Fugato

[This was written as a response to a comment on The Independent's leading article on the Icesave dispute. As I addressed some important misunderstandings, I have reproduced my response here. If you are unfamiliar with the issue, that leading article is a good summary; the Financial Times editorial is an even better one.]

“The measures you mention [by UK and Dutch authorities, to force Iceland's hand] were taken after your president refused to pay.”

That is simply incorrect: the president did not “refuse to pay”, he refused to ratify more onerous payment terms — and he did so last Monday Tuesday, whereas the measures mentioned took place over the previous months.

“In case you havent heard the UK is in hundreds of bilions of pounds in debt, we need the money as much as you do.”

Yes, the UK has problems as well. But the liability per person is on the order of £50 to the UK and £10,000 to Iceland; a nuisance to one and ruinous to the other. Such a difference in scale might normally be irrelevant, but when a nation’s economic survival is at stake, it is entirely relevant.

And still Iceland did agree to foot this gargantuan bill. That’s the deal the president ratified last September. What the Icelandic parliament had added to the deal were reasonable provisos to safeguard against complete economic ruin. Those safeguards were rejected by the UK and the Netherlands (even though Iceland’s ruin would clearly be against their interests as well), and the Icelandic government’s surrender to that hardline stance is what the president refused to ratify this week.

“The measures taken by Brown are not overstated, they are completely natural in response to getting back our loan.”

Here “getting back our loan” is inaccurate: Iceland never saw that money. The UK and Dutch authorities unilaterally paid it out directly to Icesave depositors, nationalizing their loss because Iceland’s depositors’ guarantee fund sadly was not good for it.

That fund operated in full compliance with the same (now seen to be flawed) framework and funding scheme as corresponding funds in the EU, and like them had no state guarantee. The UK and Dutch governments demanded, after the fact, that it be retrofitted with such a state guarantee. They made no mention of such requirements while their regulatory authorities (and Iceland’s) cheerily tolerated this accumulation of de facto uninsured deposits. If they had, the accumulation would certainly have been stopped and the fiasco averted, as Iceland would clearly never have taken on such a guarantee, let alone borrowed absurd amounts from other countries to fund it.

Thus the blame for this royal mess lies (in addition to the failed private bank) with regulatory authorities and frameworks on all sides. Iceland has already agreed to shoulder its part of the cost, a per-capita burden wildly disproportionate to its share of the blame (whose clarification in a neutral court was denied Iceland, presumably to avoid a blow to global confidence in deposit guarantee schemes. Should Iceland’s 160,000 taxpayers alone pay the price for that?). But the UK and Dutch governments demand the pound of flesh as well.

“If you want to blame someone, then for petes sake blame your own government”

Done. It fell in January a year ago. That doesn’t resolve the dispute though.

“This is natioanlistic pride…thats all”

Nope. In the current predicament Iceland is swallowing plenty of that. I think gvalg’s [a previous commenter's] use of the word “humiliated” was distracting: although humiliation does come with being flogged raw, it is the flogging that’s the problem.

While the UK and Dutch leadership may find it politically expedient to present all this as a matter of nationalistic pride and belligerence (a common enemy is useful, particularly when elections are near), Iceland is only trying to hold on to a minimal assurance of economic survival. Is that really so arrogant? I urge you to reconsider your position.