Demand for £8m council cash save Iceland’s economy

A key date for residents and ratepayers who live in Daventry District is Thursday July 16 2009.On this day Council Leader, Chris Miller, will be attending a scheduled Local Government Association meeting in his capacity as an Executive Member.

One item scheduled for discussion on the busy agenda is the Icelandic Banking disaster of 2008.

Most Daventry taxpayers will be acutely aware Chris Miller and his orchestra were in charge when the Icelandic banks crashed and Daventry, along with over one hundred other local authorities discovered they could no longer access their deposits in several Icelandic banks. You can read more about this fiasco in earlier articles we published.

On apportioning blame for any investment errors a Parliamentary select committee the CLG, concluded Local Governments were badly advised by external treasury management advisers.

The UK government has already paid out £2.35 billion to compensate savers with the failed Landsbanki Bank, which operated the online savings bank, Icesave.

Over 100 Local Authorities who invested £900 million have been denied compensation by the UK government and must wait for the liquidators to realize cash from the sale of remaining assets. Daventry District Council is owed £8 million.

A deal struck earlier this month (June 2009) allows the Icelandic financial services compensation scheme to sell Landsbanki’s assets (frozen in the London based bank since October 2008) and pay the proceeds to the UK and Dutch governments.

The terms of the Icelandic deal are such that the interest on the loan will not be paid from the sale of the assets – that will entirely have to be paid by the Icelandic public.

Whilst this arrangement in principal may seem like a good deal for Icelandic taxpayers, questions are being asked: “Should they (Icelanders) be shouldering this liability in the first place?” How are they responsible for debts incurred by a bank located in Britain, whose loan book mainly comprises of British assets?

So why are some people getting their money back and not others?

This is quite a complicated and the best way to explain it is by quoting directly from Icelandic blogger and journalist Alda Sigmunds. If you want to follow events in Iceland then sign up for her excellent and very interesting blog at: http://icelandweatherreport.com/

Alda said: “The problem was that Icesave was not a British bank but an Icelandic branch of Landsbanki, and as such is subject to Icelandic laws and regulations. The other Icelandic banks in the UK – Heritable, Kaupthing Singer & Friedlander – were subsidiaries and as such are subject to British laws. Therefore we are not responsible for covering their debts. Icesave, on the other hand, we are technically responsible for because it was a branch. When the bank collapsed, the Icelandic state guaranteed the deposits of all Icelanders 100%. The argument is that since there were British savers in the same bank (just another branch, which happened to be in the UK) they should also be compensated like the Icelanders – there should not be discrimination on the basis of nationality. UK authorities pressured Landsbanki strongly to move Icesave into a subsidiary – that would have averted this whole mess. However, this wasn’t done.”

Alda went on to say it is an opinion in Iceland that it is questionable whether the Icelandic people should pay the debts of private individuals but with Icesave, it rests a lot on this equality directive in the EEA (European Economic Area law.

The fact remains  Iceland is a tiny country with a population less than that of Coventry (308,000)

The important question to be asked by Chris Miller at his meeting with the LGA on the 16 July is:

Are we morally justified to be saddling Iceland with these massive loans, bearing in mind they have not personally benefited at all from the debt incurred in their name by a very small number of individuals – here in London?

In fact, can it be argued we are the beneficiaries of the Icelandic bank debt since most of the money was spent acquiring assets in the UK? The retail shops and businesses bought with the loans from Landsbanki’s Icesave, employ British workers and pay our taxes.

Since nothing is going to be repaid apart from interest for the next 7 years, possibly after at least one, or even two parliamentary elections, it seems likely the remainder of the debts could eventually be renegotiated.

So the question begs since the debts may for all intensive purposes get written off over 15 years or so, then why not remove this Icelandic burden now. We have already paid out the depositors and morally the government should repay local council debts and continue to recover the monies from assets already in UK banks – without future recourse to Iceland.

Let’s be clear the Icelandic government is behaving in a very honourable way and despite the fact they have had no control over banks operating under British jurisdiction complying with UK banking regulations, they have demonstrated their willingness to accept these onerous liabilities incurred in their country’s name.

It could even be argued that had the Icesave bank been in Madrid and not in London, or another country with superior banking regulation, then Iceland’s taxpayers would not have been so exposed.

However, because of these debts Icelandic citizens face decades of higher taxes and high interest rates hobbling their economy. If they eventually decide to apply for membership of the EU and the Euro, their chances of meeting the conditions will be worsened by the debts. It is not inconceivable this will   lead to political unrest and changes in Icelandic government, the nation becoming hostile toward the people who helped put them into this situation (us) at a time when we need all the friends in Europe we can get.

I will hazard a guess that no one in Britain dislikes the Icelandic people.

Name me one city in Europe of equal size in terms of population as Iceland, which has an equivalent number of scientists, poets, writers and international footballers amongst their general population?

Iceland is a decent neighbour who deserves our consideration and any assistance we can offer. Although Daventry is on the list of those owed money from the bank fiasco, I truly believe we should demonstrate our solidarity by appealing to our own government – through the offices of the Local Government Association – to abandon plans committing Iceland to years of debt

Daventry District Council should distance itself from the agreements made between Britain and Iceland and offer our help to the Icelandic people by campaigning for this repayment scheme to be scrapped.

Councillor Miller now has a real opportunity to make not just a difference in Daventry, but on a European stage. He will win new friends for our town by helping the Icelandic people through a difficult time when others want to cause them yet more grief.

By freeing Iceland’s taxpayers from an onerous liability set to shadow their economy for decades, we will help relations for their future in Europe. If you are asking why our government should take responsibility for the debt – then consider why the European Central Bank is busy bailing out failing governments all around Europe – surely, the same argument applies.

Iceland is trying hard to find any wrongdoers who may have benefited unjustly from the bank crisis and seem to be doing their level best. I say lets give them help and start to rebuild their economy – which will help us too in the long term.