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Generational Dynamics Web Log for 11-Apr-2011
11-Apr-11 News -- Tiny Iceland rejects demands of the European Union bullies

Web Log - April, 2011

11-Apr-11 News -- Tiny Iceland rejects demands of the European Union bullies

Europe's financial crisis grows

Tiny Iceland rejects demands of the European Union bullies

On Saturday, Icelanders voted 60% to 40% in favor of rejecting a negotiated agreement to repay the UK and Dutch governments for losses incurred by citizens of those countries who had invested in Iceland's "Icesave" program, according to Bloomberg.

Reykjavik, Iceland

Reykjavik, Iceland

Many Europeans, especially in Britain and Netherlands, had deposited their savings into Iceland's bank in an "Icesave" program that provided interest rates of well over 10%. When Iceland defaulted, these depositors lost their money, and Iceland was forced to agree to reimburse the depositors.

During the halcyon days of the credit bubble, Iceland was playing games with the international currency carry trade

In February, 2006, there was a major international currency crisis triggered by Iceland's policies. I wrote about this at the time in "Sudden collapse of Iceland krona portends bursting of 'carry trade' bubble." The crisis occurred in conjunction with an announcement by Fitch Ratings that it was revising the outlook for Iceland's banks from "stable" to "negative." According to Fitch, the new ratings "[took] into account Iceland's macro-prudential risks, including rising inflation, rapid credit growth, buoyant asset prices, a steep current account deficit and escalating external indebtedness

And so, I knew that Iceland's banks were in trouble. Fitch Ratings knew that Iceland's banks were in trouble. That's why this whole situation is so pathetic.

Gordon Brown had been Britain's Chancellor of the Exchequer from 1997 to 2007, which supposedly meant that he was an expert in international finance. Then he became Prime Minister in June, 2007. So when Iceland's carry trade bubble collapsed late in 2008, Brown feigned surprise, saying that he had no idea that would happen -- even though Fitch Ratings knew, and I knew and had written about it several times. In fact, Gordon Brown may have been the only person who didn't know.

It was clear that the British and Dutch governments were going to screw Iceland as much as they could. In my August 2009 report, "Iceland begs for mercy as Europe turns the screws," I listed several of the indignities that Iceland was suffering:

As soon as the crisis began in October 2008, the UK invoked an anti-terrorism law, normally targeted to the likes of suicide bombers from al-Qaeda, to freeze all of Iceland's assets.
British Prime Minister Gordon Brown announced that he was "working with the IMF" to extract as much money as possible from Iceland.
The British and the Dutch demanded that Iceland guarantee €50-100,000 per depositor, even though previous legislation set the guarantee at €20,000 per depositor.
The EU President announced that there would be no European aid until everything else was settled, if ever.
The IMF demanded, in return for a €5.5 billion loan, that Iceland's government would have to have a zero deficit by 2013, a goal that's impossible to meet.

Britain, the Netherlands and the EU claimed that they have no responsibility in Iceland's default, but that claim is laughable, since by their own laws, they were just as responsible as Iceland's government.

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, and represents half of Iceland's annual GDP.

When the agreement was put to a vote in March 2010, it was rejected by the voters, with 94% voting against it.

The agreement was renegotiated to lower the amount owed, and a new referendum was scheduled. That was the referendum held on Saturday, where 60% of the voters rejected the agreement.

Now the UK and Netherlands are going to take the issue to court. The court with jurisdiction is the European Free Trade Association’s Surveillance Authority. But apparently this court's decisions are not binding on Iceland.

This is all coming at a time when the EU is bailing out banks in Ireland and Portugal, and possibly in Spain. The EU itself itself is going increasingly into debt, as is the United States. Screwing Iceland is only a sideshow.

(Comments: For reader comments, questions and discussion, see the 11-Apr-11 News -- Tiny Iceland rejects demands of the European Union bullies thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Apr-2011) Permanent Link
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Generational Dynamics Web Log for 11-Apr-2011 11-Apr-11 News -- Tiny Iceland rejects demands of the European Union bullies

Tiny Iceland rejects demands of the European Union bullies

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Generational Dynamics Web Log for 11-Apr-2011
11-Apr-11 News -- Tiny Iceland rejects demands of the European Union bullies