Posted by: Andrew | March 8, 2010

Icesave Controversy

I’ve been monitoring the news for the last few days about the Icesave dispute between Iceland, Holland and the UK.

The short version of a very complex financial situation:

In 2008, the Icelandic banking system collapsed. All three major banks went bankrupt and had to be nationalized. One of these banks had an Internet banking operation in both Holland and the UK, although legally, it was operating as a branch out of Iceland. There are European Union and European Free Trade zone regulations which cover deposits up to just over 20,000 Euros. Countries are supposed to have some form of deposit insurance system to pay out. The Icelandic version did not have sufficient funds in it to do so. The British and Dutch governments refunded their savers and demanded that Iceland pay them back for the insured amount (not the full amount deposited). The directives governing this are not clear on whether the national government is liable in the event of the insurance scheme not being sufficient. Legal opinion is divided too. To complicate things, the British government froze the assets of Landsbanki in the UK. The legal framework to do this is contained in the British Anti-terrorism Act. This was, quite understandably, not at all popular in Iceland, and a public relations disaster for the UK. The Icelandic government was forced out of office and a coalition government formed.
A deal of sorts was reached and a bill passed through the Icelandic parliament. In getting it passed, amendments were made to the original agreementvwhich were not acceptable to the British and Dutch. A second bill was then very narrowly passed which was acceptable to the British and Dutch, but imposed very onerous terms on the Icelandic people. Iceland is sparsely populated and so the per capital cost of this deal was very high. An electronic petition against this (possibly organized by the Opposition parties) circulated, with the result that the Icelandic President used a rarely invoked power to send this second bill to a popular vote.
In the mean time, another offer, somewhat more favourable, was offered by the UK and Holland. Thus the vote on the controversial law was already obsolete. The vote was yesterday, with over 90% of the voters voting “No”. Not surprising.

It is a very complex situation and there are some valuable resources on the web:

A great blog on current happenings:

http://icelandweatherreport.com/

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