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Reinfeldt: 'Iceland must honour its commitments'

AFP/The Local · 9 Mar 2010, 09:02

Published: 09 Mar 2010 09:02 GMT+01:00

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"For us it has been important, and I think it will be for all parties, that (Iceland) does in fact honour its international commitments," Reinfeldt told the TT news agency on Monday.

Iceland's Nordic neighbours Denmark, Sweden, Finland and Norway agreed last year to €1.8 billion euros ($2.5 billion) in loans to the North Atlantic island nation to help it emerge from its deep economic crisis.

The loans were meant to bolster a promised $2.1 billion (€1.5 billion) bailout from the International Monetary Fund (IMF).

So far, Iceland has pocketed about one fifth of the Nordic loans and half of the IMF money, but the remaining payments have been delayed as Reykjavik attempts to reach a compensation deal with Britain and the Netherlands over the collapse of the online Icesave bank in October 2008.

In a referendum on Saturday, more than 93 percent of Icelandic voters rejected a deal to repay Britain and the Netherlands €3.9 billion ($5.3 billion) to compensate for money they paid to 340,000 of their citizens hit by Icesave.

Iceland's left-wing government has expressed its commitment to negotiate a new, more advantageous deal soon.

Reinfeldt said he understood Icelanders' frustration at being burdened with paying for the failures of a private bank and said the financial crisis had exposed weaknesses in the global financial system.

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"We cannot have a situation where financial actors put any profits into their pockets while poor growth and large debts are sent to the taxpayers. And that is of course what went wrong on Iceland."

Reinfeldt insisted nonetheless that "Iceland (must) honour its international commitments."

AFP/The Local (news@thelocal.se)

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Your comments about this article

12:09 March 9, 2010 by redcrown
dont believe Icelanders tax payers should have to payback debt for private enterpriseThe statment I often hear about banks,to big to fail??most have and are still run by the same idiots and still paying themselver huge bonuses where are the regulators still a sleep at the wheel
12:20 March 9, 2010 by sweco1
Icelandic people did the correct action no payment to Britian. But I think they should possible honor the debt to Holland.

The British government froze the investment funds of Ice save in Britian making the crisis worse to solve for the Icelandic companies.

I think this crisis wasa set-up to bring down the Icelandic banks that were starting to cause competive problems for US & British Banks that are controlled by a specific group!
12:36 March 9, 2010 by Audrian
The financial crisis we witnessed is a story of banks gambling with public money and loosing it. It is a criminal case. What Iceland should do is the legal thing: Round the bankers and the buraucrates and send them to the world court for criminal persecution. I think the Swedish Prime Minister is abusing his power by putting pressure on the victims of fraud.
12:42 March 9, 2010 by Nemesis
I have a feeling that the mess over the Icelandic banks is just starting, not finishing.

A question does spring to mind due to all the money from all the charities that Icesave targetted disappearing.

Where has all the money that the Icelandic banks invested from the UK, Netherlands, Germany, Norway, Finland and from investors in quite a few other countries?

If so much money has disappeared, why has no one been charged with fraud and brought before a court on criminal charges?

Actually why hasn´t the mobs on Icelandic streets tore them to shreds, if they are so angry about all this?

If the protesters are so against the people who caused this, why are they not screaming at everyone and anyone, except in passing to round up everyone responsible? It is barely mentioned, except as a foot note.

Why is there no international arrest warrants out for the people responsible?

Strange that the no campaigners are not attacking the people responsible, directly.

The types of charities targetted by Icesave and other Icelandic banks before collapse are interesting to take note of. Do some research into the names of the charities and look them up. Most of them seem to help the most vulnerable groups in society.

So far at least 40 billion Euro and most likely a lot more, is supposed to have went down the drain.

Which drain has all that money went down and where is it now?

Why are none of the investments that are supposed to have been made with this money been publicly shown and transferred in ownership to creditors.

I have looked at the Icelandic banking crisis.

It does not compute.

It looks ot me that people on all sides of this debate and problem, are keeping back as much as they can.

I wonder how big of a can of worms are they afraid to open?
13:05 March 9, 2010 by Scepticion
A lot of this was actually triggered by the housing market collapsing in the USA and England. Bad mortgages were packed into new packets and sold of to other banks as prime investments, these used this as collateral for money from others banks etc. It seems to have been an incomprehensible network of connections. Once one stone started to fall, others followed quickly, i.e. Lehman Brothers etc. Without huge government bail-outs in USA, UK and other countries, many banks would have defaulted and the monetary systems might have collapsed completely. While the USA and UK were big enough to just manage to stem the tide, tiny Iceland couldn't, so the UK/Netherlands initially stepped in to protect their citizens from loss. Now they want to money back, but I totally agree it's not the citizens that should shoulder the burden alone.

Bankers should be held more responsible. Alas, at present everything they gambled away is essentially legal. But really, one should sue their pants off.

Even now, many still don't seem to have any moral concerns when it relates to bonuses. Nobody comes after them if they loose money.

