Iceland: 5 years on, nationalism is growing inside capital controls
Thinking back to five years ago, Iceland was forced to take the right decisions, not saving the big banks. But that was perhaps the easy decision: after all, the major part of creditors in these banks were foreigners. Later on, frantic attempts were made to save the very Icelandic banks, i.e. Saga Capital, VBS and some saving societies. Now, the idea is to tax estates where foreigners are ca. 90% of creditors whereas other failed financial companies are not taxed. “Fuck the foreigners” was a policy after the collapse – and it still seems to be the only policy five years after the collapse.
Last week, in the policy speech by prime minister Sigmundur Davíð Gunnlaugsson Icelanders were told that Iceland is a country almost too good to be true. However, for basic principles Iceland is less good. One of the basic principles is that property rights are inviolable. Some wonder if such principles still count in Iceland.
Part of the budget proposals, put forth last week, is that estates of the failed banks should be taxed. Taxing debt is a novel thing, remains to be seen how that idea fares. The proposal is vague as to how and what is being taxed. The proposal mentions the estates of Kaupthing, Glitnir and Landsbanki. The justification is that these three banks caused a lot of damage to Iceland – another novelty: tax is based on the principle of damage and the perceived good and evil.
There are however other failed financial institutions that did indeed cause a lot of harm and cost: Saga Capital and VBS, to mention just two, in addition to SpKef, Byr and others: the government did indeed try to save the two first ones and lost a lot of money on the attempt.
The intention seems clear enough. It would indeed be much more clear-cut if the definition was plainly to tax “estates where major part of creditors are foreign.”
Now on the fifth anniversary of the bank collapse politicians have been reminding Icelanders of the harm foreigners have caused Icelanders, i.a. the British actions five years ago against Kaupthing and Landsbanki. Less has ben said of what went on in the years before these few fateful days. And no mention is made of the fact that Icelanders, contrary to most other crisis-struck countries do actually know what happened and why: there is the SIC report that gives a clear and concise account of what happened.
The prime ministers is untiring in telling Icelanders what a great nation Iceland is. It is interesting to keep in mind the political rhetoric in Argentina. In any free country, i.e. a country, which is not locked up inside capital controls, citizens can vote with their currency, in the sense that if they do not like the policy they can go abroad. In Iceland – and in Argentina – that is not possible.
Both in Argentina and Iceland politicians constantly remind their countrymen of the unfair foreigners. In Argentina, this has been going on for almost 13 years. In Iceland, it is just beginning.
Qui vivra verra – but so far, Iceland seems to be emulating Argentina in trying to be a country that writes its own rules, forcing these rules on its citizens because they cannot go anywhere else and acting as if the outer world does not matter. Argentina, after almost 13 years, is waking up to the fact that this may not be that easy. Iceland still has years to find out if isolation matters. As one economist puts it, capital controls strangle the economy.
The weather has been glorious these days of the fifth collapse anniversary, as seen on the photo, taken on the outskirt of Reykjavík (for those who know Reykjavík it was taken out on the tip of Seltjarnarnes last night), truly if feels as a view of forever. In truth, the view here seems to be the view into populism, the only fast-growing thing within Iceland of capital controls.
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Thanks as ever for this Sigrun.
As I understand it, your Prime Minister justifies his plan to fuck the foreigners by branding them all as “hedge funds” or “vulture funds” who long ago bought out the original creditors and now stand to make a huge profit. I don’t know to what extent this is true, but it is certainly the case, as pointed out a recent article in the Guardian, that “not all of the foreign creditors are the vulture funds Gunnlaugsson talks of”. http://www.theguardian.com/world/2013/oct/06/iceland-financial-recovery-banking-collapse
Others who will suffer indirectly from this foreigner-bashing include the UK local authorities and charities, which entrusted more than £1bn with (the UK subsidiaries of) the failed Icelandic banks and are still waiting to get much of their money back. But also the ordinary retail depositors with Kaupthing’s Isle of Man subsidiary whose life-savings were supposedly guaranteed by the Icelandic parent and those with Landsbanki Guernsey (in a much worse situation at the back of the queue as an unsecured creditor waiting for any dregs left if and when the Icesave priority claims are ever fully paid).
While there is no doubt that the three banks (Kaupthing, Glitnir & Landsbanki) caused a lot of damage to Iceland and to ordinary Icelanders (with whom I have much sympathy), they also caused untold and oft-forgotten damage and huge distress to many other ordinary folk outside Iceland who had the misfortune to have been caught in the net. For many, who had originally entrusted their funds to a British bank or building society or (notably in the case of expats) to their offshore arms, this was a direct and totally unsought consequence of the Icelandic banksters’greed. We still rue the day in 2005 that the long-established London merchant bank Singer & Friedlander was sold (with the blessing of the UK’s FSA despite dire warnings by its then CEO) to Kaupthing, along with its Isle of Man branch. And even more so the much later takeover by Kaupthing (in late 2007) and by Landsbanki of (respectively) the Isle of Man and Guernsey arms of the Derbyshire and Cheshire Building Societies. Many of us only realised our savings were now in an Icelandic bank when the crash came, less than a year later. We may be small fry in the larger picture. But we were well and truly fried nevertheless – an experience we will never forget.
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