An Icesave ‘no’ – and then nothing?
Recently, the world media camped in Iceland, perplexed over a referendum on an agreement that was no longer an issue, then left – and now the Icelandic government seems equally perplexed as to how to continue. From hovering in a Danteesque limbo the Icesave now seems stuck in Dante’s hell where everything is frozen, nothing moves but isn’t quite dead.
What is clear is that the referendum – considered by the Dutch and the English an Icelandic domestic issue – wasn’t the catalyst some had hoped for. Maybe the desired effect will come later but so far so nothing.
As those who have followed the Icesave saga will know the Icelandic government reached an agreement last summer with the Dutch and the British government but didn’t have to political strength to move it through Althingi, the Icelandic parliament, unchanged. The changed version was renegotiated, at the end of the year there was the long awaited parliamentary accord and the Icesave bill passed. A sigh of relief swept the island where most felt they had heard far too much Icesave talk for too long.
But it was too early to sigh in relief. In January, the president of Iceland insisted on disrupting the bill’s parliamentary process and refused to sign the bill. The unfortunate situation is that the president can disrupt the process (though none but the present one has, so far) but since the president is no part of the political and parliamentary system he isn’t party to the political solution: he can disrupt but not mend.
At the moment, the Delphic utterances from Icelandic politicians indicate that things are being mulled over. There seems to be uncertainty as to which text to work on in the negotiations: should it be the text of the first agreement last summer or the later one that Althingi passed? Things are being sifted through, for whatever reason it seems difficult to relaunch the negotiations.
After the referendum Niels Redeker, spokesman for the Dutch minister of finance told AFP that the Netherlands and Britain were waiting for Reykjavik to make “a complete proposal that addresses the legitimate interests of all the parties.”As far as is known, The Dutch and the British have offered to renegotiate two aspects of the agreement: the interest rates and an interest free period.
As always, Iceland is rife with rumours. Some claim that Icesave shouldn’t be resolved until after the report from the ‘Truth Commission’, the commission set up by Althingi to clarify the collapse of the banks. No doubt, Icesave will figure in the report – and that story might not be particularly glorious neither for bankers, politicians and regulators. And neither is it favourable for the Dutch and the British regulators that failed to rein in Icesave – it was never the intention that banks operating under the so called EU ‘passport scheme’ should be less regulated than domestic banks, i.e. in this case Dutch and British banks.
How different it all seemed on Nov. 16 2008 when ‘agreed guidelines’ were ‘reached on deposit guarantee’ and the Icesave dispute seemed to be about to be resolved:
“Agreed Guidelines
- The Government of Iceland has held consultations with the EU Institutions and the Member States concerned regarding the obligations of Iceland under the EEA with respect to the Deposit Guarantee Directive 94/19/EC. All parties concluded that the Deposit Guarantee Directive has been incorporated in the EEA legislation in accordance with the EEA Agreement, and is therefore applicable in Iceland in the same way as it is applicable in the EU Member States.
- The acceptance by all parties of this legal situation will allow for the expeditious finalization of negotiations underway concerning financial assistance for Iceland, including the IMF. These negotiations shall be conducted in a coordinated and consistent way, and shall take into account the unprecedented difficult situation of Iceland and therefore the necessity of finding arrangements that allow Iceland to restore its financial system and its economy.
3. The EU and the EEA Institutions will continue to be involved and consulted on this process.”
The government at the time, a coalition of the social democrats (now leading the government) led by the Independence Party (conservatives, now in opposition) was firmly behind this agreement. However, this proved to be only the very simple beginning of a long saga and no quick solutions. EU didn’t continue to be involved, allegedly because the Icelandic government preferred to negotiate only with the British and the Dutch government.
Now, seventeen months later, with Icesave still unsolved it’s difficult to get an overview of the Icelandic public finances. Possible lenders are unwilling to settle loans until they know the outcome so as to be able to gauge the financial state of Iceland. In Iceland, that’s widely seen as hostility, not least by those who find it difficult to face the fact that the downfall of the Icelandic banks had much more to do with home-grown ways of banking and lack of regulatory enforcement than hostile foreign powers.
The bank collapse in October 2008 was a disaster but the lack of resolution in the aftermath is turning into nothing less than a catastrophe in slow motion. The hubris of the boom has been followed by isolation and anger of the bust. The Icesave saga is stranger than any fiction. It’s particularly lamentable because Iceland isn’t only brimming with natural energy. More than most, Icelanders are full of enterprising energy and resourcefulness – virtues that could come into full force if only Iceland could cut itself loose from the frozen fetters of Icesave.
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