Yesterday the, largely ceremonial, president of Iceland stood up for what is right. He decided that it was not democratic for the Icelandic government to insist that the Icelandic people pay foreign depositors who deposited money in Icelandic banks that subsequently went bust.
The president refused to sign the parliament’s bill, which would have penalised the Icelandic people for the mistakes of the executives of the Icelandic banks. He concluded that this was not reasonable as the banking mess was not the fault of the average Icelander. Iceland will have a referendum on the issue now.
This move implies that Iceland might jeopardise its access to IMF funds as well as definitely knock back its aspirations to join the EU.
The official line peddled by the international bureaucrats is that standing up for the small guy undermines Iceland’s credibility. However, the president decided that if credibility in the eyes of the foreign investors comes via hoodwinking the average Icelandic citizen into footing the bill for a mistake the financial markets facilitated, then it was better to be not credible.
This type of credibility undermines democracy and the basic idea that the government represents the people. In so doing he has stood up for something which is now, sadly, profound and unusual in modern politics — he is championing the interests of the small man in a small democracy.
At the press conference, President Olafur Grimsson referred to a petition which raised signatures from thousands of ordinary citizens who were set against bailing out the banks at the people’s expense. The petitioners went on to argue that foreign depositors (mainly Dutch and British) took out deposits in Icelandic banks because the banks were offering interest rates that were much higher than in the UK or Holland. In economics the iron rule is, the higher the return offered, the higher the risk offered.
The Icelanders are simply saying that your investments have nothing to do with us and, therefore, the solution to the depositors’ dilemma is not the immediate concern of the average cod fisherman from the Westman Island or any other part of Iceland for that matter.
In a country where the president occupies a similar position to our own, this was only the second time a president has ever declined to sign a parliamentary bill.
The Icelandic story is a mirror image of Ireland’s. However, unlike the Irish case where the average person is being asked to pay the bondholders of the banks — the creditors who speculated on such gems as Anglo Irish Bank — the Icelanders are taking a different tack.
They have decided that the people — not the elites or the “insiders” — must decide. This country clearly is a proper democracy; not one run by politicians who are part of an insider group up to their teeth in property and who can’t see that they represent the people, not the elite.
In its most simple terms, Iceland is a country with a banking system attached. In contrast, Ireland is a banking system with a country attached to it.
In the past five years, the Icelandic banks behaved precisely like our own. They lent to anyone and anything but, in the main, they lent to their mates. When they ran out of Icelandic deposits, they borrowed abroad to finance their expansion. They issued debts and when they could no longer issue enough debt, they took in deposits.
When the system crashed, the foreign depositors and the bondholders got caught. You can rightly ask what in God’s name were English depositors doing putting their life savings into Icelandic banks that they had never heard of?
Now let us move to the ramifications of the Icelanders’ democratic stance. Officials are aghast. According to the men who run the Department of Finance here, if we were to do something similar and negotiate a deal with our foreign bank creditors, Ireland would be declared a pariah. They claim interest rates would rocket and the world would shun us.
If their view is right, interest rates in Iceland should have jumped yesterday on the news of a referendum. But they didn’t — Icelandic interest rates hardly budged from their present 7pc.
By the way, when I was in Reykjavik last May interest rates stood at 15pc. Yes, they are high, but interest rates in Iceland are coming down in line with inflation, as any basic economic textbook would predict.
More significantly, long-term interest rates, which gauge the long-term risk in a country, have also fallen to 7pc in Iceland.
This means investors believe there is no real extra risk in Iceland in the future. My guess is that Iceland’s credit rating will rise on this news, not fall.
The reason for this counterintuitive stance is the same reason John Maynard Keynes argued against reparations being imposed on Germany after the First World War. Keynes argued that if you impose the debts of a past regime on a new regime, the economy and politics will suffer.
In a similar vein, the Icelandic president has decided that it is unfair to lumber the average citizen with the sins of Iceland’s financial generals. The specific case in Iceland involves one bust bank, but has ramifications for the whole country. Foreign depositors are owed €3.8bn by Icebank.
The EU stipulated that the average Icelandic citizen should pay €12,000 each to cover this. The EU and the IMF said further aid to Iceland is dependent on this deal. This president has stated that if the price of this EU and IMF help is penalising the citizen, then it is a price so high that it must be passed by referendum. In short, the outsiders (the citizens) should not be forced to bail out the insiders (the banks).
