Iceland payback plan raises some noise

Stephen Beard Aug 20, 2009

Iceland payback plan raises some noise

Stephen Beard Aug 20, 2009


Tess Vigeland: If you thought this country’s economic problems were bad, at least we’re not Iceland. You may remember its financial system didn’t just near-collapse last winter, it completely imploded.

Well, Iceland’s parliament is about to vote on a massive financial package. The plan is to repay more than $5 billion that British and Dutch savers lost in one of the Icelandic banks that failed last fall.

Sounds like chump change, until you calculate that since Iceland only has 300,000 people. It’s equivalent to asking us in the U.S. to fork over $4 trillion.

Marketplace’s Stephen Beard has the story.

STEPHEN BEARD: Protest by percussion. Icelanders demonstrate outside their parliament in distinctive fashion, banging pots and pans and even gongs. The din is a way of venting disgust.

JON BALDVIN HANNIBALSSON: The general feeling among the public is that we’ve been had. We’ve been tricked. And we are innocent victims.

Former foreign minister Jon Baldvin Hannibalsson. He says many Icelandic taxpayers do not believe they should pick up the entire tab for the collapse of the online bank Icesave.

HANNIBALSSON: They are called upon to pay huge debts. And they ask themselves: Did we take on the loans? Did we ask for the loans? Are we responsible for the loans? No, they were not.

When Icesave failed last fall, foreign depositors, mostly British and Dutch, stood to lose a fortune. The British and Dutch governments stepped in and compensated their citizens in full. Now they are pressuring Iceland to reimburse them. Dropping hints that the country’s application to join the EU and even its access to IMF loans could be in jeopardy.

Magnus Arni Skulason is a leading critic of the repayment deal.

MAGNUS ARNI SKULASON: Icelanders in general find it unfair that they are paying for the mistakes of Icelandic bankers and financial supervisory authorities both in Iceland and in Europe.

A protester in Reykjavic rails against the small group of Icelandic bankers that have ruined the country. “Termites,” he calls them, “they have eaten the fabric of our society.” That rhetoric is not too far removed from reality, says Jon Daniellsson — a lecturer at the London School of Economics.

He says the Icesave debt alone would be a crippling burden.

JON DANIELLSSON: Iceland is by far the worst affected economy in the global crisis. Its economy is spiralling down continually and taking on that sizeable burden is quite likely to cause the government of Iceland to end in bankruptcy.

Not everyone is quite so gloomy. Iceland does have more than 20 years to pay. And under the plan that the parliament is voting on, repayment will depend on the performance of the Icelandic economy. Dragana Ignjatovic is with IHSGlobal Insight. She says the Icelandic government certainly thinks the Icesave repayment could be a way forward.

DRAGANA IGNJATOVIC: They firmly believe that making restitution of the money paid out will help re-build confidence in the economy. And will show that Iceland is being held accountable for the problems it has caused.

But there’s no guarantee that doing the right thing will bring back investors. In a recent survey of large European financial institutions, 90 percent said they were unlikely to put money into Iceland ever again. Ninety-three percent said they are prepared to sue the country to recover the money they lost in Iceland’s banking collapse.

In London, this is Stephen Beard for Marketplace.

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