They can gamble with other people's money. They think they are entitled to a huge bonus, if they can take 500 Million, make some deal that gives them a profit of 50 Million, so they think they earned their bonus. However, they have no penalty if they loose 50 Million. Perhaps some will loose their job, but it seems most fall on their feet - I haven't seen yet any statistics of huge numbers of unemployed investment bankers. Even if they are unemployed, many probably could live happily on what they have already.
13:19 March 9, 2010 by rba
Iceland should NOT pay one cent. The banking system collapsed, including the institution which insured deposits. Beyond that Iceland doesn't have any responsibility to pay IMO.
14:09 March 9, 2010 by foxpur
I can see it coming:

The political powers of Iceland have been discovered to have thousands of new shoes hidden....
14:29 March 9, 2010 by Frobobbles
It would be easier for Iceland to honor the debt to Sweden if they did NOT have to pay England for an irresponsible bank.
14:50 March 9, 2010 by t-br
@rba @redcrown,

Iceland had a guarantee in place, so savers were confident enough to "send" money to Iceland.

A guarantee agreed upon by the Icelandic government.

So why should the Dutch and British taxpayer pay for the Icelandic failure?

2 parties can pay (the Icelandic taxpayer vs. the Dutch/British taxpayer). And I know, Iceland is financial distress. But being a reliable and honest country is rather important when they want to join the EU.

Of course, 3,9 billion € is a lot (especially for Iceland). But this should not become the problem of the British and Dutch taxpayer. I know that the Dutch government paid an advance to the Dutch savers, and the government in it turn is trying to get this back from Iceland. Probably the same situation in the UK.

I feel for the people in Iceland, but the EU is not in place to bail out countries that are unstable and under poor financial governance (Iceland/Greece). It's not a philantropical organ.
15:19 March 9, 2010 by rba
> Iceland had a guarantee in place, so savers were confident enough to "send" money to Iceland.

Where can I read about this guarantee? Did it specifically state that the Icelandic government was responsible for a failure of the bank insurance fund, even for deposits made in bank branches outside Iceland?

> So why should the Dutch and British taxpayer pay for the Icelandic failure?

They didn't have to. They paid because they wanted to compensate savers and prevent trouble in their own banking systems.
15:38 March 9, 2010 by Beavis
Iceland shouldnt bother with the EU. They should show 2 fingers to the UK/Sweden/Holland/Wherever else they want money. If they do join the EU, what will they get out of it? Any spare cash is already going to be thrown at Greece then Spain,Ireland and Portugal. They should look at strengthening their EEA status along with Norway instead. That way they can try to have the same trade agreements as the EU
16:01 March 9, 2010 by t-br

> Where can I read about this guarantee? Did it specifically state that the Icelandic government was responsible for a failure of the bank insurance fund, even for deposits made in bank branches outside Iceland?

A guarantee by the Icelandic central bank (first 20,000 € was secured by them).

So probably on their website. Icesave used this claim when advertising abroad.

> They didn't have to. They paid because they wanted to compensate savers and prevent trouble in their own banking systems.

Of course they didn't have to, but that is the kind of service you might wish from a government. Although it had nothing to do with saving their own banking system, at least not in the Netherlands.

The group of savers was quite small, and the amount (€) did not cause any trouble for the Dutch banking system.
18:38 March 9, 2010 by jag2009
I must be one of the few people who think Iceland should pay up.

They loaned money! so pay back your debts! See same old story... UK and others pay out yet in return what do we get?

exactly;) nothing!
19:07 March 9, 2010 by rba
t-br by "their website" you mean the one which is probably gone (or altered) already?

jag2009 you should get informed before commenting. This is not about any loans to the icelandic government.
19:08 March 9, 2010 by samwise
did the Icelanders deposit money in the failed bank too? if so, what they seemed to say with this referendum is, that they wanted to get their own money back by the bailout, but they didn't want customers from other countries to get the same treatment.

there are things worse than losing money.
20:21 March 9, 2010 by jag2009

Simply stating a fact of the matter on the financial bust. "So far, Iceland has pocketed about one fifth of the Nordic loans and half of the IMF money"
20:23 March 9, 2010 by Potrero
Nemesis: one counterintuitive thing I've learned from the global financial crisis is that wealth really can just evaporate, without actually going anywhere. Cash can't, but wealth is a more abstract quantity. For instance if you own a house your net worth includes the value of the house, but that's not money in a bank account anywhere; it's just an estimate of what someone would pay for it if you were to sell today.

So in the case of the US, you had a whole country's housing market that lost all connection with people's ability to pay. That is, with the cash that they actually had or would be earning. It was debt built upon debt, but it was treated as real wealth on banks' balance sheets. The banks' assets were just an estimate of what people were actually going to pay on their mortgages, and it turned out to be a bad one.

Now confusingly the problems with Icelandic banks are a couple steps removed from the housing crisis. They were doing what's called leveraging: borrowing many times more money than they had in reserves and then putting it into investments. Even if the investments are good, this practice still requires a steady source of new loans. (Sounds like a Ponzi scheme, I know, but it's not. It can work out, it just magnifies losses as much as gains.) When the credit crisis hit the banks couldn't get new loans and their reserves were too small to pay the debts that came due.

