Sigrún Davíðsdóttir's Icelog

UK Chief Secretary to the Treasury Danny Alexander said on the Andrew Marr show* this morning that he was disappointed the the Icesave agreement had been rejected in the referendum. Now, the UK Government would have to find other means of getting the money back and would discuss the matter with the Dutch Government.

Dutch Finance Minister Jan Kees De Jager is equally disappointed with the results of the Icesave referendum. De Jager remains confident that the money will be paid and that Iceland will have to honour its international obligations. “I am very disappointed that the Icesave agreement did not get through. This is not good for Iceland, nor for the Netherlands. The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide.”

It is clear that EFTA Surveillance Authority, ESA, already in the process of inquiring into Iceland and the deposit guarantee scheme, will now continue its inquiry into Iceland’s position on the deposit guarantee scheme. As pointed out in an ESA press release in May last year, “the Dutch and British authorities stepped in to compensate most deposit holders in Icesave’s Dutch and UK branches, the Directive designates Iceland as being under the obligation to provide the minimum compensation of  EUR 20.000 per depositor. The Icelandic Government has in a letter to the Authority argued that it considers setting up a guarantee scheme to be enough to fulfill its obligations under the Directive. It has also argued that that the Directive may not be applicable if deposits are unavailable because of a major and general banking crisis. The Authority disagrees on both points.”

In much of the foreign coverage the message from the referendum is that Iceland isn’t going to pay. On Ruv, Minister of Finance Steingrimur J Sigfusson underlined that this is the wrong message. The referendum was about a top-up by the Icelandic State, where the bulk of the money comes from Landsbanki assets. Sigfusson underlines that paying out from the assets will be on track.

Sigfusson also posed the question why Icesave has captured the debate the way it has, when much weightier issues and much higher sums in other issues have been much less debated. This is an intriguing question. There is no clear answer but it’s obvious that both the former opposition and the present one have tried to profit as much from the issue as possible to score political victory.

The International Monetary Fund, IMF, is due to publish its next assessment of Iceland now on April 15. An improved outlook would help the Government against the claims by the opposition that nothing or not enough is being done regarding the economy.

The ‘yes’ side has claimed that the legal uncertainties facing Iceland will both make the situation precarious in terms of the outcome but also from the simple fact that the legal process will stretch over a long period, freezing Iceland in an Icesave limbo.

There will clearly be a financial fallout, i.a. quite clear that the rating agencies will lower Iceland’s rating but the political fallout will be no less interesting and possibly long lasting. The Government is weakened, making it difficult to tackle the major problems Iceland faces. The old power base in the Independence Party, centred on former party leader David Oddsson has fought against the Icesave agreement, thereby fighting the present party leadership. It remains to be seen how the party will deal with this rogue element at the core of the party.

Oddsson, who was Governor of the Central Bank of Iceland was driven from his post by the present Government. There is no love lost between him and leading ministers who were instrumental in this action. An interesting development is that the Government is now contemplating a serious review of the role of the Central Bank in the bank collapse. The SIC throws a very unfavourable light on the CBI. A report could further deepen that understanding. Out of many questionable CBI action is a €500m loan to Kaupthing on Oct. 6 2008 when it whould have been amply clear that the bank had already defaulted.

The referendum now can also bee seen as a dress rehearsal for a future EU membership. The ‘no’ might easily stall the membership process because the Dutch and the UK will want to see their money back before assisting Iceland in the membership negotiations. But the Icesave referendum also broadly outlines the course the debate might take, where the ‘no’ to EU will hammer in that Iceland knows what it has but not what it could get being inside the EU. As the referendum showed, there is a wide scope for all hues of national pride against reason.

*Alexander’s view on Icesave is 42 mins. into the programme.

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