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[POLITICS] We live in interesting times

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Feb. 22nd, 2011 | 01:31 pm
mood: pensivepensive

I think most people probably won't even have heard of the whole Icesave fiasco, and those that have probably did not keep up with current developments there; I didn't follow every last detail, either, but you still hear pieces of important news every now and then.

That happened two days ago.

As a quick recap, back before the Icelandic economic crisis, Icelandic banks (pretty much unbridled by regulations and oversight) were offering saving accounts with unusually high interest rates in e.g. the UK, the Netherlands and Germany. When the economic crisis happened and those banks folded, a dispute started concerning whether the Icelandic state would have to reimburse foreign savers for the assets lost there, or whether this was a case of "you gambled, you lost, better luck next time".

I can't comment on whether Iceland should be required to do so or not, but needless to say, authorities in the UK and the Netherlands were quite vocal in their opinion that the answer was "yes", and there was a lot of negotiation behind closed doors. Ultimately, an agreement was reached with the Icelandic government, and a law was passed in Iceland, but people in Iceland protested, and the president refused to sign the law and put it up for a referendum, where a majority of people promptly rejected it.

Negotiations resumed, and last week, a new law was passed in parliament; however, there was still demand for a new referendum, and a petition calling for one garnered more than 40,000 signatures (in a country of ~320,000, mind you — 20% of all voters).

So the president decided to do just that: he refused to sign the law, and instead called for a referendum.

A lot of ink has been spilt over that decision already, and I'm gonna add some to it now: I think that this is absolutely the RIGHT decision. No matter what one's opinion is on the underlying dispute (as stated above, I do not have one; I simply don't know the details, so I have no basis for forming one), and no matter what one's opinion is on the current agreement and the new law, the resolution of the Icesave dispute is something that will shape Icelandic society for a long time; Iceland will be saddled with a debt of several billion EUR that'll take a generation (30 years) to pay off.

As such, I think it's important that the actual people who'll be paying the money and feeling the effects are heard: the actual constituents of society. It's one thing to accept such a deal when given a choice, but quite another to have it imposed without having any say; and although the government is loudly complaining right now that an elected government has been given the authority to decide on behalf of the people and thus should be able to do just that, particularly when a parliamental vote was not even very close, which this one wasn't (an argument that does have some merit), I think that in the long run, the government would be well-advised to remember that it is the servant of the people, not their master.

Of course, the whole thing's probably pretty academic, anyway, since polls have shown that a majority of Icelanders actually favor the agreement and want to put the whole Icesave issue to rest, finally. At the same time, I think people realize that a rejection of the agreement would have other far-reaching consequences; it's not a matter of voting to give away your money to pay someone else's debt or keeping it as much as it is a choice between two evils. But I really think that the psychological effects on society are the most important: give the people the ability to control its own fate, and you will avoid running into problems later on. Forcing through such a far-reaching law, even when the majority of people are in favor, could very well come back and haunt you in a decade or two.

So, kudos to the Icelandic president for not being afraid to actually use his powers, and for recognizing that the people matter; but also, kudos to the Icelandic government for working to resolve this conflict, and kudos to all of Iceland for cleaning up the mess left by a few.

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Comments {13}

Party Rabbit

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from: redlemon
date: Feb. 22nd, 2011 02:21 pm (UTC)
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I will fully admit, I'm usually good at at least hearing a sprinkle about overseas politics, but I knew nothing of this. Here in the US though, we've been having our own issues with Wisconsin protests and our own politics.

Very interesting though. Interesting political times, indeed.

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Schneelocke

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from: schnee
date: Feb. 22nd, 2011 03:08 pm (UTC)
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*noddles* I heard about the Wisconsin protests, but they haven't gotten a lot of coverage in the news here (yet), so it all evens out. *s*

It's certainly interesting, though. If the protests gain traction the same way the "tea party" did, maybe we'll look back on these days in 30 or 50 years and say "that's when the Sixth Party System started". We tend to take Democrats and Republicans for granted, but maybe in the future, we'll have the Tea Party and the, I don't know, Wisconsin Party instead.

Definitely interesting.

And yeah, Iceland's gonna be interesting, too. There's demand for a new Icelandic constitution as well, given that the old one was pretty much literally copied from Denmark's with the word "king" replaced by "president" when Iceland declared its independence in 1944; it'll be drafted by a constitutional assembly which may be elected at the same time that the Icesave referendum will be held. There were two national assemblies preceding this in 2009 and 2010 already; I wrote a Wikipedia article about the former, but not the latter (yet).

The role of the president will probably be up for debate during that assembly, too, since not everyone is happy with his decision to actually use his power to veto laws and put them up for referendum; there's people who'd like to see him relegated to a ceremonial role again and keep him from partaking in day-to-day politics. We'll see what happens, I guess.

Yes, definitely interesting times.

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aersad

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from: aersad
date: Feb. 22nd, 2011 02:27 pm (UTC)
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Iceland is like Ireland who did insanely low taxes to encourage corporations to leave other countries, dumping their workers, and reaping huge profits thereafter or the US giving corporations huge bailouts then watching them throw out most of their labor while handing out the money to thier executives.

Rich people take advantage given by other rich people in power then wail how unfair the universe is when things go sour (for them). Then they DEMAND the taxpayers cover their high risk losses. Can you imagine if every gambling resort in the world taxed their local community to always cover every high rollers' losses?

Sorry but... it ain't right.

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Schneelocke

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from: schnee
date: Feb. 22nd, 2011 03:18 pm (UTC)
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*noddles* You make a good argument. It does appear rather unfair that taxpayers should have to pick up the tabs of the banks now when the banks failed; it appears even more unfair when the governments of large nations like the UK ask a small one like Iceland to do so, despite it being a disproportionally larger burden. If the British state reimbursed British savers who lost money there, it'd be a burden, obviously, but the UK is 200 times the size of Iceland — not to mention that Iceland will have to not just pay the Britons but also the Dutch, the Germans and others.

