Are the UK and Holland standing in the way of Iceland seeking its legal rights ?

A couple of weeks ago I mentioned in a blog post that our [then-] minister for health Ögmundur Jónasson had resigned over the Icesave issue. Yesterday we finally got the full details of why exactly he resigned.

Those of you who have been following us for a while will know that we’ve got a nightmarish situation known as the Icesave agreement going on. Icesave is the name of online bank accounts that the now-collapsed Landsbanki operated in the UK and Holland, and through which it managed to collect some 7 billion pounds Sterling in the roughly two years that Icesave operated.

When Landsbanki collapsed, it transpired that Icesave was actually a branch of the bank operating in the UK and Holland - not a subsidiary, which would have made it subject to Dutch/British laws and covered by the deposit insurance funds in those countries. The Icelandic deposit insurance fund was nowhere near large enough to cover the deposits, so the authorities in those respective countries stepped in to compensate their citizens. Predictably they would now like their money back from the Icelandic authorities - read : the Icelandic taxpayer.

The debt incurred by the Icesave debacle is catastrophic for our nation and will, along with all the other debts left by the collapse of the Icelandic banks, make a severe dent in our welfare system. The main point of contention in this whole affair, and what has caused outrage among the citizens of this country, is that the bank that ran the Icesave accounts was a private bank, not a public one, and many of us find it grossly unfair that the citizens of Iceland - normal people who had no involvement in the operations of the bank - should have to cover those colossal debts. Privatize the profits, socialize the losses.

The legal contention centers around whether or not there should be a sovereign guarantee on those deposits - whether the Icelandic state is legally liable to cover those deposits, when it did fulfill the required directive, i.e. it had a deposit insurance fund in place, which was the only stipulation required for the bank to open a branch overseas. Also, whether a sovereign guarantee applies in the event of the collapse of an ENTIRE banking system, something that simply was not foreseen when those directives were drawn up.

Complicating the matter is the fact that Icelandic depositors in Landsbanki had their deposits covered in full when the banking system collapsed - so should not British depositors of the same bank be entitled to the same treatment ? Some say yes - other say no, because each country should be responsible for ensuring the interests and well-being of their own citizens.

Others argue that British and Dutch authorities should have regulated the banks on their own soil ; this argument is in fact moot because Iceland is party to the EEA [European Economic Area] agreement and so Icelandic companies were legally entitled to operate anywhere within the EEA area.

However, there is something else, a development that has enraged many, many people in this country. That is the by-now open secret that the International Monetary Fund and the EU have gotten behind British and Dutch demands for Iceland to sign the agreement for the repayment of those deposits - an agreement that has been argued over and debated in parliament for months now, and which is completely draining the strength of the current government. The IMF has refused any further aid to Iceland until the agreement is signed [which most people consider outrageous, as the original founding premise behind the IMF was NOT to act as debt collector for the rich nations of the world], and the EU and British/Dutch have made it clear in no uncertain terms that Iceland will not be granted admission to the European Union unless it signs the agreement.

Icelanders are proud people and we want to pay our debts. The only question is whether the debts are solely our responsibility, or whether that responsibility should, perhaps, be shared - as renowned magistrate and corruption hunter Eva Joly pointed out in her excellent article on the subject. To that end, the Icelandic negotiating committee went over the agreement previously drawn up with the UK and Holland, and came up with a few amendments.

One of those amendments stipulates that Iceland should be able to take the Icesave matter to a court of law, to have it determined whether or not Icelandic taxpayers are responsible for those debts incurred by a private banking institution. In other words, the Icelandic state does not wish to abandon its right to have legally determined whether or not it is obliged to undertake such payments in the event of a systemic collapse.

It has now been revealed [in a rare instance of transparency] that the UK and Holland have rejected that amendment to the agreement. The government wanted to push the agreement through anyway - and that is why Ögmundur Jónasson resigned.

As yet there has been no formal response from the UK or Dutch authorities on these allegations [as far as I’m aware], but our PM Jóhanna Sigurðardóttir has confirmed that this is the case - and has also said that Iceland cannot and will not abandon the amendment relating to the legal determinations*

If this is true, it must be considered OUTRAGEOUS that the UK and Holland are standing in the way of Iceland seeking its legal rights over the Icesave agreement.

Seriously, this whole affair is such a nightmare that most of us would like nothing more than to pull the duvets over our heads and wish it away. However, we cannot allow ourselves to be bullied. The denoument of Robert Jackson’s article in the Financial Times yesterday kind of says it all :

The country finds itself at a crossroads. One route sees a debt-burdened nation embrace Europe, adopt the euro and gain the greater financial security that EU membership would provide. The other is a One Nation path : a country isolated, weakened and vulnerable, and yet imbued with a belief in its talent, fortitude and ability to work through its problems. If it rejects the European path, there is a real concern that Iceland will turn in on itself, making real Laxness’s fictional Bjartur - a lonely figure stumbling battered, bewildered and yet stubbornly defiant into the arctic wilderness. For many Icelanders that would be the desirable alternative.

* Which kind of contradicts Ögmundur’s claim, which is rather confusing.

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