Some stuff you just cannot make up.
Independent Party MP and former economic advisor to Geir Haarde’s government, Tryggvi Thor Herbertsson told Althingi that he’d just met one of the “viking raider” businessmen who’d critizised the government for not having called on any advisors in the IceSave.
Tryggvi quoted the businessman as saying “at least we had the sense to call on advisors”.
As Tryggvi walked away from the podium under roaring laugher, other MP’s could be heard calling, “economic advisors perhaps?”
Related posts:
Vilhjalm A.
2 years ago
If Tryggvi Thor were just a bad economist (which he is), that would be fine; there are many economists who are fools. But mixing bad economics with political ambitions — that’s very very dangerous.
Here’s another article on Icesave, in Forbes Magazine, by Arsaell Valfells. “Commentary: Morally Repugnant — Britain and the Netherlands bully little Iceland.”
http://www.forbes.com/2009/06/16/britain-netherlands-icesave-landsbanki-dgf-opinions-contributors-iceland.html
“…Footing this bill will deal a severe blow to Iceland’s ability to fund its renowned welfare, health and educational system. That means that those who received nothing in the financial bubble created by irresponsible and greedy bankers will pay most of the bill.
How was it, then, that the Icelandic minister of finance signed–in the middle of the night without any prior introduction in parliament–an agreement on the IceSave affair that potentially means the financial devastation of the country?
The answer: duress.
The word in Iceland is that when the inexperienced Icelandic officials with little training in sovereign negotiations sat down with their counterparts from former imperial nations, threats soon began to fly–such as the cancellation of IMF assistance to Iceland and also of the of the EEA agreement, not to mention political isolation.
Further, it has been hinted that Iceland’s E.U. membership could possibly be fast-tracked as a result of signing the agreement. That is the glass pearl waved in front of those desperate enough for Iceland to join the E.U. at any cost and who think that E.U. membership will miraculously solve Iceland’s foreign indebtedness and economic troubles.”
By the way, that detail in the news that the agreement was “confidential” and could not be released to the Icelandic public without consent of the British and Dutch – that should be the deal-killer (apart from the priority issue, which I mentioned earlier). Who would agree to that agreement? Would the British agree to pay another country twice the annual budget of the country, in an agreement or treaty that was kept secret? I don’t think so.
Bromley86
2 years ago
Makes you wonder when Arsaell Valfells is going to try for the Althingi. He’s consistently been patriotic at the expense of the facts, which is usually a requirement for a populist politician.
Seriously, if “two wrongs don’t make a right” is the best comment an economics an politics professor can come up with, perhaps it is time for Iceland to reduce the number of universities.
Vilhjalm A.
2 years ago
There is a partial answer to the Icesave questions here:
http://www.visir.is/article/20090617/FRETTIR01/992344039
According to an “áhrifamaður innan ríkisstjórnarinnar sem þekkir Icesave samningana” (someone within the government), the British and Dutch can’t go after anything other than Landsbanki assets to pay for Icesave. They can’t get Icelandic assets in Britain or Holland or force Iceland to pay otherwise.
The effect of this agreement is thus to allow Iceland more time to dispose of the assets (in the hope of getting a better price), rather than having the assets sold or seized within the normal 1-2 year period for unwinding bankruptcy estate property. If Iceland doesn’t pay all Landsbanki sale proceeds to the British and Dutch, they can and will seize them.
The priority problem is also solved, implicitly. If the British government’s only source of money for Icesavers is the Landsbanki assets, then the agreement will grant priority to the British government claims (since national treaties are federal law and usually (?) have priority), or else the British government will fight against other Landsbanki creditors in court (and win).
The jurisdiction issue is explained in the article as being the result of the lender (Britain) being able to sue in its own courts. (That makes sense).
If this is true, I would change my opinion of the agreement and agree that Iceland should sign it. Iceland would lose all the Landsbanki assets anyways, when the old banks bankruptcy cases are completed and the assets sold and distributed to the creditors.
There are still some remaining questions, however.
What if Iceland sells all the Landsbanki assets and there is not enough to pay off the Icesave debt? What happens to this leftover debt? Can Britain seek to get it from Iceland in some other way or at some other time? After 15 years?
Why the secrecy? Who does it benefit and why?
At a minimum the governments should release the agreement and fully explain all the issues. As things stand now (to judge from the news and comments on Eyjan), there is great confusion and hysteria among the public about the whole issue, which is understandable enough. There is post after post, and blog after blog, full of anger and paranoia, calling the Icelandic government traitors and robbers (and worse) and proclaiming that Britain and Holland intend to take over the entire country and ship out the energy fish and aluminum and set up tulip greenhouses all along the coast.
One poster has copied and pasted these intriguing quotes and claims that the British intend to seize all of Iceland’s energy to Scotland:
“The Icelandic government could approach the IMF for a (revived) contingent
credit line. As a last resort, the government should try to borrow foreign exchange in the global capital markets by offering its natural resource wealth, mainly hydro and geothermal energy, as collateral.”
(collateral = trygging)
síða 10:
“Iceland also possesses some excellent collateral,
even if using it might prove politically unpalatable.
(palatable = agreeable or acceptable)”
og síðan
“From the perspective of the international financial
community, the most promising form of collateral for
official borrowing from abroad is Iceland’s natural
resources. Iceland is rich in hydro and geothermal energy
resources that are currently only exploited for
exports indirectly, by being embodied in the exports of
aluminium smelted and refined in Iceland. Before too
long, however, there may be a power cable linking
Iceland to Scotland and possibly to other countries as
well. This valuable resource could be used today by borrowing
against it. In particular, exploration rights and
exploitations options could be auctioned off to foreign
enterprises. Future foreign currency energy revenues of
the Icelandic Treasury could be securitised today, with
bonds that will only start paying a coupon in the future,
when the exports and taxes are actually flowing. While
also possibly politically unappealing, tens of billions of
dollars could be mobilised through this channel.”
