsson has chief negotiator. His assistant was Indridi Thorláksson, advisor to Finance Minister Steingrímur Sigfússon. Gestsson was a politician in Iceland for many years, and for six years the Chairman of the People’s Alliance, a socialist party.
Finance Minister Sigfússon claimed that a fantastic agreement was at hand after a few sessions. He later retracted that statement but an agreement was signed in early June. Immediately, it was clear that there was intense opposition against this agreement within Iceland. Not only the three opposition parties were against, but also a sizable part of the Left Green Party, the party of Sigfússon. After intense debate Althingi, Iceland’s Parliament, in late August agreed to pay according to the deal, but attached a number of conditions. This law was signed by President Ólafur Ragnar Grímsson, who incidentally took over the chairman’s position of the People’s Alliance from Svavar Gestsson.
The British and Dutch governments did not accept these conditions, which would have closed the case, since almost all parties of Althingi had taken part in forming them.
An amended pact went to the vote of Althingi and was narrowly passed on December 29 2009. This law was not signed by President Grímsson. This means that it goes to a vote.
Foes Become Allies
Grímsson has been called the Godfather of the left wing government along with Sigmundur David Gunnlaugsson, the young Chairman of the Progressive Party, who agreed to defend the two-party government against a vote of no confidence in February 2009. It is clear that the ministers took this action as a stab in the back. The government has said that the conclusion of the Icesave-matter is vital, so that Iceland gets loans for rebuilding the economy from the IMF and others.
The right wing Independence Party generally laud Grimsson for his action, a strange twist, because the only other time the president used this power it was against the so-called media bill of then Prime Minister David Oddsson. That bill was retracted by Althingi, and never came to a vote. Members of the Independence Party largely saw the veto as a personal favor to the President’s friends in Baugur, the father and son Jóhannes Jónsson and Jón Ásgeir Jóhannesson.
In the meantime Oddsson was the Head of the Central Bank of Iceland from 2005 to 2009 and was as such a very controversial figure in the crash. He is now the editor of Morgunbladid, a daily newspaper. In his capacity as editor he has encouraged people to vote against the bill. The newspaper has published photos of the president on the front page and positive articles. This is interesting since Oddsson and Grímsson have been bitter political enemies for decades and are generally thought not to like one another.
Now Prime Minister, Jóhanna Sigurdardóttir, Minister of Finance Sigfússon and Chief negotiator Gestsson have all declared that they will not take part in the election and support the law that they so bitterly fought for before. They claim that the election is meaningless, since a much better offer is now on the table from Holland and the UK.
Most people expect that between 80 and 90% of the vote will be against the law. The public feels that the agreement was unfair and the two nations bullied Iceland into paying much more than is reasonable. Dutch Foreign Minister, Maxime Verhagen, did not dispel the notion of a bully when he declared in Spain that the Icesave-dispute would be of importance when deciding whether to take up negotiations with Iceland on EU membership. If he meant this to be a threat he grossly misfired, since in the mist of Icesave between 60 and 70% of the Icelandic population has turned against membership.
The Chairman of the Independence Party and leader of the opposition, Bjarni Benediktsson, has made a video speech in English about the Icesave in which he says Iceland will honor its obligations, but can't take the blame for a failed deposit insurance system.
A resounding NO! will be a declaration that Icelanders want to be treated fairly. Most people in Iceland agree that the matter must be solved and that Iceland probably will have to pay for the minimum insured deposit. The terms just have to be fair for a bankrupt country can’t pay anything.