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The IceSave Agreements – PDF
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Vilhjalm A.
2 years ago
The British agreement (in addition to the Dutch one) is a bad agreement and must be rejected.
Contrary to what the newspaper article said (namely, that the Icelandic government will not be responsible for paying out the Icesave with Icelandic government assets other than British Landsbanki assets), the agreement works in such a manner that the Guarantee Fund and Iceland must pay the 2.35 billion pounds, regardless of the amount that the sale of British Landsbanki assets brings in. The agreement is just a demand for payment, like the Dutch agreement. If Iceland fails to pay on schedule or fails to meet any of a variety of onerous conditions, the agreement becomes null and void and Britain can once again reimpose the Terrorist Law freezing assets and pursue or punish Iceland in any way it can under British and international law. In other words, the situation returns to what it is now – one state holding a sword over another.
The agreement is full of one-sided, “unconscionable” clauses: most of section 6 (the guarantee, waiver of defences, additional security, etc), section 7, section 10, section 12, section 17, section 18). The introduction of Iceland’s “obligations” to other foreign creditors, including the IMF, is particularly insulting. If Iceland and the new banks fail to satisfy the Germans using EU law, or if Iceland defaults or pays late on the IMF loan -both contingencies which have nothing to do with Icesave- then Britain can reject the whole agreement. Or what about the “untrue representations”? Any incorrect information is a possible reason to cancel the agreement.
I could go on and on about the unfairness of this agreement.
This agreement must be rejected. If the English don’t like it, then they can keep holding onto British Landsbanki assets and sue Iceland in EES or EU court. At least there Iceland will be able to bring up a variety of defenses (force majeure, changed conditions, contributory negligence by the British and Dutch, etc). I suppose that hurts the chances of joining the EU but, but really, why not try for a better agreement? It couldn’t be any worse than this one.
Bromley86
2 years ago
Again though, I don’t see how this agreement can be viewed with surprise in Iceland. What did people think was going to happen when the liability for the Icesave EEA guarantee was accepted (under duress, admittedly) back in November?
I mean, why would the UK and Holland ever agree to take only whatever could be liquidated from Landsbanki (and then only from the foreign element of Landsbanki)? Tht transfers all of the risk from the guarantor, which makes it not a guarantee.
It’s taken over half a year for Iceland to go from saying they’ll do it to formalising it! They’re already borrowing a lot of money for other purposes. Of course there are going to be a number of clauses detailing what’s going to happen if there’s a default.
If it isn’t agreed, there’s a chance this time around that it won’t just be Landsbanki assets that are siezed. Even if that doesn’t happen, the IMF loan is jeopardised.
Vilhjalm A.
2 years ago
To add one small example of how unfair this agreement is, the agreement basically prohibits any changes in Icelandic that would disfavor foreign creditors. For instance, if Iceland passes a law that delays payments to, or foreclosures by, foreign creditors who take control of bank property in Iceland (eg the Pennis Mall, now owned by the Germans), that would be grounds to cancel the agreement. Or more importantly, what if Iceland tries to change its bankruptcy law to give mortgage holders a reduction, or to reform the mortgage based on what homeowners can afford, when the property belongs to the banks? That’s prohibited.
http://www.dv.is/frettir/2009/6/19/michael-hudson-thetta-er-otrulegt-afsal-fullveldi/
Michael Hudson: „Þetta er ótrúlegt afsal á fullveldi”
“This is an unbelievable sell-out of Iceland’s sovereignity” He goes so far as to says that that the British treaty negotiators have made fools of their Icelandic counterparts, and he is worried about the independence of Iceland in the future.”
Bromley86
2 years ago
>the agreement basically prohibits any changes in Icelandic that would disfavor foreign creditors.
If that was the case, I’d probably agree with you Vilhjalm. Do you know which clause details that point? Because the only termination event relating to Icelandic law changes talks about Iceland (the sovereign state) and the Guarantee fund only:
“A Change of lcelandic Law occurs which has or would have a material adverse effect on the ability of the Guarantee Fund or lceland to perform their respective payment or other obligations under the Finance Documents”
If you’re referring to External Indebtedness, my reading of that is that it only refers to sovereign debts (i.e. not the debts of the banks, except of course for the EEA guarantee).
I can’t shake the feeling that Hudson has an agenda regarding Iceland and the IMF. He wrote a piece about how Brown had inadvertently spilled the beans last month when he talked about Iceland being responsible for the KSF depositors and how Britain was getting the IMF to put pressure on them. However, although it was obvious that Brown just got mixed up between KSF and Icesave, no mention or consideration was given to this. i.e. if it doesn’t support the story that he’s constructing, he’s not interested. Which makes me wonder what he’s trying to sell.
Vilhjalm A.
