Debts In Iceland, And Global Finance

By Author: PAOLO BRERA
Total Articles: 62
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Hardly Great Britain and the Netherlands will send their gunboats in Reykjavik before 6 March, the date on which the Icelanders will be required to vote in a referendum whether or not to pay its debts, with almost certain outcome. Then, no one knows. But the case will in any way secure Icelandic reflections on the state of international finance.
In the new millennium, Iceland has experienced a boom fueled entirely by its financial sector. A liberal government has blindly thrown to the winds all forms of regulation and allowed the banks of a small country (306,694 inhabitants in July 2009) to jump to the conquest of international markets, by borrowing short to invest long term and innovative financial instruments, like junk bonds, so to speak. In the European Economic Area, the Icelandic banks could operate freely, provided that the Government offered a guarantee of deposits. The bubble has burst in 2009, when the major banks were nationalized and Landesbank, the Number One, has made default. The branch Internet, Icesave, in particular, was carrying with it the savings of thousands of British and Dutch. The governments ...
... of both countries have intervened then, compensate fully their nationals involved in the crash and then requesting their money back in Reykjavik, on the basis of the assurances that this would have to pay and had in fact paid to residents of Iceland. An agreement to this effect was signed on two occasions. But faced with the request to dismiss it signed by 60,000 voters, the Icelandic president was required to hold a referendum - just what will take place on 6 March. 62% of voters want the treaty is not ratified. Since the indiction of the referendum have multiplied the pressure on Iceland. The IMF, which was agreeing to pay the second tranche of funding of 2.1 billion dollars, have discontinued the process pending the vote. A wheel, also Sweden has blocked part of the loan of 2.5 billion agreed by Scandinavia: Prime Minister Fredrik Reinfeldt said that the provision will follow the payment by the IMF, adding that he expects that Iceland honor its commitments to Great Britain and the Netherlands. London for its part, has threatened to block the process of accession to the European Union Icelandic, which would allow the country to tackle more easily the difficult years that are ahead.
The Icelandic government's position is that the rules on the European Economic Area do not take into account the situations of systemic risk, and therefore should not be applied to this case. The government also maintains that even the regulators are to blame British and Dutch. As for the man and woman of the street, their reluctance to charge a crushing burden for trouble combined with a small number of bankers casual one can understand very well: to pay out more than 16,000 francs per inhabitant, man woman or child. In practice, a doubling of public debt in Iceland. Who believes that the Icelanders have to pay points out that the population has enjoyed rapid economic growth thanks to the lack of regulation, and that freedom to attract savings from other countries must be accompanied by adequate safeguards. If somehow Iceland recognize its responsibility and the consequences will be especially for its residents, who must resign himself to a decade to pull the belt. If at the end of the Icelanders will not pay, however, the entire system of international finance will receive a blow. Not only the island would be marginalized by the global financial system, but would be likely to jam it to the crisis of confidence that followed. The restoration of operating conditions could be acceptable only within economic blocs in which the necessary adjustment would be uniform down to the details. Who offers an amnesty does not take into account that Iceland is not the Lesotho: The country is among the richest in the world. But the subject really matters most is that there are countries much larger, starting with the United States, which could seize the ball to prevent themselves to cover any possible collapse of their financial institutions abroad - which would mean the end the financial system. A chilling prospect.
Paolo Brera
Photo: Reykjavik