Iceland Votes No to Repaying Icesave Debt to Britain and Netherlands

Hmm.

Basically this a souvereign debt default, as the Iceland Gouvernment guaranteed the first 20.000 EUR of deposits in icelandic banks.

They did this so that their banks had access to EU countries. Unfortunately they were "a mite" lax in their oversight on these same banks, and now refuse to honour their pledge.

The old: "you broke it, you bought it" seems to "you broke it, the neighbour has to pay for it"

I expect this to have some severe repercussions for Iceland.

Btw, the "investors" angle surely distorts the perception.

As Iceland was only liable for the first 20.000 EUR, most of the real investors will be left out in the cold anyway.

Those who get hammered now are those who found a nice 5% interest savings account for their money.

The real hardcore "mom and pap" type of "investor"

Financial markets will also vote no whenever Iceland seeks to borrow money. Why should anyone lend a country money that it will not repay ?

I don't really see why Icelanders (who, BTW had NO say in what their countries banks were doing) should be on the hook for FOREIGN investments. If you were to put $10,000,000 in the bank of Fiji, do you seriously think Fijians should cough up for you if that "investment" goes belly up? The citizens could do NOTHING to stop you investing that money, their banks from taking it, and subsequently bankrupting themselves - yet they are now somehow responsible for these speculative losses???

Well Maarten,

That depends, if the fijian gouvernment promises to guarantee that 10 million (btw nice exaggeration, only by a factor 50) then yes. The "people of Fiji" have committed themselves through their representatives.

Now some cases may be said that dictatorial regimes do not represent their people, but Iceland is not such a regimes, but a democraticaly elected gouvernment. As such they de facto and de jure represent their people.

As such Icelanders had their say in what the banks were doing, as their regulator, The National Bank, had duty of oversight and regulation over their banks. And the national bank is under oversight of the gouvernment.

Suppose you have a dog, and your child/wife/etc goes walking the dog. The dog gets of the leash somehow and attacks a mailman. Now do you think for one moment that you are not liable for the damages? "Because i had no say in what the dog was doing?"

Any judge will rightly point out that:

a) it was your dog

b) it was your appointed overseer (i.e. dogwalker)

So you should have educated the dog -> i.e. behavour school

and/or educated the overseer -> how to treat dogs.

Similarly here.

Even worse, the icelandic gouvernment could have NOT signed an agreement in which they guaranteed the first 20K of saving deposits. But then their banks would not have had access to the EU.

So the icelandic gouvernment chose to sign to such guarantee so that their banks could play. And now they choose to renege on their word and signature.

Oh returning on your 10 million: so iceland was only liable for the first 2%. The next 2% was Dutch/UK (though i am not sure about the UK guarantee level) liability and the rest would own risk. so a 96% exposure. But then someone that has 10 million to invest should be wiser than run such a risk.

That first 20k can justifiably be soon more as "savings" than "investment".

Savings for things like: "Suppose my washing machine breaks down. I'll need a new/other care in a few years"

Then there is another aspect. At least in the Netherlands, these savers did not deposit their money in a foreign bank.

They deposited money in a dutch branch of a foreign bank.

The difference may seem small, but in reality is huge.

For example had they had to bring their money to iceland, no problem would have existed.