[P2P-F] [gang8] Why Iceland voted NO

Wed Apr 13 13:10:24 CEST 2011

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On Wed, Apr 13, 2011 at 12:25 PM, Michel Bauwens <michelsub2004 at gmail.com>wrote:

> Dante, is there a way to subscribe to Michael Hudson's editorials?
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> Michel
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> ---------- Forwarded message ----------
> From: Dante-Gabryell Monson <dante.monson at gmail.com>
> Date: Mon, Apr 11, 2011 at 9:20 PM
> Subject: Fwd: [gang8] Why Iceland voted NO
> To: econowmix at googlegroups.com
>
>
>
>
> ---------- Forwarded message ----------
> From: Michael Hudson <michael.hudson at earthlink.net>
> Date: Mon, Apr 11, 2011 at 4:03 PM
> Subject: [gang8] Why Iceland voted NO
> To: GANG8 <gang8 at yahoogroups.com>
>
>
>
>
>
> Dear Gang,
>     Here’s my commentary on Iceland’s NO vote.
>     I look forward to the country’s countersuit against Britain for damages
> caused by Brown’s peremptory action.
> Michael
>
> *Why Iceland Voted ‘No” *
>
>   Michael Hudson
>
>
>             About 75% of Iceland’s voters turned out on Saturday to reject
> the Social Democratic-Green government’s proposal to pay $5.2 billion to the
> British and Dutch bank insurance agencies for the Landsbanki-Icesave
> collapse. Every one of Iceland’s six electoral districts voted in the “No”
> column – by a national margin of 60% (down from 93% in January 2010).
>
>              The vote reflected widespread belief that government
> negotiators had not been vigorous in pleading Iceland’s legal case. The
> situation is reminiscent of World War I’s Inter-Ally war debt tangle. Lloyd
> George described the negotiations between U.S. Treasury Secretary Andrew
> Mellon and Stanley Baldwin regarding Britain’s arms debt as “a negotiation
> between a weasel and its quarry. The result was a bargain which has brought
> international debt collection into disrepute … the Treasury officials were
> not exactly bluffing, but they put forward their full demand as a start in
> the conversations, and to their surprise Dr. Baldwin said he thought the
> terms were fair, and accepted them. … this crude job, jocularly called a
> ‘settlement,’ was to have a disastrous effect upon the whole further course
> of negotiations …”
>
>             And so it was with Iceland’s negotiation with Britain. True,
> they got a longer payment period for the Icesave payout. But how is Iceland
> to obtain the pounds sterling and Euros in the face of its shrinking
> economy. This is the major payment risk that is still unaddressed. It
> threatens to plunge the krona’s exchange rate.
>
>             The settlement proposal did lower the interest rates from 5.5%
> to 3.2%, but it included running interest charges on the bailout since 2008.
> It even included the extra-high interest charges that led depositors to put
> their funds in Icesave in the first place. Icelanders viewed these interest
> premiums as compensation for risks – that were taken and should be lost by
> the high-interest Internet depositors.
>
>              So the Icesave problem will now go to the courts. The relevant
> EU directive states that “that the cost of financing such schemes must be
> borne, in principle, by credit institutions themselves.” As priority
> claimants Britain and the Netherlands will indeed get the lion’s share of
> what is left from the Landsbanki corpse. That was not the issue before
> Iceland’s voters. They simply aimed at saving Iceland from an open-ended
> obligation to take the bank’s losses onto the public balance sheet without a
> clear plan of just how Iceland is to get the money to pay.
>
>             Prime Minister Johanna Sigurdardottir
> <http://topics.nytimes.com/top/reference/timestopics/people/s/johanna_sigurdardottir/index.html?inline=nyt-per><http://topics.nytimes.com/top/reference/timestopics/people/s/johanna_sigurdardottir/index.html?inline=nyt-per> warns that the vote may trigger “political and economic chaos.” But trying
> to pay also threatens this. The past year has seen the disastrous experience
> of Greece, Ireland and now Portugal in taking reckless private sector bank
> debts onto the public balance sheet. It is hard to expect any sovereign
> nation to impose a decade or more of deep depression on its economy inasmuch
> as international law permits every nation to act in its own vital interests.
>
>
>             Attempts by creditors to persuade nations to bail out their
> banks at public expense thus is ultimately an exercise in public relations.
> Icelanders have seen how successful Argentina has been since it imposed a
> crew haircut on its creditors. They also have seen the economic and
> political disruption in Ireland and Greece resulting from trying to pay
> beyond their means.
>
>             Creditors did not give accurate advice when they told Ireland
> that it could pay for its bank failures without plunging the economy into
> depression. Ireland’s experience stands as a warning to other countries
> about trusting overly optimistic forecasts by central bankers. In Iceland’s
> case, in November 2008 the IMF staff projected yearend-2009 gross external
> public and private debt at 160% of GDP – but observed that an exchange rate
> depreciation of 30% would push the ratio to 240% of GDP, which would be
> “clearly unsustainable.” But the most recent IMF staff report (January 14,
> 2011) shows end-2009 gross external debt at 308% of GDP, and estimates
> end-2010 gross external debt at 333% – even *before* taking the Icesave
> and other debts into account!
>
>             The main problem with Iceland’s obligation to Britain and the
> Netherlands is that foreign debt is not paid out of GDP. Apart from what is
> recovered from Landsbanki (now with the help of Britain’s Serious Fraud
> Office), the money must be paid in exports. But there has been no
> negotiation with Britain and Holland over just what Icelandic goods and
> services these countries would be willing to take in payment. Already in the
> 1920s, John Maynard Keynes pointed out that the Allied creditor nation had
> to take some responsibility just how Germany could pay its reparations, if
> not by exporting more to these countries. In practice, German cities
> borrowed in New York, turned the dollars over to the Reichsbank, which paid
> Britain and France, which paid the money back to the U.S. Government for
> their Inter-Ally Arms debts. In other words, Germany tried to “borrow its
> way out of debt.” It never works over time.
>
>                 The normal practice would be for Iceland to appoint a Group
> of Experts to lay out the strongest possible case. No sovereign nation can
> be expected to acquiesce in imposing a generation of financial austerity,
> economic shrinkage and forced emigration of labor to pay for the failed
> neoliberal experiment that has dragged down so many other European
> economies.
>
> 875 words
>
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