In their president, the outsiders in Iceland have a champion. Who champions the outsiders in Ireland? Who in our political class shouts stop, enough is enough? Who is prepared to say there is a difference between right and wrong?
Finally, who has the courage to point out that, in financial terms, far from being penalised, Iceland is being rewarded by gradually falling interest rates.
In Ireland we can’t tell the difference between right and wrong, and worse still, we are not even getting the supposed financial bonanza for being “good boys” and siding with the international bankers. We are still paying nearly twice as much as Germany to borrow money.
Iceland is showing our politicians another way. These are not easy decisions — and it would have been much better if the country had never got into this mess — but at least they are dealing with it. Similarly, it would have been better if we never got into this mess too, but here we are.
Iceland proves that there is an alternative — are any of our politicians, from the President down, prepared to listen?
Free Minded People — To the West and feel the Atlantic Ocean clear your head .I have said before that our Spiritual Sanctuary is in the West where the mind feels free and human spirit rises above all else before you. Iceland and Ireland are both Atlantean and so are the people and we in Ireland are not continental as we might think we are and Dublin is not a place of peace and tranquillity. Our cousins in Iceland came from the West before they became Icelanders and they brought with them their own mindset of independence and radical ideas… Read more »
Good day for democracy, but let’s wait for the referendum!
David, fantastic article!
I hope McAleese reads it and weeps. Shame on her for signing into law the NAMA bill.
The lines, “In its most simple terms, Iceland is a country with a banking system attached. In contrast, Ireland is a banking system with a country attached to it.” is the best analysis so far of where we are.
Seeing as Sean F hasn’t been questioned , it is safe to conclude nobody will be doing time for the various financial trickery we are going to pay dearly for.Lenihan is lapping up sympathy from all quarters, you would think he was the first person to be diagnosed with cancer.Yet another example of how spineless the Irish electorate are.Lenihan is useless, lacks financial acumen and practises a continuauation of the same failed policies that have been no better than when Ireland was part of the UK.Fat chance of Ireland follwing Iceland, they don’t export their people, that is the difference!.
David: There is an inconsistency in your logic here. You say: “In economics the iron rule is, the higher the return offered, the higher the risk offered.” Hang on a sec. Even in Las vegas, the house guarantees to pay out on high risk wagers. The Iceland banks by contrast had established a ponzi scheme whereby there was no way that the house could ever repay their debts. It is not simply a case where the poor little guy stands to lose out if the banks fail; the entire country had been making whoopee throughout the previous decade, so they… Read more »
Tremendous move in Iceland, I am already looking into a trip there, I want to spend my euros in a place that needs it, I want to meet these people and say I stand with you, I hope to get there next month or March, will report back. Prior to the Icelandic President’s decision however, a quarter of the population signed a petition requesting him not to sign off on the €5 billion for the UK and the Dutch. The UK disgraced itself, bullying Iceland from the outset and threatening the country with anti-terrorism legislation, woud the UK go all… Read more »
David McWm – with all due respect Ireland has an economy; Iceland doesn’t – thats the difference between the R and the C………..
I’ve got a feeling that this is the start of something big – asking a citizen to shoulder responsibility without benefit or privilege is something akin to slavery. Having read Shane Ross’ “Bankers” it’s obvious that we’re been treated as such.
