Sigrún Davíðsdóttir's Icelog

On New Year’s eve the custom is that the Icelandic prime minister addresses the nation and on the first day of the year, it is the turn of the president to have his say. And so it was this time. Both prime minister Sigmundur Davíð Gunnlaugsson and president Ólafur Ragnar Grímsson mentioned the Icesave victory, Gunnlaugsson though without mentioning the word Icesave.

Gunnlaugsson said that a historical event happened in the first month of the year (my translation; the address is only in Icelandic):

Our little country won a fair victory in a battle it had waged for years. Battle, where the opponents were big foreign countries and even international organisations but the allies few. We should though keep in mind the friendship that the Faroese and the Poles showed us already at the beginning of the painful passage.

But early in 2013 Icelanders won a complete victory in the dispute concerning if the general public should guarantee banking debt where only the interest rates payments would have been greater every year than the running of Landspítali (the main hospital in Iceland) and actually more than double that cost because it should have been paid out in foreign currency that is not there. It is clear that the state could not have shouldered these payments but the cause of the steadfast small country won in the end and consequently it is now clear that everything that would otherwise have been lost could now be used to resurrect the Icelandic economy and at the same time the community that was so battered.

Of Icesave the president said:

The PM’s narrative is of the little nation that so fearless takes on injustice and mighty powers and wins. The president emphasised the value of solidarity and democracy. The Icesave outcome – a victory for Iceland – is a glorious example of how well the country fares when adhering to solidarity and democracy. His message is that Iceland will do well by sticking to solidarity and democracy in other vital matters.

As so often, it is no less interesting to pay attention to what is not mentioned.

Neither the prime minister nor the president mentioned that precisely because Iceland chose to let the EFTA Court settle the dispute Iceland is still burdened with the Icesave patrimony. Because of Icesave one of the three large banks, Landsbankinn, is now owned by the state, which consequently indirectly guarantees the bank.

As explained in detail in the latest Financial Stability report from the Central Bank of Iceland Landsbankinn owes the Landsbanki estate (the operations of the failed Landsbanki) ISK297bn, €1.87bn, in two bonds. The payment schedule is: 2014 ISK17bn, €100m, then ISK60-74bn, €360-450m, the next three years, having then paid the bonds in full 2018. It is disputed how much is needed. The numbers flying around have ranged from ISK50bn, €300m to 200bn, €1.21bn. This does not mean the new bank doesn’t have the funds to pay. It does, but not in foreign currency: according to the FS report, almost 70% of the next three years’ payments, ISK157bn, is denominated in foreign currency.

This is one heck of a problem to solve. In an ideal world, this debt would/should/could be refinanced. But refinancing is hardly viable as the government is, now and then, indicating that the creditors of the two other failed banks – Kaupthing and Glitnir – can’t expect to get their Icelandic assets paid out. And while the Icelandic assets are not settled their foreign assets are not paid out so as not the weaken the negotiating power of the Icelandic side though the Icelandic government is not a direct part in these negotiations. (More on capital controls here).

None of this is any part of the victorious Icesave saga and thus was not mentioned in speeches at the end of 2013 and beginning of 2014. Nor did the prime minister mention at all the capital controls. He did however present a record spending on social affairs and healthcare in 2014, at the same time as no more debt will be accumulated – the budget should be balanced next year. And a surge in spending on cultural issues will be thrown in for a good measure and to sustain the often rather empty rhetoric about the importance of Icelandic culture.

This is the tone at the beginning of the new year, not to forget that the president sees a new and decisive role for Iceland in forming an Arctic policy, the Arctic being a vital zone in the world. The prime minister ended his speech with poetic material from the 19th century, a much favoured source to add something serious to addresses such as the New Year address.

European Union was not mentioned at all by the prime minister and Europe only mentioned to celebrate that the female soccer team made it to the European semifinals. The president only mentioned Europe in connection to other issues, nothing in his words about Iceland and the European Union. His little faith in the EU is well known as is his opposition to Icelandic EU membership. He did however remind Icelanders how every country in Europe had opposed the extension of Iceland’s “exclusive economic zone” – at the time generally talked about as the fishing zone – to 4, 12, 50 and finally to 200 miles.

The president looks for allies in Asia, especially in India and China, nothing new there. Today, he also spoke of a new friend of Iceland:

Neither the prime minister nor the president mentioned that there are now five years since the collapse of the Icelandic banks – and neither of them mentioned investigations against bankers and investors. Although these investigations are followed with great interest abroad and both men are keen on Icelandic fame abroad this is one fame both show little interest in.

The next year will no doubt bring more news on investigations and charges – and most likely, although the prime minister did not mention it, some measures regarding the estates of Kaupthing and Glitnir. The government will only get one stab at finding a solution – a   solution that must not undermine the financial stability of Iceland but at the same time it has to show the outer world that Iceland is willing to engage. The IMF program gave credibility to measures taken after the collapse. The new measures must as well induce credibility and that will not be easy of the rhetoric is all about battles and victory.

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