From Iceland — Broke, Busted, Disgusted

Broke, Busted, Disgusted

Published June 19, 2009

Broke, Busted, Disgusted

In front of the Icelandic parliament, protesters bang on drums, blow whistles, chant and yell while police stand by, watching. Inside, Minister of Finance Steingrímur J. Sigfússon is addressing his colleagues. It’s a historic day. After months of negotiations, Icelandic authorities have finally reached an agreement with the British and Dutch authorities over Icesave, the internet banking company that collapsed last autumn, soured foreign relations between Iceland the rest of Europe, ruined the country’s financial credibility, and brought about the downfall of a government under the pressure of protests from thousands of Icelanders. Finally, a deal has been made that will make it all better.

But few people in parliament look happy. No one outside of parliament looks happy. As the finance minister begins to speak, a clattering sound, like hail on sheet metal, echoes through the hall. The protesters are throwing coins at the windows.

Iceland used to be regarded as a libertarian success story. Its businessmen were compared to Vikings, moving swiftly across Europe, opening companies, and raking in cash. It didn’t matter that financial experts such as Standard and Poors were telling the Grapevine in 2005 that Iceland’s economy was “overheating” and that “now is the time for the Icelandic government to step in and do something.” Conservatives scoffed at the very idea. Why should we fix something that isn’t broken? Peoples’ wallets were bursting with cash, the country enjoyed one of the highest standards of living in the world, and our capitalist ventures abroad were booming.

“The whole Icelandic financial world outgrew its proper place in society,” historian and author of the best-selling book The Collapse Guðni Thorlacius Jóhannesson told the Grapevine. “It’s not that the people in the Financial Services Authority (FME) were stupid or weak; they just didn’t have the resources to make it work. One person from the FME described it to me this way: she’d go into a meeting with these financial giants, and it’d be her at one side of the table. On the other side of the table, there’d be a team of financial lawyers, aided by experts from abroad with years of experience, who specialized in what she’d just graduated in a few months ago. This image, I think, summarizes the fight between the financial world and the authorities in Iceland.”

In such an environment, Icelandic businessmen had free range to do more or less as they pleased. One such venture was Icesave, a privately-insured internet banking company founded in 2006 that promised higher returns on deposits because there was virtually no overhead – no building to maintain, no tellers, no managers – and it was, in fact, a branch of Landsbanki. Effectively, a person in the UK or Holland logging onto their Icesave account from the comfort of their home was entering a Landsbanki account. It became wildly popular overseas. By some estimates, as many as 300,000 Brits had deposited 4 billion pounds into Icesave. Business was good. But September 2008 would herald a series of events that would drive Iceland to the brink of bankruptcy, and make “Icesave” synonymous with financial ruin.

How fear snowballed into panic
Certainly, there was economic trouble elsewhere in the world at this time. On September 15th, Lehman Brothers declared bankruptcy and, among other things, moved their assets out of the UK. This move would end up having consequences for Icesave down the road. Here in Iceland, we were also starting to feel the pinch. Banks and other financial institutions that had invested so heavily abroad were on shaky ground. The Icelandic króna had devalued by 35% over the course of the year. At the time, it was estimated that Iceland’s banking system had grown to 13 times the size of the country’s GDP. Financial opinion pieces running in the BBC, the Times and the Telegraph began to openly question the solvency of these institutions, and whether peoples’ money was safe in them. Like everything else in the financial world, the solvency of the Icelandic banks was based largely in the confidence of others, and that confidence was faltering fast.

And then, on September 29th, the Icelandic government announced it was taking over 75% of the Icelandic bank Glitnir. Some, such as CEO of Glitnir Bank Lárus Welding, complained that the move shook the confidence of investors, saying that it “had a negative impact on current shareholders.” The chairman of Kaupthing Bank, Sigurður Einarsson, told the Icelandic news show Kastljósið that the takeover was “ill-advised”. The following week, on October 5th, the FME announced that trading was suspended in all Icelandic financial companies – Glitnir Bank, Kaupthing Bank, Landsbanki Bank, Straumur-Burdarás Investment Bank, SPRON and Exista. The following day, parliament passed a law which essentially nationalized the Icelandic banking system.