Sons of Leases
We will own nothing after NAMA is enacted into law and all of us will become Mac nA Leases
The article is a contradiction and insult to the taxpayers in the UK and Holland who could ultimately be stuck with the tab. Mr McWilliams paints the picture of the small country standing up for the average citizen against the big bad investor world when in fact; they are blatantly refusing to support savings of foreigners while protecting the savings of Icelandic citizens. Would Mr McWilliams condone such actions by a foreign government if a foreign bank got into a similar situation in Ireland? Does Mr McWilliams really support such a precedent where foreigners treated like second class savers and… Read more »
FAO Philip Wills Colin et all. I did post a pragmatic pro NAMA piece on ImPerial Spain – which I fear may be lost now we have the Cod War to contend with
I’m disappointed to read you jumping on this bandwagon, David. I had hoped this sort of populist argument was beneath you. First a few facts: “This means investors believe there is no real extra risk in Iceland in the future. My guess is that Iceland’s credit rating will rise on this news, not fall” Sorry, you’ve called this badly wrong. They were downgraded last night (odd that you hadn’t read the news wires this morning before posting this??) See: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6940907/SandP-downgrades-Iceland-over-failure-to-repay-Icesave-losses.html “If their view is right, interest rates in Iceland should have jumped yesterday on the news of a referendum. But… Read more »
I wrote to the Irish President on the 11.12.2009 See below Dear Madam President, The Nama Bill was passed in the Dail this afternoon by 81 votes to 62. This is the single biggest fraud perpetrated on the |Irish people and all 81 TD’s that Voted for this will be held accountable! Nama will buy property loans with a supposed book value of 77 billion Euros, according to the Government Brian Lenihan has estimated that the loans are currently worth about €47 billion. On what bases could he possible justify this valuation? Who exactly is being bailed out, none other… Read more »
Seaninog – Logic is not infallible and a Nation is above such mindset that you expouse.If you are not on top of the world then you are at the bottom.Our Country deserves a better chance .How dare you.
Exactly seaninog , I believe we have a choice which is more than you can explain.Bring in the music and let it play and dance around the fire .
Posters – Original ed says at 5, this, “why should i be punished for exercising good judgement”. BINGO. THis is what D’s article is about. And nobody on gods earth can make another person who is innocent pay for something that is absolutely NOTHING to do with them in anyway…. ….and it is precisely this point that is the point. NAMA make people who had absolutely nothing to do with the banks and property speculators scam pay for there greed and speed boats. This state of affairs is tyranny imposing itself on the outsiders. The iceland president is saying NO… Read more »
David, Thank you for getting the ball rolling on this issue. I believe very strongly that the issue of NAMA should be the subject of a national referendum. It is astonishing to realise that there are people posting here and others reading who believe that NAMA is the only show in town and is the “least worst” (antonym for “most best”, I presume?) option — new Hibernian grammar? The only way I can see for NAMA to “succeed” is for the world to experience a period of global hyperinflation as in the 70s and early 80s when double-digit mortgage interest… Read more »
wills – well spoken . Does that include soccer handball too as in thyierrny ?
David –
Bravo. Brave. BAllsy.
NAMA referendum NOW.
Will not happen though will it.
Cos NO will be the answer.
And the insiders convince themselves that the simpleton outsiders will vote NO cos they re simpletons and dont understand so it will be done too them without their democratic consent which means NAMA is criminal and proves we all live in a tyranny cloaked as a democracy.
[…] http://www.davidmcwilliams.ie/2010/01/06/iceland-shows-importance-of-putting-people-before-banks […]
Colin In Exile, that must be a Kilkenny hybrid of tennis. old habits die hard round them parts.
Ruairi – your opinion is non inclusive of reality .Outsiders may have benefited in their ordinary day to day normal choices but they did not conceive the ‘malicious intent – Ebola ‘ or acted knowingly that resulted is a fatal virus that is upon us now .Henious crimes by Bankers have poisoned our nation for the rest of our lives unless you believe in yourself and want to be above that and STOP NAMA.
When you come to think about it Cowen / Lenihan / Mc Aleece all three are lawyers with that same narrow mindset that only digs deeper and deeper where the rules of court dallyance is only practiced and the NEEDS of the people are ignored or unqualified to understand – Bring in The Clowns they should know better .