Realistically speaking, of course, there's probably no other option; if the law is refused, then the UK etc. will probably make life difficult for Iceland in other ways, and ultimately, economically speaking, it may be better for Iceland to play along. In my perception, international politics is almost never guided by ethical or legal concerns, and only ever about furthering one's interests, with alliances, treaties etc. only being means to reach that end; as such, as a small player who's not got any large and powerful friends speaking in his favor, Iceland pretty much cannot win.

Of course, that is precisely why I think allowing Icelanders to decide themselves rather than the government simply passing the law without the people having a say in it is so important, though.

(Also, hi there!)

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from: mithent
date: Feb. 22nd, 2011 08:02 pm (UTC)
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I'm biased about this, since a) I'm English, and b) I was a customer of Icesave (I was paid my money back by the FSCS, the UK Financial Services Compensation Scheme).

The issue is not just that Landsbanki invited deposits from the UK and Netherlands, that it went bust, and then those countries were upset on behalf of their citizens who were depositors. It's that, under EU/EEA law, Landsbanki had to provide deposit protection, up to a certain amount, to operate as a retail bank. That included its subsidiary Icesave in the UK (and the Netherlands). Normally banks, either based in the UK or overseas, would join the FSCS and make contributions to that. However, since Iceland is in the EEA, Landsbanki used the "passport scheme" option of having the first €30,000 covered by the Icelandic scheme.

The bank told customers, like me: Your deposits are 100% guaranteed. The first €30,000 will be covered by the Icelandic deposit protection scheme in the unlikely event that we go bust. The remainder of the £35,000 will be covered by the FSCS. (It actually kind of implied that you had a double guarantee, but that's not the legal truth of the matter.) The website used to say "Under EU law compensation for any losses incurred due to the failure of a bank should be paid within three months - regardless of whether it is through a passport scheme or the UK Financial Services Compensation Scheme." In fact, they once complained about the FSCS implying that it might take longer to claim under their passport scheme than if the whole amount was covered by the FSCS.

When Landsbanki was put into receivership by the government, their response was that, despite this promise, actually the Icelandic deposit protection scheme didn't have the money, so they weren't going to pay. Oh, except that they were going to protect on-shore savings. Bad luck if you were off-shore, though, they were going to renege on their promises and their obligation under EU (EEA) law.

The Icelandic government does have their counter-arguments of course, but this was not presented as (and should not be, under EU law) a risky investment - rather, as one which was guaranteed just as much as investments with UK-based banks, up to £35,000 at that time.

Ideally the Icelandic people should not have to pay for the lack of banking oversight in their country which led to the collapse of the banks, but banks worldwide have had similar problems (especially in the UK, given the large contribution of our banking sector to total GDP) and we've suffered for it as well, with a large cuts programme now being implemented to pay off the debt incurred by the government in stabilising the economy. Given what I see as a legal obligation to reimburse the UK and Netherlands governments for the protected investments, and the favourable terms now negotiated, I think this bill should be passed. I'm glad to hear that polls now suggest that the referendum will pass - I thought that the President refusing to sign it before referendum was going to be a back-handed way of avoiding refusing it directly, since the people voted so heavily against it last time.

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Schneelocke

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from: schnee
date: Feb. 22nd, 2011 08:14 pm (UTC)
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I certainly see your point, and that's why I said in my post that I don't really know enough about the details to really make a judgement call on the issue as such. I've heard about the EEA regulations, of course, and the prohibition on treating on-shore and off-shore customers differently, but I can also see the opposite point of view. Just like you (rightfully) claim that it would be unfair for you to lose money that you put into what was (or was said to be, at least) a savings account, with claims being made that it WOULD be safe, I can also see how a random Icelander who was not in any way involved with the banks would feel it unfair that they would have to pay you money and reimburse you for losses that they had nothing to do with.

So as I said, I can't really comment either way.

What I can say, again, is that I think that since Icelanders are going to be the one that'll pay for this, and given the sheer amount of money involved (it's not like this is a few percent out of one year's budget, an amount where leaving matters entirely in the hands of the elected government would be fair), I think it's good that Icelanders will actually get a say in how the whole matter will be resolved.

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tzisorey

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from: tzisorey
date: Feb. 22nd, 2011 11:27 pm (UTC)
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I think that, having heard this, the only off-shore bank I will use, will be in the Cayman Islands.

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Schneelocke

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from: schnee
date: Feb. 22nd, 2011 11:29 pm (UTC)
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I'd advise sticking with banks in your own country, actually. :P

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tzisorey

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from: tzisorey
date: Feb. 23rd, 2011 09:43 am (UTC)
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Aww, but a bank account in the Cayman islands is, like... bragging rights ^-^

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Schneelocke

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from: schnee
date: Feb. 24th, 2011 06:44 pm (UTC)
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True. ^^ Although owning a bank account in the Cayman Islands does not confer as much bragging rights as owning a bank in the Cayman Islands. ;)

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tzisorey

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from: tzisorey
date: Feb. 24th, 2011 11:10 pm (UTC)
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Very true

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Schneelocke

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from: schnee
date: Feb. 24th, 2011 06:43 pm (UTC)
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Ah, I'm not sure about that; it may just as well have been an attempt to take advantage of higher interest rates while still investing one's money into what was seen as a safe way without a chance of losing it.

It certainly is a case where life lessons such as "if it sounds too good to be true, it probably is" apply, but I wouldn't assume bad faith on the side of *everyone* who invested there.

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