2 years ago
Unfortunately my answer is a bit complicated.
The agreement refers to Landsbanki hf. Apparently it does not recognise New Landsbanki as distinct from Old Landsbanki, as established under the Icelandic emergency law from last December (perhaps readers will recall what Mike the UK analyst said on the other board, namely, that the creditors do not accept the New Bank – Old Bank disinction).
If you add up the following clauses:
“Treatment of Landsbanki creditors
lceland will not take any action which would result in the creditors (or any class of
them) of Landsbanki (including, for the avoidance of doubt, the creditors (or any class
of them) of Landsbanki Amsterdam), being treated in a manner contrary to generally
accepted international or European principles of treatment of the creditors in an
international winding-up. ”
“lceland (or any governmental or ministerial authority of lceland) fails to make any payment in respect of any of its External lndebtedness on due date ”
“Change of lcelandic Law: Any Change of lcelandic Law occurs which has or
would have a material adverse effect on the ability of the Guarantee Fund or
lceland to perform their respective payment or other obligations under the
Finance Documents to which they are party.”
.. then you have a situation where, if Iceland changes its laws in such a way that would result in foreign creditors of Landsbanki within Iceland getting less money than the creditors think they are entitled to under EU or British law, or would result in Iceland being less able to pay creditors, then the Icesave agreement is terminated. So for instance if Iceland passes a 20% debt reduction law, then the creditors (if they have a claim to former Landsbanki assets) are getting less and the Icelandic government has less money with which to pay them or other creditors.
I admit that it’s not particularly clear – my point is that the creditors claims (IMF, Germans et al) are all mixed in with Britain and Holland’s claims, and so too all of Iceland’s obligations, with the result being that a default to one creditor – using the EU definition of default, as determined in a British court – could conceivably be reason to terminate the agreement. If so, why bother having an agreement at all?
It’s as if the creditors – the English, Dutch, Germans, IMF, and EU got together and planned an agreement that ensures that Iceland will do whatever these foreigners want and makes Iceland’s opinion completely irrelevant.
On a similar line, here’s a good blogpost by someone named Hnakkus
http://hnakkus.blogspot.com/2009/06/af-gungum-og-druslum.html
His main point is that Samfylking and the VG think they are doing the “right thing” (out of a sense of collective guilt) and distancing themselves and Iceland from the Sjalfstaedisflokkur by agreeing to take on all this debt and doing anything to join the EU. Well, you may hate Sjalfstaedisfl. and the oligarchs, but that doesn’t mean you should take on all this future debt, or join the EU, and ruin the country forever.
A bad agreement is bad for everyone, left or right.
Bromley86
2 years ago
Nice! Good spot Vilhjalm, although I believe the argument is flawed. Any references are to the UK agreement.
Regarding the 6.9 Treatment of Landsbanki creditors clause, you look to me to be spot on. The only argument that I can think of that might carry weight is that this agreement is dated 2009 and makes no mention of reversing existing actions. Whether lawyers would make that argument I can’t say, but either way it is an odd clause if we accept that there is no hidden agenda. After all, what business is it of anyone what happens to Landsbanki creditors as long as the debt in the agreement is paid.
Which brings me to the only reason I can think of that they might have for including it. If rules were changed that creditors challenged in court, that might lead to a delay in the repayment of the loan. But IANAL and I’ll admit that I’m scrabbling to explain an otherwise strange clause.
External Indebtedness. The clause referred to (12.1.5 Cross default of lceland) specifically refers to Iceland, so no problem there. Likewise, 12.1.8 refers to the Guarantee Fund. So although the definition might be read to include any debts, the actual use of the term External Indebtedness doesn’t occur with anyone you wouldn’t expect (like Landsbanki).
The Change in Icelandic Law definition is likewise easy. As with External Indebtedness, that in and of itself doesn’t affect anything as it is merely a definition. Where it is used matters, and 12.1.10 & 12.1.11 both only refer to changes that affect Iceland or the Guarantee Fund.
The key thing not to lose sight of though is where we are now and where the UK and Holland want to be. Currently Iceland is in a state of effective default on the debt, in that they have acknowledged that it exists (to access the IMF loan) but have yet to repay, service or agree when they will repay. The agreement gives Iceland good terms, at least regarding when the principal is repayable. What would be the benefit to the UK or the Netherlands of a clause or clauses that terminated the agreement at a time when everyone can see that Iceland couldn’t pay?
Vilhjalm A.
2 years ago
Thanks for your good comments, Bromley.
I still think “the agreement basically prohibits any changes in Icelandic that would disfavor foreign creditors”, although you are not convinced. I’m not saying my argument is particularly clear, but you could make a fairly good argument for it by putting pieces of the contracts together, as I said before. The “Change in Icelandic Law” clause is not just a definition but a termination event which applies generally (and not just in 12.1.10). And the effect of the Treatment of Landsbanki Creditors clause would be to cancel the old bank-new bank distinction under the emergency law and open up nearly all Icelandic assets held by the banks (including deposits by Icelanders) to the foreign creditors.
