In a comment on the Economist’s website Thorsteinn Jónsson tries to correct a few misconsceptions that he thinks have entered into the debate. His comment is helpful to try to understand the Icelandic viewpoint.
DEBT – should be – CLAIM: Icesave is not a debt, this is incorrect. Icesave is a claim, and a dubious one at that. The word debt implies that there is a legally sound and uncontestable basis, and that simply isn’t the case.
REPAYMENT – should be PAYMENT: Talking about a repayment is extremely misleading. It implies that first there was a payment, that now should be repaid. The truth of the matter is that the British and Dutch governments never paid a single cent to Iceland, nor were they asked to, but rather decided unilaterally, to fully cover the losses of savers in their own countries only. They did this before the time limit was up for the Icelandic depositor’s insurance fund to act, and without consulting the fund or the Icelandic authorities in any way.
ICELAND AGREED TO ICESAVE (the obligation) – A totally false idea, but very popular. Alistair Darling has been using this fib to excuse himself. The truth is that the Icelandic government and various officials stated right away and have confirmed over and over again that Iceland intends to honor all its obligations. Icesave is not an obligation of Iceland and therefore these statements do not constitute an agreement to pay or even recognize that claim.
ICELAND IS REFUSING TO PAY – See above.
ICESAVE OBLIGATION – A very forceful statement for a claim with as weak a legal basis as this one. I refer you to the following regulation, and i draw attention to the fact that the insurance fund is not state backed except for the onus of containing at least 1% of the total deposits in the insured system. and also to the fact that the fund is not obligated to borrow rather than go bankrupt.
Regulation No 120/2000 on Deposit Guarantees and Investor-Compensation Scheme
Guarantees pursuant to the Act on Deposit Guarantees and Investor-Compensation Scheme are the responsibility of a separate institution, the Depositors’ and Investors’ Insurance Fund, hereinafter referred to as “the Fund”. The Fund is a private foundation, operating in two independent departments with separate finances and accounting, the Deposit Department and the Securities Department.
In the event that the assets of the Department in question are insufficient to pay the total amount of guaranteed deposits, securities and cash in a Member Company, the payment from each Department shall be divided between claimants so that the total claim of each claimant, up to a maximum of 1.7 million, shall be paid in full, and amounts in excess of that figure shall be paid in equal proportions to the extent permitted by the assets of each Department. This amount is linked to the price of the Euro (EUR) based on the purchase price on 5 January 1999. No further payment can be claimed from the Fund even if the loss of a claimant has not been paid in full. Should the total assets of the Fund prove insufficient, the Board of Directors may, if it sees compelling reasons to do so, take out a loan in order to compensate losses suffered by claimants.
Furthermore EU directive 94/19 which was in force at the time of this particular meltdown explicitly forbids state backing of private banking enterprises on anti competitive grounds. Yes that goes for England too in case your wondering.
“Whereas this Directive may not result in the Member States’ or their competent authorities’ being made liable in respect of depositors if they have ensured that one or more schemes guaranteeing deposits or credit institutions themselves and ensuring the compensation or protection of depositors under the conditions prescribed in this Directive have been introduced and officially recognized”
WHY SHOULD WE PAY (for the Icelanders) – Good question but an incorrect conclusion. The British or Dutch taxpayer should indeed not pay for the Icesave accounts but two wrongs don’t make a right, your government had absolutely no right to saddle you with the bill without your consent, but just because they did does not give you the right to steal it back from Iceland. If somebody breaks into my house and robs me that does not give me some kind of excuse for hanging out in dark alleys and robbing strangers to make up the loss. The voters are responsible for their governments and should take them, not Iceland, to task for this. The British and Dutch governments were in breach of EU directive 94/19/EC when they made English and Dutch taxpayers bail out Icesave and other private banks.