This did not go unnoticed in the UK, especially as Icesave depositors awoke on the morning of October 6th to see the following message on the Icesave homepage:

“We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly.”

As can be imagined, panic ensued. The world turned to Iceland, demanding answers. The chairman of the Icelandic Central Bank at that time, Davíð Oddsson, appearing on Kastljósið, had one for them: “We [the Icelandic state] do not intend to pay the debts of the banks that have been a little heedless,” and said that foreign creditors could expect to only get about 5% to 15% of their claims.

And that’s when things got ugly
Despite assurances from numerous Icelandic authorities that the banks were stable, British authorities were not so certain. They’d been badly burned when the Lehman Brothers pulled up their stakes and left the UK. And they were not going to let that happen again. On October 8th, the British government evoked the Anti-terrorism, Crime and Security Act of 2001 against Landsbanki, the Central Bank of Iceland and the Government of Iceland in the United Kingdom, freezing all assets of Landsbanki in the UK.

“The City of London is full of foreign-owned banks,” political scientist Eiríkur Bergmann Einarson explained to the Grapevine. “The Icelandic banks comprised only a small amount of all the operations that have been taking place there. London had become this big financial hub. And they were afraid, that if Landsbanki closed their accounts and just left the country, it could set a precedent for other banks to flee out of the UK with their assets, but leaving their debts in London. So I think they were making an example of Iceland and Landsbanki.”

The British Chancellor of the Exchequer Alistair Darling reiterated that sentiment when he told the British press that, in a conversation he’d had with then Icelandic Finance Minister Árni Matthiesen, he’d been informed that Iceland would not be guaranteeing deposits made into Landsbanki by people outside of the UK. A transcript of the phone conversation between the two, published by the Times, does indeed show that to be the case. In part:

Darling: Do I understand that you guarantee the deposits of Icelandic depositors?

Mathiesen:  Yes, we guarantee the deposits in the banks and branches here in Iceland.

Darling: But not the branches outside Iceland?

Mathiesen: No, not outside of what was already in the letter that we sent.

Darling: But is that not in breach of the EEA Treaty?

Mathiesen: No, we don’t think so and think this is actually in line with what other countries have been doing over recent days.”
Reaction in Iceland was, as to be expected, not exactly positive. Then Prime Minister Geir H. Haarde railed against the “absolutely unacceptable” behaviour of the British government. Darling’s citing of the EEA Treaty is also interesting, as Einarsson believes the invocation of the anti-terrorist law was in itself a violation of the treaty: “It’s not only illegal, but also politically very hostile. I think that the Icelandic authorities made a devastating mistake in these early days. When the UK authorities used these illegal means to seize the property of Landsbanki, the Icelandic authorities should have said, that the UK government by that also overtook the obligations of the bank. And therefore, it would be the obligation of the UK government to pay out of the Icesave accounts and to liquidate the assets of the bank. Not the other way around like it is now.”

Daniel Gros, Director of the Centre for European Policy Studies, told the Grapevine that the Icelandic government was indeed under no legal obligation to pay back the Icesave accounts. “These were privately insured deposits. They could have just said, ‘Sorry, you should have known what you were getting into.’ It is, however, unfortunate that they decided to let Icelandic depositors withdraw their money, but not those abroad.”

Jóhannesson agrees, calling the move “discrimination”, and adding, “It should have been an all-or-nothing affair. Either you pay back all the money to everybody, or you don’t pay it back to anyone. It doesn’t matter what country a bank branch is in. The Icelandic authorities said they had to rescue the financial situation here, but that they were in no position to do it abroad. But every legal expert that the British, Dutch and EU consulted were of the same opinion – that this distinction was not allowed. There is no distinction allowed based on geography or nationality.”

Jóhannesson, though, does agree that the invocation of the anti-terrorist law was harsh. “[UK Prime Minister Gordon] Brown and Darling aren’t entirely to blame, but the use of the anti-terrorist law was ruthless, and there was an element of panic there.”

