torsdag 7 januari 2010

Island: Finland intar tuff hållning, i motsats till Financial Times ledare och krönikörer.

Island: Finland intar tuff hållning, i motsats till Financial Times ledare och krönikörer.

Islands moderna saga är just nu förfärlig präglad av val mellan pest och kolera. Ekonomisk realism talar för att den ekonomiska skuldbördan är för tung för att kunna betala av för de för skulderna oftast helt oskyldiga medborgarna. Men ska skulderna istället betalas av och efterskänkas av andra länders skattebetalare? Det förefaller knappast mer rättvist. Bördan måste, och kommer i sista hand, i avtal att delas mellan Island och omvärlden. Migrationen från Island av personer i arbetsför ålder - dvs en del landets ekonomiska bas - fördjupar krisen ytterligare.

Nedan återges fyra färska artiklar från Financial Times om den isländska krisen. De är inga bildsatta reportage om enskilda människor av det slag som är så populära i svenska media.

Först morgondagens nyhetsartikel om stödet från Norden (8/1), därefter dagens realistiska ledare (7/1), därefter en intellektuellt tämligen krävande debattartikel av en amerikansk professor, Michael Hudson (7/1), och till sist en insändare (letter to the editor) från två londonbaserade akademiker, Ann Pettifor and Jeremy Smith, från organisationen Advocacy International (7/1). Anledningen till att jag återger artiklarna är det stora antal mail som jag fått efter min förra artikel om islandskrisen från personer som är starkt engagerade i Islands öde, men som uppenbart inte får information och tillräcklig analys genom de media de brukar ta del av i Sverige.


January 7th, kl. 18.58.
Pressure builds on Iceland.

By Andrew Ward in Stockholm
Published: January 7 2010 18:58 : Last updated: January 7 2010 18:58

Iceland faces a battle to maintain united Nordic support for its economic recovery plans after Finland warned crucial financial aid could be held up by the dispute over ?3.9bn of lost bank deposits owed to Britain and the Netherlands.

Finland's admission that planned loans from Nordic countries to Iceland were likely to be delayed was the first concrete sign of international pressure after the Icelandic president this week blocked legislation to reimburse the UK and Dutch governments.

Steingrimur Sigfusson, Iceland's finance minister, flew to Oslo on Thursday night to meet his Norwegian counterpart and is due in Copenhagen on Friday for talks as Reykjavik scrambles to shore up Nordic support for its crisis-hit economy.

Nordic countries could determine the fate of its recovery plans because they are the biggest contributors to the rescue programme agreed with the International Monetary Fund after the Icelandic banking sector collapsed in 2008.

Finland's finance ministry said the next round of loans from the ?1.8bn ($2.5bn, £1.6bn) pledged by Nordic countries was likely to be put on hold while consultations took place over the standoff. Norway and Denmark said they were watching the situation closely. Sweden said the matter needed to be considered with the IMF board.

Nordic countries face a conflict between their regional loyalty to Iceland and their strong political and economic ties to the UK and the Netherlands, which are demanding reimbursement of money lost by British and Dutch savers in the failed Icesave online bank.

Olafur Ragnar Grimsson, the president, on Tuesday refused to sign legislation approving repayment, triggering a referendum on the issue that is likely to take place next month.
He cited public opposition to the deal as justification for his decision after more than a quarter of the electorate signed a petition against it. But an opinion poll on Wednesday indicated Icelanders may be having second thoughts. A Gallup survey found that 53 per cent of people would support the bill in a referendum, in which a simple majority is required for it to pass, marking a turnround from the 70 per cent opposition found in previous polls.

Britain and the Netherlands have warned that Iceland risks isolation if it rejects the deal, hinting that they would veto its bid to join the European Union and block IMF loans. Resolution of the issue is a condition of the Nordic loans, which are crucial to the broader IMF programme.
Iceland received the first ?300m loan from its Nordic partners last month. A similar amount was expected to follow the next IMF review, scheduled for this month. That review is now likely to be delayed.

Fitch, the credit rating agency, downgraded Iceland's main sovereign rating to "junk" status in response to the president's decision and Standard & Poor's said it could follow suit. Moody's said its financial position was strong enough to cope with a delay of "weeks or even months" to international loans.

