Iceland’s President Effectively Tells UK “Go To Hell” – Hooray For Iceland

Iceland was plunged back into crisis after its president refused to sign a bill promising to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands after the collapse of the country’s Icesave bank in 2008.

The escalating row threatens to further destablise the Icelandic economy, which went into meltdown after the failure of its three big banks, cutting off further aid from the International Monetary Fund and jeopardising efforts to join the European Union. The credit rating agency Fitch immediately downgraded Iceland, describing the latest political row as a "significant setback".

The British and Dutch governments had compensated savers who lost money when Icesave’s parent Landsbanki filed for bankruptcy. But both have since put pressure on Reykjavik to repay the money.

Opinion polls suggest that Icelanders will overwhelmingly vote against the passage of the bill. A petition urging Grimsson not to sign the bill attracted 62,000 signatures, around one-fifth of the population. Critics say the bill would burden each citizen with a debt of €12,000 including interest.

In a televised address, Grimsson said: "It is the cornerstone of the constitutional structure of the Republic of Iceland that the people are the supreme judge of the validity of the law. It is…the responsibility of the president to ensure that the nation exercises this right." He said the referendum would take place as soon as possible.

Almost 300,000 British savers had deposits with Icesave, attracted by market beating interest rates. Their accounts were frozen in October 2008, sparking a diplomatic row between Britain and Iceland, which had only recently begun to thaw. Britain outraged ordinary Icelanders at the time by invoking anti-terrorist legislation to freeze the UK assets of Landsbanki.

Repayment Blocked

The Times Online Reports Iceland blocks repayment of £2.3bn to Britain

Today Iceland’s President, Olafur Grimsson, vetoed a bill that would have enforced the repayment of the money by 2024.

Under Iceland’s constitution there must now be a referendum on the issue.

But the repayment is deeply unpopular in Iceland. A poll in August found 70 per cent of the country was opposed to it.

The Icelandic Government issued a statement to try to reassure Britain and the Netherlands. It said: "Despite the President‘s decision, the Government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law."

Iceland’s parliament approved the Bill last week by a narrow majority of 33 votes to 30. Its passing was seen as a way to help boost the country’s bid to join the European Union and get its shattered economy back on track.

The Bill is also opposed by the main opposition party.

This is only the second time in Iceland’s history that the President has not signed into law a Bill approved by parliament.

The money represents 40 per cent of the country’s gross domestic product but Iceland said that it planned to repay it gradually to savers in the UK and Netherlands by 2024.

UK Denseness

A UK Treasury spokesman said: “The Treasury will consult with colleagues in Iceland to understand why this Bill has not been passed."

It should be perfectly clear that the bill passed but that the president, acting like I wish presidents here would act, went along with the wishes of the citizens of Iceland.

You have to be dense to not understand that, although I suppose it is amazing that presidents anywhere actually listen to its citizens.

You Take Risk, You Pay The Price

This case is easy. There is no free lunch. Extra yield comes with risk. If you take risks, you pay the price. Icelandic citizens should not have to bear the brunt of this folly. I commend Iceland for telling the UK and Netherlands where to go.

Including the Netherlands, the amount in question is about $5 billion. With the veritable $trillions being flipped like pancakes these days, $5 billion might not sound like much. However, it is a very big deal to Iceland.

Per Capita Cost

The Population of Iceland is 317,593 as of December 1, 2009. Let’s do the math. $5,000,000,000 divided by 317,593 = $15,743.42.

Noridicom shows there were 116,000 Iceland households in 2005. Let’s assume the number is 120,000 today. The household payout would be $41,666.67

Now how long would it take the average Icelandic household to pay that back? I commend Iceland for figuring out that a loan from the IMF is simply not worth the price.

The irony in this mess is that Fitch immediately downgraded Iceland. Heck, the way I see it Iceland ought to be upgraded. With a debt overhand from the IMF, Iceland would have had a default looming over its head for a decade with it citizens struggling under a burden of that debt for a decade or longer.

Iceland may have other problems but at least that one was resolved (hopefully), the quick and painless way. And that should have been the model for US banks as well. The stockholders and bondholders should be the first ones wiped out. Instead Bush started and Obama continued with a policy to punish the innocent to bail out the wealthy, leaving the average taxpayer deep in the hole, against the clear will of the majority.

Beware IMF Trojan Horses

Figuratively speaking, Iceland effectively told the UK and Netherlands to go to hell. That is a good first step. Next, it needs to vote out of office all the political dunderheads in parliament who voted for that ridiculous payout. That would seal the fate once and for all.

In the meantime, Iceland needs to continue its resolve while avoiding associations with the IMF, an organization with nothing to offer but Trojan Horses that would further weaken the country.

Mike "Mish" Shedlock