In the wake of Britain’s move, a protest group called InDefense was founded. Setting up a website bearing the slogan “Icelanders are NOT terrorists”, the group gained internet fame through a project whereby people were encouraged to take photos of themselves holding a message for Brown and Darling. 80,000 people signed a petition objecting to the use of the anti-terrorism law. The group would also travel to the UK and met with British parliamentarians. Ólafur Elíasson, one the group’s founders, told Grapevine, “The British reaction was very heavy-handed. The terrorism law was used to protect British interests. I had British officials tell me, ‘How could we look our voters in the eye if we let another bank move its assets out of the country?’ The words of our central bank manager certainly didn’t help. And sure, it’s reasonable to want to protect your interests. What I don’t understand is why we don’t protect ours.”

Ironically, many in the British government would end up agreeing with the Icelandic take on the invocation of the anti-terrorist law – the financial committee of the House of Commons in the UK published a report recently saying that there was no legal ground for this action.

Of course, Britain was not alone in its frustrations with Icesave. Dutch authorities also got involved, as depositors in their country found themselves unable to make withdrawals. The Dutch assured their citizens that every Icesave account would be ensured by their central bank for up to 100,000 Euros, but naturally, this wouldn’t mean Iceland was off the hook. On October 10th, Dutch Minister of Finance Wouter Bos said in an interview that the Icelandic state would be taken to court if it did not honour its obligations towards the roughly 120,000 Dutch Icesave accounts. Landsbanki would end up paying 600 million Euros to the Dutch Icesave branches, but this wouldn’t be enough – in January, it would come to light that the Icesave debacle had cost the Dutch government 230 million Euros, 212 million of which was used to pay back Dutch depositors.

The walls close in around Iceland
Even with pressure from Britain and Holland, Icelandic authorities remained non-committal to their own responsibility in the Icesave crisis. What would ultimately change their minds was the International Monetary Fund (IMF).

Jóhannesson explains: “After the collapse of the banks, the Icelandic government reached the conclusion that assistance from the IMF was necessary. Not only for the money itself, but also because there was a repeated message from other capitals that ‘We’re not going to give you the money that you need until you have the IMF to control you’. Saying, in other words, ‘We don’t trust you.’ But it became clear that IMF assistance wasn’t being offered until the Icesave issue had been solved. And so the Icelandic government felt it was more or less forced to accept responsibility for the Icesave matter in order to get IMF assistance and, consequently, financial assistance from other governments. Even though there has been a change in government, this is still the view of the government. When the Leftist-Greens were in the opposition, they were saying the IMF deal is bad, the Icesave deal is bad. Now that they’re in the driver’s seat, they’ve either realised that there is no other option, or changed their minds for some other reason.”

In the end, then Prime Minister Geir H. Haarde and then Foreign Minister Ingibjörg Sólrún Gísladóttir had to face the fact that no one was accepting their arguments eschewing legal responsibility for the Icesave matter. The newspaper DV would report that at 21:41 on the 13th of November, Haarde and Gísladóttir agreed to the IMF’s demand to accept responsibility, and signed a memorandum to that effect. The agreement would be submitted to parliament the next day.

Clearly, some sort of agreement needed to be reached between all parties involved. One that would ensure that every single Icesave depositor would have their assets covered completely, while at the same time seeing to it that Iceland wouldn’t be bled dry in the process. And so the negotiations began. Weeks became months. In the intervening time, repeated protests of thousands of Icelanders would drive the Conservative/Social Democrat government out of power, resulting in the formation of an emergency government consisting of Social Democrats and Leftist-Greens, a coalition that would hold after elections in April, with the former gaining the premiership. In February, former minister of business and current ambassador to Denmark Svavar Gestsson was appointed as chair of the Icesave negotiations committee. The following month, celebrated magistrate and corruption-hunter Eva Joly is appointed as a special investigator by the Icelandic government. Everything seemed to be clicking along nicely towards a pleasant resolution. So much so that when Foreign Minister Össur Skarphéðinsson and British Foreign Minister David Miliband met with each at the end of March, both men expressed confidence that a deal on Icesave would be reached that would satisfy all parties involved.

The deal is struck – and people get angrier
Earlier this month, it was announced that a deal was reached. In essence, the British government will be repaid 2.3 billion pounds over the next 15 years with an interest rate of 5.5%, and the first seven years of payments will be interest-only. The British were certainly happy – a UK treasury spokesperson said of the news to the AFP, “The government welcomes Iceland’s commitment to recognise its obligations under the EC Deposit Guarantee Scheme to repay depositors in Icesave.” The reaction was markedly different elsewhere.