FT ledare, January 6:

Do not put Iceland in a debtors' prison

Published: January 6 2010 19:49 : Last updated: January 6 2010 19:49

Olafur Ragnar Grimsson, Iceland's president, this week rejected a law settling his country's dispute with the UK and the Netherlands over the sorry Icesave affair. In truth he had little choice: a quarter of this fiercely independent electorate signed a petition against it, a show of defiance no leader can ignore.

The law will now go to a referendum, likely to vote it down. This may teach Dutch and British leaders the limits of what can be achieved with duress, but too late to do anyone much good.
Landsbanki offered the Icesave accounts under European "passporting" rules, which let banks open branches abroad if they satisfy the home country's regulators and take part in its deposit guarantee scheme. But as its October 2008 collapse showed, Landsbanki was exposed far beyond what Iceland's deposit guarantee fund could pay.

In June, the UK and the Netherlands agreed a 15-year loan to the guarantee fund to reimburse their Icesave depositors, but demanded an Icelandic government guarantee for the loan, which would leave taxpayers on the hook for more than one-third of Iceland's yearly output. (The amount actually paid would be less, depending on what can be recovered from Landsbanki assets). Icelandic legislators passed it only after limiting the guarantee to a share of economic growth over the life of the loan. When British and Dutch authorities balked at the guarantee possibly expiring with the debt still unpaid, changes were passed that were acceptable to the creditors - but not to Mr Grimsson or to most Icelanders.

It is hard to fathom the need to make an example of Iceland. For the creditors, the loans are trivial: they sum to ?3.9bn, one-hundredth of what the UK alone will borrow this year and next. Neighbourly generosity would cost Amsterdam and London next to nothing.

They are also not innocent victims. British and Dutch banks benefited greatly from the rules. Had they failed on the same scale, it is delusional to think their governments would take on hundreds of billions in debt to rescue foreign savers, and odious to force a weak neighbour to do the equivalent.
From the start, Iceland has been under the gun. Loans from Poland, Nordic neighbours and the IMF depend on successful IMF reviews that in turn hinge on an Icesave solution. A lifeline-grasping application for EU membership is hostage to British and Dutch goodwill.

Landsbanki showed that Europe must reform its rules to achieve stronger common standards. This will not be done by putting Iceland in a debtors' prison.


Iceland can refuse debt servitude.
By Michael Hudson

Published: January 6 2010 19:56 : Last updated: January 6 2010 19:56
Olafur Ragnar Grimsson, Iceland's president, has created uproar with his decision to block legislation that would have repaid ?3.9bn ($5.6bn) lost by British and Dutch savers in a failed Icelandic bank, triggering a referendum that the government is expected to lose. The initial response by credit rating agencies was to downgrade Icelandic bonds, as if Iceland were repudiating its debts, Argentina-style.

But opponents of the bill have no intention of reneging on their legal obligations.
At issue is what the relevant European law says should be done - and, more to the point, what should have been done on October 6 2008, when Gordon Brown closed down the UK operations of Icesave, an online subsidiary of Landesbanki, Iceland's second-biggest bank. Icelandic authorities were given no voice in how to resolve matters. Did the British prime minister let Iceland off the hook by jumping the gun in reimbursing depositors as though they were covered by UK insurance rather than following European Union procedures?

Under normal conditions Iceland, a prospective EU member that had signed up to European deposit insurance rules, would have availed itself of the right to settle with depositors in an orderly manner. Article 10 of EU Directive 94/19/EC gave Iceland's Depositors' and Investors' Guarantee Fund (TIF) nine months to settle matters after the failure of a financial institution. Privately funded by domestic banks (unlike Britain's public Financial Services Agency), the TIF collected just 1 per cent of deposit liabilities as a risk premium.

The EU law did not anticipate a systemic failure and made no provision for the government to be liable beyond its insurance agency. But guidelines agreed by the Ecofin meeting of European Union finance ministers on November 14 2008 were clear: "These negotiating discussions shall be conducted in a compatible and co-ordinated manner and account will be taken of the difficult and unprecedented circumstances in which Iceland finds itself and the urgent necessity of deciding on measures which will enable Iceland to restore its financial and economic system."