Well, these quotes are from the Sibert & Buiter report last fall, when everyone was speculating wildly. And Sibert & Buiter are “friends of Iceland”, so you shouldn’t take their suppositions as official British policy.
Is it possible that the intent of the British is simply to make sure they get the Landsbanki assets, without anything else? Does every discussion in Iceland have to be dominated by complete fear suspicion and paranoia? I’m not saying that the foreign creditors are anything but self-interested, but wouldn’t it be better for the Icelandic government to dislose as much as possible about the bankruptcy case and which banks assets will go where, rather than shrouding everything in secrecy?
Bromley86
2 years ago
Thanks Vilhjalm.
I may be pointing out the obvious here, or likewise missing an obvious point, but surely the British and Dutch position is made clear by the Icesave loans?
i.e. Iceland accepts the liability in the form of a loan where no money actually changes hands. Landsbanki sells its assets over the next 15 years and, as per the recent Icelandic law, prioritises payments to the foreign depositors (aka the Icelandic government, for the first 20k euros per a/c). When, not if, the amount from the disposal of the assets falls short of the total Icesave loans, the residual loan remains as a state debt that is then paid as usual (i.e. taxation).
Also, I’m not sure that the priority issue is changed at all. The Icelandic government has now accepted a debt. Isn’t it then up to the Icelandic government to enforce any payments from Landsbanki to itself then because, in theory at least if not in practice, if zero money was made from the Landsbanki sales that sovereign debt would still remain?
Bromley86
2 years ago
Sorry, my formatting didn’t work. The first paragraph after the thanks was supposed to be a quote.
Vilhjalm A.
2 years ago
“When, not if, the amount from the disposal of the assets falls short of the total Icesave loans, the residual loan remains as a state debt that is then paid as usual (i.e. taxation).”
No.
The article and news today says (or suggests) that there is no residual or leftover loan as an Icelandic stare debt, if Landsbanki assets are not enough.
“Fyrrgreindar heimildir fréttastofunnar herma ennfremur að algerlega sé út í hött að hægt yrði að ganga á eignir íslenska ríkisins hér á landi og inneignir, eins og hluta gjaldeyrisvaraforða sem ávaxtaður væri í Hollandi og Bretlandi. Þær eignir væru ekki aðfararhæfar”
If that’s the case, Iceland should sign today.
I’m just saying the agreement is a little strange. It’s like signing an agreement that says, “I will pay you back 100 euros with the money I get from selling my cat.” So what if you can only sell the cat for 50 euros? Or what if I sell the cat and get 90 euros, but it takes me 5 years – do I owe you 5.5% interest for each of those years out of my pocket, or out of the 90 euros?
Bromley86
2 years ago
Agreed, if that’s the case.
However, I can’t see that it would be. If it was then the government would be trumpeting the fact to calm people and the whole enforcement of the deposit guarantee business would have been nearly pointless. Certainly not worth blocking IMF loans etc.
The terms are now online:
http://newsfrettir.com/economy-a-finance/general/927-the-icesave-contract-published
It’s a bit long winded, but after the Termination Events are listed there’s the following:
“11.3 Consequences of a Termination Event
On and at any time after the occurance of a Termination Event, The Netherlands may, by notice to the Guarantee Fund with a copy to Iceland, decalre that all or part of the Loan {…} will be immediately due and payable”
What it does say elsewhere is that if the IMF says that Iceland is totally boned (as defined by the IMF) then the agreement can be renegotiated.
Vilhjalm A.
2 years ago
That’s just the Dutch agreement. The British agreement was apparently posted briefly but is not online any more, I can”t find it.
The Dutch agreement is harsh, it’s more or less a demand for payment, not a contract with a quid pro quo. Iceland must pay the 1.3 billion euros and follow the payment schedule, and if it doesn’t meet the schedule or does any of a variety of other things, Holland will have the right to take whatever it can of Icelandic government possessions.
Does the British agreement take the same line? Does it only allow Britain to grab Landsbanki assets in Britain? I don’t know. I would be interesting to see what happens if you have one tolerable agreement (the British) and one intolerable one (the Dutch one).
The Icelandic media are full of articles on the subject as you might expect, with lots of complaining, “it’s a money grab, we’re now officially debt slaves, no way will the agreement pass, the present government is finished with Samfylking to go in oppisition (leaving what?), Iceland is being forced to give up its sovereign immunity, etc etc”
Here’s an interesting blogpost, it lists a lot of the completely contradictory positions and demands that icelanders are making, eg ” we want a stable currency and loan reductions and no loss in social benefits, and no tax raises and maybe the EU, but no we don’t want foreigners owning our assets and no we don’t want an Icesave agreement or if we must have one, it should be determined by a neutral foreign court, and that decision should only be honored if it sides with Iceland”.
http://maggib.blog.is/blog/maggib/entry/899493/
Bromley86
2 years ago
I must admit I’ve not read through the UK one (too tedious to do twice
), but the Consequences of a Termination Event clause is pretty much the same.
Regarding assets, as far as I can see both allow the lenders to grab Icelandic state assets anywhere (i.e. not just Landsbanki ones).
i.e.
lceland irrevocably and unconditionally:
[...]
(b) undertakes to the Lender that [...] it shall, on demand, pay that amount as if it were the principal obligor
AND
17.2.3 This paragraph 17.2 is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts wlth jurisdiction.
To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.