Published April 21, 2010

Now that the Icelandic people have overwhelmingly rejected the IceSave bill, we have to ask ourselves: what have we accomplished?
Certainly, the Icelandic negotiators are in a stronger bargaining position, but what will that translate into? A percentage point or two on the interest that we will eventually have to pay to cover the British and Dutch depositors’ losses? Is that what has kept the entire country’s attention for months, while more important matters languished? Will that be enough to cover the increased interest rates Iceland will have to pay to acquire funds on international capital markets after its sovereign rating is downgraded to junk bond status? Will it pay for the lost opportunities that will result from the continuation of currency controls?

At best, this will be a wash. At worst, it will set back our recovery by months. We all feel better about having stuck it to “The Man,” but I’m honestly not sure who “The Man” is. Gordon Brown? I’m not on speaking terms with the British Prime Minister, but I’d bet this barely registered on his radar. The Landsbanki executives and shareholders? They’re still out enjoying their ill-gotten gains in complete freedom.
The reality is that the minority political parties, especially the Progressive Party, have decided to demolish what’s left of Iceland’s international reputation in a desperate attempt to garner political points. After the election results were announced, Sigmundur Davíð Gunnlaugsson, chairman of the Progressive Party and founder of the InDefence group that led the petition drive to hold the referendum, gloated on television, pontificating that the referendum proved the people did not trust the governing coalition, calling for new elections this spring.
The Progressive Party has no plausible new ideas for rescuing the country from the mess that it had a big hand in creating, so it has decided to pull the Social Democrats and the Left-Greens down to its level. Its plan for a 20% across-the-board reduction of mortgages was laughed off by all serious parties. Its public announcement that Norway was going to give us all the money we needed was as surprising to the Norwegians as it was to the rest of us. But as the saying goes, if at first you don’t succeed…
Inflaming the Icelandic public against IceSave was like shooting fish in a barrel. Of course, no one wanted to pay for the machinations of the incompetent Landsbanki crew. Finance Minister Steingrímur Sigfússon and the rest made the rational assessment that speedy resolution of this matter was essential to the country’s recovery, and that more important matters needed their attention. Antagonizing the British and the Dutch, delaying the IMF aid, and helping Iceland’s international reputation swirl further down the toilet are not likely to benefit the nation in the long run.
When all that matters to you is your own success, however, why not play with the feelings, fortunes, and futures of others?
Predictably, one upshot of the recent debate—and the media’s habit of presenting only the pro-Iceland side— is that the majority of Icelanders now feel that they should not have any liability for any of the debts rung up by others. The Icelandic taxpayers who repudiated responsibility for the IceSave debt have no qualms about foisting that responsibility onto the British and Dutch taxpayers. Icelandic investors who bought bank stock after the Danske Bank report predicted a collapse of the Icelandic banks now denounce the IceSave depositors for gambling for a higher rate of return. Icelandic armchair pundits who blame this whole mess on the Americans’ failure to regulate mortgage-backed securities argue that they should not have to pay for the homes they bought when the Reykjavik real estate market was peaking.
Fortunately, reasonable Icelandic voters have seen through Sigmundur Davíð’s shenanigans, and the popularity of the Progressive Party continues to slide. Unfortunately, like the banks in late 2008, this leads only to more and more desperate and destructive measures. Sigmundur Davíð may claim a victory, but what have we, the Icelandic people, won?

Any more “victories” like this and we’ll be living in turf huts eating rotten skate before you know it.