So the broader issue concerns Iceland's ability to pay 250 per cent of its current gross domestic product - nearly $20,000 for each Icelandic citizen - to settle its Landsbanki mismanagement. The International Monetary Fund did not think this was a realistic option when its team calculated in November 2008 that: "A further depreciation of the exchange rate of 30 per cent would cause a further precipitous rise in the debt ratio (to 240 per cent of GDP in 2009) and would clearly be unsustainable."
Opponents of the Icesave agreement explain that they want to appeal to the EU rules regarding bank bail-outs and the Ecofin understanding that any agreement would preserve Iceland's economic viability. That is why Iceland's parliament, the Althing, asked last autumn for an impartial court to adjudicate the issue. Britain and the Netherlands turned down the request. They have been willing to negotiate over the timing of payments by Iceland - with interest mounting - but not the overall amount.
Iceland's government was willing to give in as the price necessary to obtain EU membership, but recent polls show that 70 per cent of voters have lost interest in joining. This is the same proportion estimated to oppose approving the Althing's agreement to give Britain and the Netherlands what they are demanding.

Icelandic voters are worried about how they reasonably can be expected to pay enough in taxes to cover the huge debt. The problem is that foreign debt is not paid out of GDP. It is paid out of balance-of-payments receipts from net exports, from the sale of assets to foreigners and from new borrowing. The market for cod is limited, and many of Iceland's quota licences already have been pledged to bankers for loans, whose debt service absorbs much of the export revenue. Interest charges also absorb most of the revenue from its aluminium exports and its geothermal and hydroelectric resources, leaving little taxable revenue behind.

There is also a dagger hanging over the heads of Iceland's homeowners: mortgages and other debts are indexed to the consumer price index. For an import-dependent country such as Iceland this, in effect, means the foreign exchange rate. Attempts to pay more foreign currency than the nation can generate in export earnings will cause the currency to depreciate and raise monthly mortgage bills. Many will lose their homes. Many already are. There is a moratorium on foreclosures, but it expires in February.

A pragmatic economic principle is at work in such conditions. Debts that cannot be paid, will not be (unless one pays back Peter by borrowing from Paul). At stake, therefore, is how much can be paid without wrecking Iceland's economy. How many Icelanders must lose their homes as carrying charges soar on mortgages indexed to the exchange rate? Emigration is accelerating, and many foreign workers already have left. How many more must depart? And if the post-Soviet experience of a steep and sudden drop in living standards is relevant, by how many years must Icelandic lifespans shorten?

The writer is professor of economics at the University of Missouri


Unjust for Iceland to take sole responsibility

Published: January 7 2010 02:00 : Last updated: January 7 2010 02:00
From Ms Ann Pettifor and Mr Jeremy Smith.

The president of Iceland's refusal to approve repayment to the British and Dutch governments should be welcomed (January 5). The pause gives the Anglo-Dutch governments an opportunity to withdraw their demand for full repayment from the government of Iceland, a country whose population at 317,000 is somewhat smaller than Leicester's.

The UK and the Netherlands, with a combined population of 76m, should cease to use economic force majeure on a tiny country, and accept the principle of co-responsibility for the crisis. Repayment of the nationalised losses of a private bank amounts to ?12,000 per Icelandic citizen, and will inevitably impact harshly on their lives and public services. By contrast the cost to Dutch and British taxpayers of the bail-out will be about ?50 per capita.

We understand the strong desire of the present government of Iceland to restore the country's tattered reputation.

But anyone reading the financial press in 2007 and 2008 (as opposed to the academic reports commissioned by Iceland's chamber of commerce) would have known that Iceland's banks were far from risk-free. That was why British and Dutch depositors enjoyed good rates of return on their deposits.

The British and Dutch governments have sound political reasons for protecting small savers lured into shark-infested financial waters. What is unjust is that the tiny population of Iceland should be forced to bear the full costs of the laxity of Icelandic, British and Dutch regulators and the reckless behaviour of private bankers and risk-takers.

Ann Pettifor and Jeremy Smith,
Advocacy International,
London NW1, UK.

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