Sunday, April 10, 2011

Icesave Deal Myths

The Icelandic people again rejected a deal on the Icesave issue in a referendum. This decision is supported by many usually sensible people, yet I am afraid that they have overlooked some important aspects.

First of all, it is not all that clear that it will benefit Iceland as this will cut Iceland off from some economic relations with the outside world until a settlement is reached. And once this is decided in the courts, the outcome might be worse for Iceland than this deal.

And secondly, it is not really true that this deal would have in the misleading depiction by some of this issue meant that "the Icelandic people would have bailed out bankers". After all, the shareholders in these banks have already (quite rightly so) seen the value of their shares wiped out. And while some of the responsible Icelandic banking executives have gotten away far too easily, this deal wouldn't have affected them in either a positive or negative way.

Nor is it even a case of the British and Dutch savers being bailed out, since they have in fact already been compensated by the British and Dutch governments.

So what is at issue here is which governments  (of Iceland, Britain and Holland) and thus by extension which taxpayers should take the hit. And since the banks were Icelandic and since the Icelandic government have bailed out Icelandic savers it is not unreasonable to demand that they should treat savers from foreign countries, especially fellow EEA countries given that Iceland by signing the EEA treaty pledged to treat other EEA citizens in the same way as Icelandic citizens.

If Iceland had refused to compensate Icelandic savers in the failed Icelandic banks, then there wouldn't have been a case against them, but now that they have there is a case for keeping their obligation to treat other EEA citizens equally.

Thus, while I am for punishing the responsible Icelandic bankers even more by doing more to retrieve more of the money they unjustly got away with (until enough has been taken back to pay the bill for compensating savers, they shouldn't be allowed to keep any assets for the rest of their lives), this is not the issue at stake here.

The issue is whether Iceland's government will take responsibility for its incompetent supervision of banks whose desposits they've chosen to guarantee and follow its obligation to treat all EEA citizens equally.