“[The British and Dutch Governments] were expecting to transform Icesave’s private debt into the public [sovereign] debt of the Icelandic nation…but we must remember that there is absolutely no legal basis…the States [under EU directive 94/19] have no responsibility beyond ‘introducing and recognising a DGS [Deposit Guarantee System]’,” French economist Alan Lipietz noted on his blog last month. Furthermore, this does not “oblige” the States to guarantee over and above what the DGS could pay, according to him.
Days after Bloomberg noted Iceland’s complete market disintegration (Fitch Ratings lowered Iceland’s credit grade to junk), The Guardian ran with a piece entitled, “Iceland delegation walks out on £ 2.3 bn Icesave debt repayment talks,” which suggested that the UK and Dutch governments had pretty much reached the end of their tethers. The strange thing was that the negotiations took place in the Icelandic Embassy; you wouldn’t be the one storming out of your own home, would you?
There two major tenets within the foreign media on the Icesave debacle. One is that Icelanders are spoiled kids who need a good, old-fashioned spanking, the other that the “Goliaths” of the Europe are forcing little Iceland into a corner. President Ólafur Ragnar Grímsson, once the barrel-boy of “Viking” banksters, has now become the people’s hero, effectively David’s slingshot. And it does seem, referendum or not, that the whole debate rests on shaky ground. You can’t just turn a private debt into a sovereign debt, can you? Lipietz says definitively: “Not on your Bloody Nellie!” and adds that, “[Whereas the UK and the Netherlands were] demanding a rate of 5.5% on their debt, the European Union was giving loans at a rate of 2% to bail out Hungary.”
In January, Iceland was ranked No. 1 in the 2010 (global) Environmental Performance Index (EPI). Around the same time, Gijs Graafland of the Plank Foundation came up with a scheme called “Energy for Debt” which proposes swapping geothermal energy potential against foreign debt. He suggests that by linking a high voltage current to the UK, Iceland could position itself as Europe’s main energy supplier. Morgunblaðið’s Baldur Arnarson effectively ruled out this possibility in a February interview with Euroactiv.com, saying that the “[t]he suggestion that Iceland should allow access to its energy resources in order to avoid debt repayments would be met by a strong nationalistic backlash.” In the shorter term, it appears that Iceland has very little in the way of export earning to generate enough foreign currency to repay its so-called sovereign debts.
Economist Michael Hudson stated in a January Financial Times article: “The problem is that foreign debt is not paid out of GDP. It is paid out of balance-of-payments receipts from net exports, the sale of assets to foreigners and from new borrowing…[and here’s the rub:] …many of Iceland’s [fishing] export quotas have already been pledged for loans… Interest charges also absorb most of the revenue from aluminium exports and its [renewable energy sector], leaving little taxable revenue behind.”
So how does anyone expect a loan representing 250% of GDP to be paid off in foreign currency?
Here’s a novel idea: Turn Iceland into a journalism and data haven, a Cayman Islands for freedom of speech, data protection and journalism as proposed by WikiLeaks. In recent interview with the BBC, Julian Assange, WikiLeaks editor-in-chief said, “the idea was to try and reform Iceland’s media law to be a very attractive haven for investigative journalists.” And although on the surface this appears to be an innovative idea for a sustainable Icelandic business model, the international press is not taking it altogether seriously.
One thing is for sure, this whole Icesave chaos is getting people thinking out of the box. If we keep it up, we might actually get somewhere.
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