Daniel Gros told reporters, “I think that these interest rates create a real danger for Iceland and I don’t think it’s a good deal for the country. I don’t see any country in the world with as high a foreign debt as Iceland after this.” In speaking with the Grapevine, Gros said he believed it was “a very bad deal”, adding, “I believe this was essentially the British and the Dutch saying, ‘If you want to join the EU, then you’re going to agree to this deal.’ I realise that there are no morals in politics, so I don’t like to use morally-charged words such as ‘extortion’ to describe the arrangement, but at the very least, the interests rates being asked of Iceland should be the same that the British and the Dutch pay on their foreign debts.”

The sentiment was very much the same here in Iceland, as politicians, lawyers, economists, and what seems like practically everyone else with an opinion on the matter agreeing, especially with regards to the interest rate.

“The responsibility will all be on our shoulders,” Einarsson told the Grapevine. “And especially because of that, I think that the interest rate of 5,5% is far too high. I think the interest rate of the Bank of England is now 0,5 % and the UK government can borrow money abroad with 4% interest rates. It should definitely not be more than what the UK government is be able to borrow on itself. So they put a premium on it, which they get.”

“The comparison is often made with the Versailles Treaty,” added Jóhannesson. “But the huge difference would be that Iceland is a nation of 300 thousand souls in the North Atlantic. The threat level is wildly smaller. But the credible comparison would be that the treaty is too harsh, and the nation will never be able to fulfil it.”

Einarsson did, however, emphasize that he found it unlikely the Icelandic taxpayer would pay for all of the debt – by his estimates, the taxpayer will probably not be covering more than 25% of the Icesave repayment. It’s a figure that’s been repeated by, among others, former Landsbanki director Sigurjón Þ. Árnason, who told RÚV earlier this month that he believes that the banks assets alone should cover the Icesave debt, and therefore the Icelandic people shouldn’t have to shoulder any of the debt themselves. But neither Árnason’s nor Einarsson’s nor anyone’s estimates can either be confirmed nor denied. Some even speculate worse scenarios, such as Elíason.

“Iceland only agreed to accept responsibility for Icesave on the premise of an agreement with Brussels, that if we made a deal, it wouldn’t strangle us,” he told us. “This deal is a clear violation of that promise. It is estimated that this deal, in seven years time, will cost each Iceland family 600,000 ISK per year. We need to go back to the negotiations table now. If we wait seven years, we’ll have no choice but to pay. Wars have been fought for less than this. I don’t think Icelandic politicians understand the consequences of their actions.”

Daniel Gros agreed with much of this assessment, underlining that the deal will result in Iceland using “most if not all of its GDP just to pay down Icesave.”

For their part, Prime Minster Jóhanna Sigurðardóttir and Finance Minister Steingrímur J. Sigfússon have tried their best to convince the public of the task before them. “Our opponents understand that this has to be manageable,” Sigfússon told reporters at a press conference shortly after the agreement had been announced. Sigurðardóttir emphasized that she believes the assumption is there that the deal will be reviewed in case the state’s debt capacity is questioned.

So why would we agree to this? Maybe because, Iceland really doesn’t have a choice.

“The alternative is unthinkable,” said Einarsson. “It would be closing off the country. The EEA Agreement could be canceled by the EU and as I understand, this has been threatened. Since the emergency laws in October, Iceland has not fulfilled its obligations in the EEA. There is no free-flow of capital now. The cancellation would have a devastating effect on the country. Iceland needs good relations with its neighbors. The loans that have been promised to Iceland by governments of the neighboring states through the IMF would also be in danger. The IMF has said that Iceland only receives these payments after reaching an agreement with the UK. So, the UK is in a very strong position, also because we have made horrible mistakes in the process of the negotiations. We are in a very difficult position. I’m glad that I’m not in the Icelandic government. I wouldn’t know what to do, I wouldn’t know if I should accept this agreement or not.”

Elíason, for his part, isn’t entirely convinced that Iceland has no other options.

