Iceland Rejects IceSave; Does No Mean No?

Those looking for good news can find it in Iceland. However, good news for Iceland is bad news for the UK and the Netherlands.

Please consider Iceland Rejects Icesave Bill in Referendum, Early Results Show

Icelanders overwhelmingly rejected a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank, first results show.

Ninety-three percent voted against the so-called Icesave bill, according to preliminary results on national broadcaster RUV. Final results may be published tomorrow morning.

The bill would have obliged the island to take on $5.3 billion, or 45 percent of last year’s economic output, in loans from the U.K. and the Netherlands to compensate the two countries for depositor losses stemming from the collapse of Landsbanki Islands hf more than a year ago.

“Ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview yesterday.

Failure to reach an agreement on the bill has left Iceland’s International Monetary Fund-led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached.

‘Obsolete’

Political leaders have already moved on and are trying to negotiate a new deal with the U.K. and the Dutch, making the bill in today’s vote “obsolete,” Prime Minister Johanna Sigurdardottir said on March 4.

Icelanders used the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island’s financial system to create a debt burden more than 10 times the size of the economy.

The nation’s three biggest banks, which were placed under state control in October 2008, had enjoyed a decade of market freedoms following the government’s privatizations through the end of the 1990s and the beginning of this decade.

Protesters have gathered every week, with regular numbers swelling to about 2,000, according to police estimates. The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled.

Icelanders have thrown red paint over house facades and cars of key employees at the failed banks, Kaupthing Bank hf, Landsbanki and Glitnir Bank hf, to vent their anger. The government has appointed a special commission to investigate financial malpractice and has identified more than 20 cases that will result in prosecution.

Prime Minister Johanna Sigurdardottir Is Obsolete

Notice how Prime Minister Johanna Sigurdardottir calls the will of 93% of Icelandic citizens "obsolete". The reality is she will soon be obsolete and voted out of office. Such arrogance is not tolerated anywhere.

Perhaps the best thing to do is default and suffer the consequences. Even if it is not the best thing to do, that is what 93% of Icelandic voters want to do, so that is what Iceland should do.

Fitch downgraded Iceland's debt to Junk. Moody's and the S&P threatened to do so. Note how pathetic Moody's and the S&P are in threatening (not doing), even after the fact. Does anyone give a rat's ass about that downgrade now?

Iceland does not need help from the IMF when it will saddle every citizen with $16,400 of debt. Fools in the UK and Netherlands rushed in to Icelandic banks and the fools in the UK and Netherlands are the ones who should suffer the consequences.

It was perfectly obvious Iceland was in an unsustainable situation so the prudent thing to do would be to get the hell out of the way.

By defaulting on debt, Iceland will send a much needed message "Don't do stupid things".

Note the stupidity of debt downgrades now. By defaulting on debt, Iceland will be better prepared and able to pay off any new debt, much more so than if it was saddled with IMF loans with a noose attached to the necks of every Icelandic citizen.

The sensible thing to do would have been to downgrade that particular debt in advance, and raise the debt rating on Iceland for everything coming up. Moody's and the S&P have it backwards.

Does No Mean No?

Inquiring minds just may be asking "Does No Really Mean No?" It's a good question too. Some hints can be found in Iceland PM plans to stay on after Icesave vote.

Iceland's prime minister vowed on Friday to stay in office even if her government loses a weekend referendum over foreign debts, citing progress in efforts to reach a new deal with creditors.

Prime Minister Johanna Sigurdardottir said talks on a new accord over repayment for $5 billion (3.3 billion pounds) in "Icesave" debts to Britain and the Netherlands, key to unblocking vital aid to the North Atlantic island state, had made "considerable" progress.

"It is a great misunderstanding that this referendum is about the life of this government. We have no intention of resigning," Sigurdardottir said on Friday.

Britain and the Netherlands have already offered easier terms, so there is no reason for voters to back the old deal.

"It's of utmost importance that we don't over-interpret whatever message comes out of this. We want to be perfectly clear that a "no" vote does not mean we are refusing to pay," Finance Minister Steingrimur Sigfusson told reporters.

"We will honour our obligations. To maintain anything else is highly dangerous for the economy of this country."

I would suggest that overriding the will of 93% of the population is under-interpreting the message. But hey, to politicians everywhere, no does not mean no, it means whatever the politician wants it to mean.

What's highly dangerous is the attitude that the wishes of 93% of the people is irrelevant.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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