6-Mar-10 News - Iceland votes whether to give in to Britain and Holland - 6-Mar-2010 - Generational Dynamics

I've been writing since 2006 that Iceland had turned itself from a country into a giant hedge fund. In February, 2006, the Iceland krona currency suddenly collapsed, after the Fitch ratings agency downgraded Iceland's debt from "stable" to "negative," citing economic imbalances. (See "Sudden collapse of Iceland krona portends bursting of 'carry trade' bubble.")

So Fitch Ratings knew that Iceland was in trouble, and I knew that Iceland was in trouble. Apparently the only people who didn't know it were the Icelanders, the British and the Dutch, because they were still encouraging everyone to invest in the IceSave savings plan that paid very high interest rates.

The Lehman Brothers collapse in fall, 2008, caused the IceSave hedge fund bubble to burst, and Iceland's government collapsed early in 2009.

Britain and the Netherlands were forced by politics to reimburse their citizens who had lost money in an IceSave account, and they demanded that Iceland reimburse their two countries.

Britain and the Netherlands really turned the screws on Iceland. Britain froze the assets of the Icelandic banks at the height of the crisis, using a law intended to freeze the assets of terrorists. This has infuriated the Icelanders. (See "Iceland begs for mercy as Europe turns the screws.")

After months of acrimonious negotiations, Iceland's Parliament approved a bill to pay $5.3 billion to the governments of Britain and the Netherlands. This is the equivalent of $16,400 for each man, woman and child in Iceland.

Then in January of this year, Iceland's president Olafur Ragnar Grimsson caused an uproar by refusing to sign the Parliament's bill. Instead, he called for a referendum, to allow the voters to decide. The referendum is taking place this weekend, on Saturday.

On Friday, I saw President Olafur Ragnar Grimsson being interviewed on Bloomberg TV. Here are some excerpts (my transcription):

"[W]hat has happened since I made that decision [to have the referendum] is that everybody now agrees that that deal that you now describe is an unfair deal. The British and the Dutch recognized that by putting a new deal on the table on March 3, and everybody in Iceland has recognized that as well.

So we are on the basis of a referendum hopefully moving forward to a better and fairer deal.

[Question: You could use money from the IMF.]

No, I don't think so. Let's look at this. Iceland agreed to a program with IMF. We have in fact outperformed every criteria which the IMF put forward. but why aren't we getting the IMF loan? Because the British and the Dutch are using these international isntitutions as a bargaining power with respect to Iceland, and that is not respectable for an institution like the IMF. ...

A week agao, the British and the Dutch put on the table an offer which was a good step forward. But .. that offer still involved a profit element for Britain and the Netherland, in addition to reimbursing every depositor in those countries.

And the profit element, if you put it with the size of the British economy would be tantamount to 9 billion pounds profit. What we're simply saying now, let us make a deal. Let us do this in a reasonably fair way, without those countries making such huge profit on the deal. ...

[T]he essence of what is taking place here is that ordinary people, farmers and fisherman, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible, greedy bankers, and what I did was to say it is important that that decision to be taken with the people being allowed to vote on it."

The anger being expressed by Grimmson and by Icelanders in general is palpable. Polls indicate that 74% of Icelanders will reject the referendum on Saturday, according to Iceland Review. (Paragraph modified - 6-Mar. I apologize for some embarrassing spelling errors in an earlier version.)

Without the reimbursements, Britain and the Netherlands have promised to inflict financial revenge on Iceland. Politicians are dreading what will happen after the referendum's results are in.

The Greek crisis is over. Huh?

Friday morning's EuroIntelligence briefing begins with: "'Greek crisis over' – Our ability to delude ourselves has reached the next level."

Investors were so ebullient that they pushed stocks up 1-2% in Europe and on Wall Street.

What brought on this lightheadedness? It's that Greece was able to raise 5 billion euros on Thursday by borrowing money via bond auctions, according to WSJ.

However, the same article also warns that "a looming wave of debt auctions by other European countries could make it difficult for Athens to raise the rest of the money it needs." And it's going to need a lot more, especially during April and May of this year, as you can see from the above graph.

Generational Dynamics predicts that the crisis is far from over, and that Europe and the world will be witnessing a full-scale financial crisis, worse than the 1930s Great Depression, before things are "normal" again.

A love letter from Germany to Greece

Here's a Reuters translation of a letter published in German's BILD newspaper, written to Greek Prime Minister George A. Papandreou, who met with German Chancellor Angela Merkel on Friday:

"Dear Prime Minister,

If you read this, you have entered a country that is quite different from your own. You are now in Germany.

Here, we work until we're 67-years old... Here, we don't have to pay anyone a 1,000-euro bribe for a hospital bed."

And yes, Germany also has high debt, but we can pay it. We wake up early and work hard, because we want to save our money for a rainy day; and because we have companies, whose goods are in demand around the world."

Prime Minister, we want to be friends with Greece. That's why we've given your country 50 billion euros since you joined the EU. But let's be clear: A good friendship requires you to be honest."

Meanwhile, AFP reports that Germans are suggesting (possibly in jest, but we can't be sure) that Greece should sell off its Mediterranean islands to get the cash to pay its debts.

The financial situation continues to worsen in Europe. The amount of anger and acrimony is growing in both the Greece and Iceland cases, and it will only continue to grow.

Additional Links

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At the annual National People's Congress in Beijing, prime minister Wen Jiabao boasted of China's economic successes in 2009, and bragged that China was the only country that had survived the worldwide financial crisis almost unscathed. NY Times

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Generational Dynamics Web Log for 6-Mar-2010
6-Mar-10 News - Iceland votes whether to give in to Britain and Holland

Iceland poised to infuriate Britain and Holland

The Greek crisis is over. Huh?

A love letter from Germany to Greece

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Generational Dynamics Web Log for 6-Mar-2010 6-Mar-10 News - Iceland votes whether to give in to Britain and Holland

Iceland poised to infuriate Britain and Holland

The Greek crisis is over. Huh?

A love letter from Germany to Greece

Additional Links

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Generational Dynamics Web Log for 6-Mar-2010
6-Mar-10 News - Iceland votes whether to give in to Britain and Holland