Iceland shows importance of putting people before banks. Interesting headline. Didn’t one of the main Irish political parties say that they were about putting people before politics, and politics before profit. It is a pity a party like that with such noble aspirations never got into control. Oh hold, the party that promised this did get into power, and showed us that this mantra-like all the others was a load of pretensious empty baloney. Ireland – shows the importance of putting banks before people. Or maybe Ireland shows the importance of putting insiders before the common good. Or Ireland shows… Read more »
@PhilRussi I’ve got shares in Irish Banks and an interest in commercial property, but I know when the game is up, it’s up – they’re no point continuing dig in the same hole – the chances of the Banks returning to anywhere near their highs is zero, they’ll be lucky to survive and the same goes for property. To get both of these back on their feet, we would need to start making things for export, but we’ve depressed that one through over promoting the former two. We’ve now missed the boat and it’s only downhill from here. You sneered… Read more »
I have just listened to Icelander Gunnarson on the George Hook programme and realized that DMcW hasn’t got the story quite straight. David said: ” In a similar vein, the Icelandic president has decided that it is unfair to lumber the average citizen with the sins of Iceland’s financial generals. The specific case in Iceland involves one bust bank, but has ramifications for the whole country. Foreign depositors are owed €3.8bn by Icebank. The EU stipulated that the average Icelandic citizen should pay €12,000 each to cover this. The EU and the IMF said further aid to Iceland is dependent… Read more »
So basically as a result of the opinions of the fools in the Department of Finance, Ireland must not become a pariah. It is this policy that keeps Ireland a farce. Look, with respect to economically insolvent states – they eventually collapse. If the thing is postponed continually it always much worse. The purpose of a collapse of the banking system is to rid Ireland of the institutional irresponsibility that exists in Corporate Ireland. Contrary to the given opinion of the corporate bosses of Ireland, allowing rich people go bankrupt does not bankrupt a country. Bailing them out with taxpayers… Read more »
Have a look at this:
“Newspaper reporter” is 184th best job in the country, between seaman and stevedore http://bit.ly/6nSHM1
“Teacher” is No.116.
I would put it at No. 1, if they would only let us get-on with it and the resources needed to do it.
After all, the check-out girl at Tesco does not have to shake a bucket out on the street to raise the money to pay for her till.
Can’t be much of a crisis if the pay of senior civil servants will remain untouched (cleaners and the low paid taking the hit – socialism of risk/debt, privatisation of profit). Can’t be much of a crisis if the Taoiseach is making over 200k a year. Can’t be much of a crisis if the Heads of the semi-state companies are making in excess of 300-400k. Can’t be much of a crisis if Prof. Drumm is awarded €80,000 performance bonus on top of €400k salary. Can’t be much of a crisis if the President of UCC (a parochial, mid-size university) continues… Read more »
Folks, remember “that scene” in “When Harry met Sally”?
Remember “that scene” in “Jerry Maguire”?
Well, put them together and you get this:
http://drezner.foreignpolicy.com/posts/2010/01/05/oh_iceland_you_had_me_at_referendum
(Enjoy!)
Prior to the credit crunch, I would have being annoyed if I had put money into a deposit account and lost it. I’d have being very happy to get 7-10% or whatever IceSave paid. I would never have seen the catch.
Many of UK councils invested money in IceSave. Surely the UK financial regulator has to take a major share of the blame. They allowed IceSave.
Good on the Icelandic president for listening to his people and giving them the opportunity to vote on it. I hope they reject entry into the EU as well.
Icelandic people have and are protesting about their situation . Irish people are just complaining on blogs . There is something very weird about Irish people . Two things have happened recently that has really highlighted this for me . The first is the reversal of pay cuts for top civil servants . A muted resonse from the media at best . The second is the absolute media spin from FF over Brian Lenihans cancer resulting in a completly over the top out pouring of sympathy and complete backing and support for Minister Lenihan . The media was full of… Read more »
A fantastic article. When are we as citizens finally going to demand a referendum on NAMA
I’ve dealt with Robinson and MacAleese: both intelligent and kind women. An Irish president is not in a position to decline to sign a bill unless she has legal advice that it may be unconstitutional. If she does have that advice then her duty is to refer to the supreme court. The president of Iceland seems to have flown off the handle, and I’m glad he did so. But I wonder if it was a measured response. The referendum option is a bit raw or manipulable, compared to a reference to the highest court. I’ve also dealt with Lenihan. Personable,… Read more »
Seems some states do like the idea of bailing out more than just their banks..
http://www.ft.com/cms/s/0/b7600162-fac2-11de-a532-00144feab49a.html
“Kuwait’s government vowed to oppose a move by the parliament to force it to buy all $23.3bn of consumer loans in the country, write off the interest and reschedule the payments.”
NAMA staff are to receive NO PAY CUT:
http://www.irishexaminer.com/ireland/kfauidqleyey/rss2/
Not that regular posters here would be surprised by this.
