[P2P-F] [gang8] Why Iceland voted NO
Michel Bauwens
michelsub2004 at gmail.com
Wed Apr 13 14:44:32 CEST 2011
thanks!
On Wed, Apr 13, 2011 at 6:10 PM, Dante-Gabryell Monson <
dante.monson at gmail.com> wrote:
> Thanks for asking.
>
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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?
>>
>> Michel
>>
>>
>> ---------- 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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