Icesave Analysis: Make Us an Offer We Can’t Refuse Skip to content

Icesave Analysis: Make Us an Offer We Can’t Refuse

After the one-sided Icesave-vote last weekend not much has happened officially. The Icelandic government has stressed that the dispute must be put to a rest as soon as possible. The opposition leaders have said that unless an acceptable accord is reached they will not go along with an agreement. This has lead to declarations by Prime Minister Jóhanna Sigurdardóttir that the government might try to finish the negotiations alone. This declaration has a hollow ring, considering that the government has in fact been sent back twice because of widespread opposition. It seems next to impossible that the nation will accept an agreement unless at least the Independence Party goes along, preferably all parties.

Steingrímur J. Sigfússon, minister of Finance. Photo PK

Most observers notice that the government is willing to accept a deal that involves more payments than the opposition. Both Finance Minister Steingrímur Sigfússon and his assistant Indridi Thorláksson seem to value the benefits of a quick settlement (quicker payments from the IMF and the Nordic countries and an end to the uncertainty). However, it is doubtful that the government really has a majority in Althingi, Iceland’s Parliament, and even if it could gather the necessary votes like it did on December 30, a popular uprising and a presidential veto might follow again. Such an agreement might prove to be a kamikaze operation for an already weak coalition.

Bjarni Benediktsson, Chairman of Independence Party. Photo PS

So the question is. How can this be ended? Both the British and the Dutch government know that payment will take years as Alistair Darling said in an interview on Sunday. The burden of the payment will be carried by the now defunct Landsbanki, which should rightfully pay anyway. The dispute turns around a government guarantee for the full amount with interest.

What is acceptable?

Under the negotiations in London in late February and early March it came out that the two governments had been charging Iceland a surcharge on interest with a fixed rate of 5.55%. It seems that the interest paid by the two governments was much closer to 3%. So the so called offer that Iceland could not refuse of two interest free years turned out to be mostly giving away the profits the two countries were making on the interest rate.

In an article in Vísbending, a weekly newsletter on Business and Economics, an article called What do we want in the Icesave-case? appeared in the issue this week. A passage from the article reads:

“It seems natural that a political solution to the matter would lead to a joint responsibility for the fall of Landsbanki. That would involve that if the assets of Landsbanki are insufficient to pay the debt in full the remainder would be paid by the three countries proportionally. The interest burden would be split so that Iceland would pay half of the interest rate or 1.5% for the whole period. This would reduce the yearly interest burden to 10 billion Icelandic krónur (57 million €) or 27 million krónur per day, which many people would undoubtedly think is quite enough. If Landsbanki really repays 90% of the principal then the payment of the Icelandic state would be about 25 billion krónur (143 million €) or 70 thousand per person in Iceland. There would be nothing wrong with such an agreement considering that the legal obligations are by no means indisputable, and all countries carry some responsibility for what happened, even though the main responsibility rests on those who ran the bank.”

It seems likely that Iceland could quickly agree to an agreement close to the terms above. All three countries would claim victory and the economic recovery in Iceland, which is the foundation for payment, will quickly start. It is not only the loans package from the IMF and others which is at stake, but many foreign and domestic investors have waited on the sidelines until the dispute is settled. A solution of this type would be a win-win solution for all.

Benedikt Jóhannesson

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