A bit of new blood to your discussions which I hope you will all welcome, whether you agree or disagree. How is it that a small country like Ireland with a ‘very’ small financial, policital and journalistic elite, how is it that they can have such a control over almost a 4 million population, especially a popultaion that has come back home to their native land over the past 10 years with their own fully qualified expertise and international experiences and lay down and roll over with the NAMA concept, whereas Iceland a country of 330,000 approx people (that by… Read more »
The Icelanders are being, assume that they vote for it, deeply rational. The options are these: 1. Take on a debt equivalent to 50% of GDP, and then take on a lot more debt from the IMF. 2. Don’t take on this UK/Dutch debt, and be forced to wait for someone to lend. The financial services world is very forgiving. When the Russians were considering default, in the 90s, they were warned that western banks wouldn’t come back and lend for a generation. They defaulted. The banks were back the next year. This isn’t about economics, or the financial health… Read more »
Hi guys have been reading Davids taughts over the last number of years and he has been nearly spot on with everything that he writes i have been talking to alot of friends around the country and they are all say why are people not out on the streets protesting to change the government well my opion on this is quite simple. firstly the majority of people in the country are exactly were the government wants them streched to the last to pay the bills worried about there jobs stressed about how they will keep the homes so they dont… Read more »
The reason why we don’t have any politicians who stand up for us is because we don’t deserve any as a nation. We elected, as a whole FF into power. FG are no better, Labour are a little better but still spineless. Greens live in lala land, Sinn Fein are living 100 years in the past still believing Marxism works. The only ones that are worth a damn are Libertas and look what happened to them. They were they only ones who told the truth about the Lisbon treaty, even when the opposition said they were lying. I remember Eamon… Read more »
Wobble on Ice – texting is considered more dangerous walking on ice than driving a car and this has been learned from bumps recently experienced by many on the east coast in particular.People would rather forfeit their texting while walking because it is too dangerous.
Have been playing around with Google Sidewiki; a browser sidebar that lets you contribute and read information alongside any web page. You need to have a Google account and Google toolbar (of Firefox Sidewiki addon) installed to post comments but once you have you can comment on any webpage and these comments can be viewed by those with the Google Toolbar installed. Its use is still low-key but growing – might be a nice place to put the ‘5s list’ when ready as people can vote ‘useful’ on comments – i’ve already added the first comment to the DoF homepage,… Read more »
Cranium Solstice ( de-iced) – I am not expecting any ‘revelations ‘ until the 15th-16th Jan and expect a good one then -maybe a corporate law enforcement action against a banker – in the meantime while we are still in a moon wobble especially peaking on monday we could have a ‘black monday’ if not the 18th .That is pretty much all this month until last week of Jan.
It was an obvious target, but this is a great article. Will McAleese grow a pair? I think I’m close to the “depression” stage in the Kübler-Ross grief cycle so I’m not too hopeful…
…………….And this is Orlovs 5 Stages of Collapse.
http://www.energybulletin.net/node/47157
Nothing like Iceland will ever happen here with that shower at the wheel.
Seriously, can you imagine anyone of that significance who would stand up and say “enough is enoug”. It should be coming from the Green Party but it seems the price of their power is silence.
Nice cracking debate on the site this last day. Seems the ProNamaItes are coming out in force. Was chatting to my friend in Warsaw yesterday. Their nightime temperatures are -20C and below. Business as usual. We have a piddling -5C in parts of Dublin today – about the lowest so far – and the country has been locked up for the last 2 weeks and Dempsey is on holidays. The Poles have their act together and have a level of self assuredness we can only dream about. They are in for the long haul – and do not underestimate their… Read more »
hI all,
as stated above i have set up a new blog to create an avenue for new political and economic thinking within the country i have put up a new post so would really apriciate any and all input and views please feel free to have a look and get involved
http://newirish.blogspot.com/2010/01/politics-in-new-ireland.html
i look forward to the any input good or bad
Enough is enough. The country is ungoverned. Nobody’s in charge. We are serfs to the ruling cabal. The system is broken and the opposition is a joke. It’s time to stop talking & start taking action. Time for a new party. A citizens party for a new republic. David, you’re the leader of a massive tribe. Form a new party and you’ll have legions of supporters.
Question
Should David McW be entitled to artist exemption from tax on his new book?