This situation wasn't unique to Iceland. What was unique was that the banks were much larger than the central bank that ought to act as a "lender of last resort". In retrospect they never should have been allowed to get so big, or leverage themselves so much, but once they did there was the nothing the Icelandic government could do to save them.
21:02 March 9, 2010 by rba
jag2009 I agree those loans should be repaid. But the main subject in this article is about the Icesave deal.
21:22 March 9, 2010 by skane refugee
Agree with your points on leveraging Potrero ...

and also agree that the effect of leveraging amplifies gains and losses on investments

For example if you buy a house outright and it goes up in value by 10% ... you've made a 10% profit ... if you buy 100 houses each with a mortgage loan for 99% of the value of each house ... and they all go up by 10% in value ... you make 11x your money back/1000% return!! (ignoring transaction and interest costs)

However, the value of the houses only need go down by 1% and you've lost all your money and have to either crystallise the losses and be left with nothing or bankruptcy ... or you need to raise more money from somewhere to pay interest to keep the ownership of the houses and hope that their value turns upwards again taking you back into solvency/profit

Icelands businessmen and bankers went on a leveraged spending spree at the height of an economic boom in the hope that they could sell the assets for even more than the inflated prices they had paid ... if they had won the gamble they (and the people of Iceland) would have won BIG ... however even a small fall in the value of the assets bought would leave big losses ...

Asset values fell, and Icelandic banks were left desperately looking to raise money to keep up interest payments and stave off bankruptcy in the hope that asset prices would rise again ... the asset prices didn't rise ... and Icelandic bank bonds were shúnned in international markets ...

This is where Icesave internet bank came in to the story ... a loophole in European law compelling all EEA states to recognise and accept audited accounts and regulated banks from all other EEA states (including Iceland) allowed Icesave and Kaupthing Edge to be set up around Europe ... deposits in which were immediately transferred to Icelandic parent banks for desperately needed interest payments to keep their asset gambles going for some more time

Asset prices didn't recover, Glitnir (3rd biggest bank in Iceland) failed in late september 2008, bankrupting Stodir holding company and triggering runs on Landsbanki and Kaupthing (2nd and 1st biggest banks) and the collapse of the whole Icelandic banking system

Regulators, auditors, bankers and businessmen in Iceland were all complicit in a huge gamble ... they bet their countries entire financial future ... if they'd won the country would now have the riches of croesus ... but they lost :-(

As upthread there are many worse things to lose than money
21:54 March 9, 2010 by spy
It is very sad that Iceland's taxpayers will burden the cost of this situation but I it is only fair that they do so when the alternative is foreign savers or governments that were investing on the proviso of a guarantee. In all walks of life there must be accountability and a contract made should not be broken. Whatever is discussed here Iceland will be forced to pay - I am not sure what a referendum will achieve.
03:37 March 10, 2010 by Davey-jo
At one point Icelandic banks were paying something like 2% over the going rate for saving accounts. Iceland is a country of 300,000 or so people; less than many English cities. How were they paying out such "fantastic" rates?

Why would any sensible person put their money into such schemes?

It was obvious there was no support for these banks even as informed institutions such as local government in the UK were sinking their taxpayer's money into this "get rich quick" scheme.

The Icelandic banks have been caught with their pants down holding the wrong end of a very smelly stick.

Still, it's in no-one's interest to berate the poor people of that country. This is why the UK chancellor has said he's willing to renegotiate terms with Iceland; but the referendum had to come first. Now that's out of the way a more calm approach to this problem should be possible. The UK does not want to shaft Iceland. I'm sure a deal can be reached and the money repaid over a long term and Iceland can become part of the European community as it should be.
06:07 March 10, 2010 by mkvgtired
People are forgetting that the Icelandic government did have a hand in this mess. The problem is these depositors were not depositing actual Euros despite what their accounts said. The Icelandic Krona's interest rate was set by the government. These were kept high to attract customers from countries with lower yielding currencies, specifically the Euro and the Pound. This also made it cheaper for Icelanders to take out mortgages and other loans denominated in Pounds or Euros. Once the panic started Iceland was unable to pay back the deposited Euros and Pounds (that were actually Krona) because of the extreme currency devaluation. This also made it impossible for the Icelanders that took out loans in Euros and Pounds to pay back their loans.

I don't think that most people knew this is why the Krona's interest rate was so high, but the Icelandic government was completely aware. I am not saying the taxpayers should or should not have to pay back these debts, but the Icelandic government acting as if they never saw this coming is way off. Also, all of what was said about leveraging only magnified these losses.
17:40 March 10, 2010 by nilwik
I can recommend you folks to search on youtube for "max keiser iceland"
17:29 March 12, 2010 by ppk
Is Reinfeldt really Swedish or a new kind of robot working for Global Greed (IMF)?

He can keep his "Nordic country loan", people from Iceland could survive without it, as they use to do, as all REAL Scandinavian are use to do.
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