“We of course need to do what we can [to pay back the Icesave debt] but in a fair and transparent way. If we walked away from this, told the British that we’re not going to pay, what are they going to do? If they set up some sort of trade embargo, this would bring in the attention of the world, and would give us the opportunity to explain our position. We haven’t been explaining our position very well up until now because our government, which is so keen to get into the EU, doesn’t seem to want to protect our interests first. Mistakenly, I might add. We fulfil all obligations of getting into the EU.”

Jóhanneson, however, doesn’t think the EU is as strong an underlining influence as the threat of economic isolation.

“It goes without saying that the Social Democrats are determined to join the EU,” he told us. “I don’t think there’s some secret EU link there, but obviously, if Iceland were going to say, we’re not going to accept this, that would pretty much make us as isolated as countries as North Korea or Myanmar. This isn’t just about EU membership. If we were to say we’re not going to pay for Icesave, we could lose access to foreign loans, the EEA agreement could be in upheaval, and there’s also trade with European markets. They say our economy is mostly based on fishing. Well, we have to sell the fish to someone. If we walked away from this deal and these other countries put an embargo on us, we’d be hard-pressed to find someone else to trade with. We might not like the Icesave deal, but the alternative is much worse, and maybe this is the best we or anyone else could get. Take it or leave it, that’s the message we got. I think anyone criticizing the negotiations team for being weak are ignoring, wilfully or not, the incredibly difficult position the Icelandic authorities find themselves in.”

Where do we go from here?
Jóhannesson sees in Iceland’s future both hard times ahead, but also hope.

“I try not to be too pessimistic, but I foresee cuts in the welfare system. I think a lot depends on whether there will be a thorough investigation, and that those who were guilty of wrongdoings will be sentenced. Unless that happens there is no hope here. If it turns out that Iceland is struggling under the weight of this agreement, then it should be in the interests of Britain, Holland, and our partners in the European Union to renegotiate. Also, we’re used to breaking treaties with Britain,” citing the 1961 fishing waters agreement that Iceland signed with Britain and subsequently violated ten years later. “Breaking treaties is nothing new to us. If we break this treaty with Britain, it wouldn’t be the first time, and that’s just the plain, honest truth. But the sad bottom line is that there needs to be an agreement. Whether this one is the best one that could have been reached, I can’t say.”

Einarsson agrees, adding that the real culprits of the banking crisis need to be brought to justice, saying “Well there is the special prosecutor’s office with limited number of people and the advisory role of Eva Joly, which is meant to investigate all these things, also the responsibility of individuals. The problem is that the authorities weren’t ready to go after these people right away, when everything happened. It took a long time to set up the mechanism to do that.”

“Who broke the law?,” asks Jóhannesson. “That I’m not able or willing to answer. But I think that bank managers, politicians and officials should be the subject of investigation, and they should welcome an investigation. It would clear the innocent of any wrongdoing, and bring the guilty parties to justice.”

Einarsson is also philosophical about Iceland’s future. “Of course, some of the main players, which have behaved outside of the law, will hopefully be prosecuted. Some of them might even see some time behind bars. But that complete systematic investigation leading up to a final justice where everything is clear, that’s not going to happen. It’s going to be a halfway solution. It’s always like that here in Iceland. And after ten years we will stop worrying about it. That’s how it goes. These people used to be the heroes here. They walked down the streets like they owned the place. Now they are all personae non grata. In this society, this is the biggest punishment anyone can receive, humiliation and shame. Many of these people are my personal friends. Everywhere they go, what has happened taints their lives. They hide in their big houses with their fancy cars in front of them, but they can’t enjoy them.”

At the time of this writing, the Icesave agreement is being hotly debated in parliament. What will be entailed in the full agreement, and whether or not Iceland will go back to the negotiations tables remains to be seen, but Jóhannesson, for his part, believes at least one important lesson will be learned from the Icesave debacle:

“The dream of making Iceland a financial powerhouse will never appear again. At least I hope not.”

