Sigrún Davíðsdóttir's Icelog

Referenda have a tendency to turn into a vote on something entirely different from the issue being voted on. In November 1994 I was in Tromsö a few weeks before the Norwegian referendum on membership of the European Union. One arctic morning a taxi driver told me that he had just driven the Norwegian Home Office minister who had asked him what he was going to vote. ‘And I was more than happy to tell him that I would vote no!’ Some years earlier, he explained, the taxi drivers in Tromsö had asked the Home Office to assist them in clamping down on unlicenced taxis but got no help. ‘And now,’ the driver said vehemently, ‘the government can’t just ask me for help when they didn’t do anything to help me and my colleagues!’

For the Norwegian driver the tiny matter of EU membership on vote didn’t matter at all when voting. The issue voted on in Iceland today will not matter either to most voters since that issue isn’t something that will ever turn into reality even if voted for. Not even the Prime Minister will bother to vote – so the question is why the referendum is being held at all. The answer is that the government would then be seen to be robbing the country of its right to speak its mind. No, not on an earlier agreement with the Dutch and the British – but on the banks in general. As a friend wrote to me the other day: ‘I know the referendum doesn’t change anything but it’s good for the soul to vote!’

‘Who would have thought we would go into 2010 still discussing Icesave,’ an Icelandic friend wrote to me at the beginning of the year. Since the collapse of the banks no issue has been debated ad nauseam.

As the debate has shown so crushingly there are many sides from which to observe the issue. First some facts: Icesave was an internet account, set up by Landsbanki in the UK in autumn 2006. It opened in the Netherlands as late as May 2008 –remarkably late, considering all the warning lights. Lights not heeded in Iceland but noticed elsewhere. As has often been pointed out it was a EU directive that enabled the Icelandic banks to set up operations, i.a. Icesave, in EU countries. The assumption was that since the banks were already regulated in one EU country they could operate elsewhere.

The FSA and British politicians have often mentioned that because EU directives opened doors for the banks to set up shop in the UK there wasn’t anything UK regulators could do. I find this an exceedingly feeble argument – of course the UK regulators could scrutinise the banks had they felt the urge to. The directive doesn’t mean that foreign banks could operate here under a lighter regulation than domestic banks.

In July 2008 Lord Oakeshott asked the government ‘What steps the United Kingdom financial authorities have taken to satisfy themselves, independently of the Icelandic financial authorities, of the solvency and stability of Icelandic banks taking deposits in the United Kingdom’ and if the government had inquired into the ‘Icelandic Deposit Guarantees and Investor-Compensation Scheme behind which the United Kingdom Financial Services Compensation Scheme stands as guarantor of last resort.’ Notice ‘independently of the Icelandic financial authorities’. Lord Davies didn’t really answer the question, only outlined the rules and how they applied to Icesave and Kaupthing Edge, run as a UK subsidiary and consequently covered by the UK deposit guarantee (if only that had been the case with Icesave…)

The FSA didn’t turn its attention to the Icelandic banks until too late for the same reason that the UK banks were allowed to operate freely: a firm believe in light touch regulation and in ‘self-correcting’ markets. Icesave was seen as a supportive structure for the operation of Landsbanki, otherwise wholly dependent on fickle wholesale markets. The FSA actually thought that Icesave was just as ‘tær snilld’ (pure brilliance) as Landsbanki’s managers thought.

In early 2008, as the Icelandic banks encountered growing criticism, Icelandic politicians, bankers, central bankers and anyone who had anything to say would use every opportunity to defend Iceland. In hindsight it’s interesting to watch the Channel 4 report on Iceland from the beginning of Februar 2008 – where governor of the Central Bank David Oddsson (prime minister 1991-2004), claims the banks are strong and Iceland strong enough to defend them, even in the unlikely event they all failed; ‘it’s never like that’ an ill at ease Oddsson points out.

With repeated assurances of Icelandic state guarantees from Icelandic politicians and officials the British and the Dutch government paid their country’s depositors, thinking that Iceland would then pick up the bill. Voices for honouring these earlier guarantees have been quite feeble lately.

Writing this log I was listening to a radio interview with prime minister Johanna Sigurdardottir explaining how pointless the referendum is: the sad fact that when people finally have their say on Icesave it’s not about paying or not to pay. It’s about saying yes or no to an agreement that’s irrelevant because there is now a better British Dutch deal on offer. Some politicians have claimed that by saying no the issue can be brought to court – that’s not the case at all. The negotiations are still going on and will continue. Sigurdardottir firmly underlined that the unresolved Icesave issue is expensive for Iceland – ironically, it’s of little consequence for the Dutch and the British.

The sad thing is that the government has been too weak to convince others of the importance to finish the deal and focus on other things. Communication isn’t the strong side of Icelandic politicians any more than for Icelanders in general. Some years ago I interviewed foreigners who worked for Icelandic companies abroad: they all complained of the lack of communication within their respective companies – Icelanders saw discussions as a waste of time.

‘Now is the time for little dreams,’ someone said on the Icelandic radio earlier tonight, talking about art and crafts shop that will open up in empty warehouses by the Icelandic harbour. Every Icelander understands the implications of these words: earlier on, only big dreams were worth dreaming. Icesave rose from the big dreams – and it will take years to pay the bill.

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