rfmcdonald | [LINK] "Uprising in Iceland" (Reply)

Conservative journalist writes approvingly of Iceland's opposition to the mooted plan for Iceland to reimburse British and Dutch depositors in Icelandic banks. To what extent, he wonders with some justice on his side, can an entire country be held responsible for some people's bad decisions?

Under pressure from voters and taxpayers, Iceland's President, Olafur Ragnar Grimsson, this week refused to sign a bill to reimburse almost $6-billion to Britain and Holland for money paid to depositors who put money into two high-flying Icelandic banks that failed in 2008. The president was responding to taxpayers who are essentially rebelling against being forced to pick up the tab for a financial bailout of depositors, regulators, foreign governments and even their own government and politicians. It is only a bit of an exaggeration to say that the people of Iceland are refusing to pay for all the schemes of private bankers and public officials who, over the course of the last decade, drove the whole of Iceland into bankruptcy.

The tiny-population country (330,000 people and about 220,000 taxpayers) is widely seen as a microcosmic version of the financial mayhem that ripped through the world financial system in the last half of the last decade. In a world of floating currencies and state manipulation of lending markets and banks, Iceland's politicians and local power brokers decided to become big-time players. A nation of fishers became dominated by investment bankers with connections, a central bank that ran amok, a currency that rose on high interest rates, and a government that went along for the ride. Iceland was the first country to crash in the wake of the finanical crisis; its three main banks collapsed within one week.

[. . .]

The Iceland rebellion has been characterized as foolish. Fitch, the credit rating agency, warned of "a renewed wave of domestic political, economic and financial uncertainty" for Iceland and downgraded the country's main sovereign rating to junk status. Paul Rawkins, senior director in Fitch's Sovereign ratings team, told a news agency that the standoff "represents a significant setback to Iceland's efforts to restore normal financial relations with the rest of the world."

Well, maybe. But there must surely come a time in the affairs of a nation when the people have a right to rise up against bumbling politicians, incompetent regulators, private scammers and international agencies who appear to be part of the problem. Such is the case in Iceland. While widely viewed in the conventional media as the victims of the rampant excesses of free markets and laissez-faire Milton Friedmanism, Iceland in fact fell into the hands of inept politicians, bumbling regulators, a farcical central bank, abuse of deposit insurance and the adventurous world of currency traders.

[. . .]

If Iceland wants aid and loans from the IMF to help lift it out of economic crisis, then Iceland would first have to agree to repay the Icesave money. The current Iceland government and legislature initially passed the Icesave bill by a narrow margin, agreeing to the $6-billion pay out over a number of years. But a popular uprising prompted the President to refuse to sign it. The legislature meets again tomorrow.

The price of the bill is steep. Up to 4% of Iceland's GDP will be paid to Britain (in sterling currency) between 2017 and 2023. The Netherlands would receive up to 2% of GDP (in euro currency). Meantime, the IMF has moved in with currency controls and other heavy-handed policies. No wonder many, even a majority, of Icelandic voters believe they are being asked to pay for private banking failures brought on by conniving and scheming government officials.

Then again, Iceland's government is democratically elected and did embrace these terribly failed policies.