Icesave timeline
1886: Landsbankinn founded on July 1.
1998: Landsbankinn changed to a common stock company, steps taken towards privatisation. January 1.
2002: Landsbankinn privatised on October 19. Buyers are Björgólfur Guðmundsson and his son, Björgólfur Thor, for 12.3 billion ISK. Half the money is borrowed from Búnaðarbankinn (now Kaupthing).
2006: Icesave opens for business in the UK, October 2006.
2008 – Icesave in the Netherlands opens for business in April.
September 15: Lehman Brothers declare bankruptcy.
Sept 22: Glitnir and BYR announce they will merge.
Sept 29: Icelandic government takes over 75% of Glitnir. Glitnir officials complain they wanted a loan, not to be taken over.
October 5:
The FME announces that trading is suspended in all Icelandic financial companies (i.e., Glitnir Bank, Kaupthing Bank, Landsbanki Bank, Straumur-Burdarás Investment Bank, SPRON and Exista). Panic abroad begins to form.
Oct 6: The “Act providing for special powers in exceptional financial Market circumstances” is passed in the Alþingi, the Icelandic Parliament. One of the primary amendments to the Act on Depositors’ and Investors’ Guarantee Fund is to the effect that deposits will “be given priority in the event of insolvency proceedings.” Morgunblaðið announces British depositors cannot withdraw from Icesave accounts. Panic ensues.
Oct 7: The Financial Supervisory Authority (FME) takes over Landsbanki.
Oct 8: Then Prime Minister Geir H. Haarde announces: “there is a good chance that Landsbanki’s assets will cover a large part of Icesave’s deposits.” At the same time, British Finance Minister Alistair Darling says that Iceland told him they would not cover deposits left by British depositors, only Icelandic ones. Haarde tries to assure people that the Icelandic and British authorities are talking it over. Then Finance Minister Björgvin G. Sigurðsson tells people not to panic. Later that day, the British government evokes the Anti-terrorism, Crime and Security Act of 2001 against Landsbanki, the Central Bank of Iceland and the Government of Iceland in the United Kingdom. Dutch authorities contact Iceland to get information on their own deposits, as they’re not able to withdraw, either.
Oct 9: Dutch Finance Minister Wouter Bos tells the public that the Dutch government will cover the Icesave deposits, with each depositor guaranteed up to 100,000 Euros. At the time it is estimated that 1.6 billion Euros had been deposited by Dutch investors into Icesave. It will later turn out to be 59 million Euros.
Oct 10: Dutch bank Fortis expresses an interest in taking over the Dutch branches of Icesave. Dutch authorities demand the Icelandic government cover up to 20,000 euro per each Dutch Icesave account.
Oct 15: Landsbanki pays 600 million Euros to the Dutch Icesave branches. 13 Dutch municipalities have a total of 59 million Euros deposited into Icesave, among them the Hague, which had deposited 10 million Euros.
Oct 20: In response to Britain’s use of an anti-terrorism law to seize Landsbanki’s assets, the organisation InDefence is launched within Iceland, protesting the decision, employing the catch-phrase, “We are not terrorists.”
November 4: British depositors receive e-mails informing them that they can retrieve their deposits the following week. On the 21st, withdrawals open up again.
Nov 6: The British government announces it will lend 800 million pounds to cover British Icesave deposits. At the time it is estimated that 300,000 Brits had a total of 4 billion pounds deposited into Icesave.
Nov 12: About 100,000 Dutch Icesave depositors plea with their central bank to cover their deposits. At that time, the Dutch central bank was able to cover up to 100,000 Euros on each account.
Nov 13: Icelandic authorities begin talks with France, as the EU head, about Icesave and possible solutions.
Nov 14: It is estimated that the total amount owed from the Icesave collapse is 640 billion krónur – at that time, about 3 billion Euros.
December 23: Just before Christmas break, Icelandic parliament votes to raise taxes, although the Prime Minister tells reporters that no deal has yet been reached with regards to paying off the Icesave accounts. Then Foreign Minister Ingibjörg Sólrún Gísladóttir tells reporters that talks with the British and Dutch will continue in January. Unrest within Iceland grows.
Dec 29: Dutch authorities block the sale of Icesave’s Holland branches, which at the time are worth between 5 to 10 million Euros. A total of 1.6 billion Euros had been deposited into the accounts. Ten banks had shown interest in buying the branches. The following day, it would be reported that 118,000 of the 144,000 Dutch with Icesave accounts had gotten their money back.
January 9: Investment and real estate company Newcastle Building Society lays off 150 people in the UK due to losses incurred in the Icesave crash.
Jan 23: It comes to light that the Icesave debacle has cost the Dutch government 230 million Euros, 212 million of which was used to pay back Dutch depositors. Geir H. Haarde resigns as Prime Minister of Iceland. Talks for an emergency government begin.
February 24:
Svavar Gestsson is appointed chairman of the Icesave agreement committee.
March 31: Foreign Minister Össur Skarphéðinsson and British Foreign Minister David Miliband engage in talks over Icesave, both
expressing confidence that a deal will be reached. Talks continue over the coming weeks between Icelandic, British and Dutch authorities, with all sides characteristically tight-lipped but optimistic.
June 8: Deal reached with British and Dutch over Icesave. The British government will be repaid 2.3 billion pounds over the next 15 years with an interest rate of 5.5%. The agreement effectively makes the money a loan to Iceland. A UK treasury spokesman said of the news to the AFP, “The government welcomes Iceland’s commitment to recognise its obligations under the EC Deposit Guarantee Scheme to repay depositors in Icesave.” The deal sparks protests from legal and economic experts at home and abroad, and prompts renewed protesting in front of parliament where, among other things, coins are thrown at the windows of parliament. The Progressive Party has rejected the deal. Some, such as former Landsbanki director Sigurjón Þ. Árnason, believe Landsbanki’s assets can cover most if not all of the money, but concerns remain as to how much of the money that the Icelandic government now owes will come directly from Icelandic taxpayers.