Another strange story came out about the agreement today. Steingrimur Jod and Indridi H (I don’t know who he is) had an informal meeting with Hordur Torfason the protest-leader and said the the British and Dutch did not want the agreements released. Steingrimur showed Hordur several emails from the british and Dutch, which have surfaced on Lara Hana’s blog.
http://larahanna.blog.is/blog/larahanna/entry/900581/
In response to Indridi’s request to reveal the agreement, the British said:
“What I tend to do is to invite people into read the document in a room but do not let them take copies. It means they will tell people the content but the documents themselves are not circulated to the world. Would that work in Iceland?”
And the Dutch said:
“If the suggestion og G____ works, than I have no objection to it. My slight worry of making everything public is that this may cause a lot of outside-comment that will make the discussion even more complicated. If however you really feel that your only possibility lies in making the arrangements public, I would be ready to consider that. What should be clear, is that we cannot renegotiate.”
What a joke. The British wanted the Icelandic politicians to sit in a room and read the agreement but not get a copy. A complicated legal argument, in a foreign language. No close examination, no consultation with either Icelandic or english-speaking lawyers, no discussion of the specific terms – just sign here.
And the Dutch response – they don’t want any discussion, because it’s pointless – either sign this paper or there’s no agreement.
All this reminds me of the line from the Godfather, “either your signature or your brains will be on the contract.”
Bromley86
2 years ago
Actually, I do understand why both the Dutch and the British would prefer that it wasn’t released.
Governments almost always make decisions for the people without directly consulting them. In this case, we’ve already shown why that is. Assume for the moment that all the agreements are doing is formalising what we’ve all known since November, namely that the Icesave EEA guarantee is now a sovereign debt but that it can’t be repaid immediately.
But then they’re realeased. They’re subject to scrutiny by people like you and I who don’t have the skills to correctly interpret them. I mean, do you honestly think that we’ll discover things that Icelandic lawyers and civil servants don’t know? Of course not. What releasing the documents does do is allow anyone with a predisposed position to selectively quote and incorrectly interpret the agreements. For example, and with the greatest of respect, as you do with “The “Change in Icelandic Law” clause is not just a definition but a termination event which applies generally (and not just in 12.1.10).” As far as I can see, that is not the case. But, again, that’s my point – I’m simply not qualified to definitively make that call
.
As to not wanting copies taken out of the room, that’s simple. Once you’ve decided that you’d rather it wasn’t leaked, it doesn’t take a genius to figure out that mailing a copy to every member of parliament is going to mean 60 leaks
. There’s nothing stopping the government providing, or the MPs bringing with them, legal representatives.
Bromley86
2 years ago
I’ve just bumped into a contradiction. Part of the reason why the whole Icesave thing is a problem is, I believe, that there is a likelyhood that Iceland will have to repay some of the actual principal debt itself. Somewhere between 5% and 25%:
http://www.icenews.is/index.php/2009/06/06/icesave-deal-agreed-%E2%80%93-final-confirmation-next-week/
That ties in with what Bjorgolfur Thor Bjorgolfsson has always said – that the assets should pretty much cover the guarantee.
But I recently saw a bunch of stories about UK councils looking to recover 95% from Landsbanki accounts. These were not Heritable (as that’s mentioned separately), but Landsbanki itself. i.e:
http://www.marketrasenmail.co.uk/news/Icelandic-banks-to-pay-up.5300305.jp
http://www.cambridge-news.co.uk/cn_news_home/DisplayArticle.asp?ID=424830
Obviously both positions can’t be true, unless the councils were somehow depositing with another Landsbanki subsidiary rather than with Icesave. And I can’t see their advisors managing to lie that much (i.e. they’re actually looking at ~1% recovery but they’re told 95%). Any ideas?
JAY
2 years ago
If you owe money and you want to be respected then pay your debt
It is that simple
And if the terms are tough, well hard luck; you brought it on yourselves
There are many very angry people in the UK who are no longer feeling friendly towards Iceland
My mother, who is 84, is among them …
No doubt the Dutch fee the same way
So stop whining!
realistic
2 years ago
Your 84 year mother isn’t alone, we here in Iceland have lost most of our lifesavings, and on top of this we have to bail out the banking system, then we also have to bail out private companies, due to a private banks failure, you think this is fair?, wait till it happens to you, I at least have an option, sorry to say, i can leave my country.
will you be happy to see the rest of Iceland in ruins and laugh about it, I bet you will be proud.
P.S
No i will be staying untill it will be unberable for me…