Icesave key players
By Jón Trausti Sigurðarson
An island in the Atlantic, home to some 300,000 souls. Its capital is Reykjavík. Settled in the late 800s. An independent nation from settlement until 1262, when it became a subject of Norway. Independent again in 1944.  Had until 2003 never been a part of military action. Employed one troop in Iraq before withdrawing last year. Hit hard by the financial fiasco of 2008. Proud home to Björk, Skyr and schizophrenic weather. Also not-so-proud home of Landsbanki, whose Icesave accounts are a popular subject right now.
United Kingdom
Actually consists of four countries: England, Scotland, Wales and Northern Ireland. Home to some 61 million folks, give or take. Capital is London. Known for colonizing smaller nations. At the height of its power, the UK ruled a quarter of the globe’s land surface. Its empire has since been reduced. Pissed off at Iceland for Icesave. Froze all Landsbanki assets in the UK, invoking a 2001 terrorist attack legislation.
Been around since the 16th century. Currently home to some 16.5 million people. Its capital is Amsterdam. Are known for their very tall inhabitants, relaxed marijuana legislation and windmills. Also for founding New York City. In the 17th century, the Netherlands became the first capitalist state in history. This lead them to experience the first known asset-inflation bubble: the Tulip Mania of 1636. Thus, they should be understanding of Iceland’s current situation.




Landsbanki (b.1886, d. 2008)

The now bankrupt bank that opened the Icesave accounts in the UK and Netherlands. Bought by reformed convict Björgólfur Guðmundsson and his son Björgólfur Thor in 2002. The sale marked the beginning of the father and son’s massive (now failed) business adventure. At the adventure’s height, Guðmundsson, amongst other things, acquired an English football team. Landsbanki’s bankruptcy and nationalization has left the Icelandic government burdened with debt.

Lehman Brothers (b. 1850, d. 2008)

Lehman Brothers was a financial service firm, an investment bank that declared bankruptcy on September 15, 2008. The bankruptcy is the largest one in the history of the U.S. Lehman Bros. operated out of New York, with regional headquarters in London and Tokyo. They took heavy losses in the subprime mortgage crisis in 2008 which, among other things, resulted in the bank’s fall. Upon declaring bankruptcy, the bank moved a large part of its assets from the regional headquarters, causing escalating panic in London and Tokyo.


















The International Monetary Fund was created in 1944 to “to stabilize exchange rates and assist the reconstruction of the world’s international payment system” after WWII. Currently 185 nations are members of the IMF. Iceland is the first country in Western Europe to receive an IMF loan, since the UK in 1976. The IMF’s offices are in Washington DC. Current head of the IMF is French born Dominique Strauss-Kahn.

  • With reporting by Irina Domurath
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