Iceland votes against bailing out banks...again

bladeruner

Plenty on the news about this.
Our situation is a bit different but does anyone think we should follow suit?
Their main motivation is that tax payers should not shoulder burden of private banks.

Nody

bladeruner wrote: »

Plenty on the news about this.
Our situation is a bit different but does anyone think we should follow suit?
Their main motivation is that tax payers should not shoulder burden of private banks.

And because of that they are very unlikely to get into EU or get loans from the IMF; I don't have a problem with the idea but be aware that means balanced budget today, not a 4 year adjustment to only spending 3% more then what comes in.

femur61

We Irish are calling for a referendum on the bailing out of the banks, but where will the money come from to pay all of the PS. the gaurds, nurses, teachers, social welfare, running of schools. I have no love for the entitlements or wages of the PS but if no bailout the governement will have to raid the deposits in banks of ordinary people just to keep the country running. Are people unaware "we've no money".

omahaid

I'm curious about this too. Have Iceland had to immediately balance their budget or what has happened?

deanh

No matter what the result, Iceland still owes the money and will have to come up with a credible plan to make repayments. There is no painless way out of this. Referenda of this nature are a rather pointless exercise.

karlth

It concerns deposits in high interest accounts in the UK and the Netherlands.

When the Icelandic bank Landbanki went under the UK and Dutch governments paid out the deposits in UK and Netherlands and sent the bill for it to the Icelandic government. The problem being that due to some flaky EU regulation there is no legal obligation for a government to guarantee deposits.

When Iceland said no, UK listed Iceland on a terrorism watchlist and blocked any IMF involvement unless the bill was paid.

In the end it was agreed that Uk and Netherlands would bill Iceland for 20000 euros per account and 5.5 interest.

Since that agreement, that was vetoed by the Icelandic president several things have changed. Firstly Iceland really doesn't want to pay interest on that "loan", secondly serious legal questions have been raised on whether iceland has to pay and finally due to deposits having priority over other claims then the insolvent bank can probably pay the UK and dutch governments in full in 2-3 years.

Due to the numbers involved this is a minor issue for UK and Netherlands but for a population of 300.000 this is a very, very serious issue.

karlth

omahaid wrote: »

I'm curious about this too. Have Iceland had to immediately balance their budget or what has happened?

Iceland has their own currency so balancing the budget isn't as critical.

The budget deficit is around 5% of gdp.

whiteonion

Since when does a government have a legal obligation to back private debts?

karlth

whiteonion wrote: »

Since when does a government have a legal obligation to back private debts?

Iceland didn't guarantee any private debts. These were high interest deposits and that is what makes it more complex.

kenrr

Very simplistically, my understanding is that, prior to the banking collapse, depositors and senior bond holders should bear any losses equally, which is the same as in Ireland. Iceland then retrospectively changed the law and made administrative decisions that took money from the banks assets to pay domestic depositors in full; overseas depositors got zero; senior bondholders got what was left of the assets, i.e. domestic depositors got burned 0%; overseas depsoitors were burned 100%; senior bondholders were burned about 70%. Therefore the Icelandic Govt didn't guarantee anything or use taxpayers money to reimburse domestic depositors losses ... they imposed an unequal division of the banks' assets; which was obviously popular with domestic depositors and taxpayers. However obviously unpopular with overseas depositors and senior bondholders who would have suffered lesser losses if the assets had been divided equally and domestic depositors had also been burned in accordance with the original legal situation. Senior bondholders and now the overseas depositors (represented by the UK and Dutch Govts) are apparently taking legal action accordingly. Basically, overseas depositors and senior bondholders know they will suffer losses but they want to limit those losses to the amount that would legally apply under the original law when domestic depositors would also suffer their share of the losses. (I accept it's a very simplistic interpretation.)

McDave

It's tempting to be given a say in voting against bailing out investors in Irish banks, especially Anglo and INBS. And I'd support the notion if, down the years, we had been a prudent electorate and behaved sensibly in our asset acquisition and consumer behaviour.

But my feeling is that a referendum would be an exercise in hypocrisy, giving people who helped get us into this mess an unwarranted opportunity to salve their consciences. I.e. the people who voted in three successive Ahern administrations, and those who overpaid for property, especially for "investment".

RichardAnd

femur61 wrote: »

We Irish are calling for a referendum on the bailing out of the banks, but where will the money come from to pay all of the PS. the gaurds, nurses, teachers, social welfare, running of schools. I have no love for the entitlements or wages of the PS but if no bailout the governement will have to raid the deposits in banks of ordinary people just to keep the country running. Are people unaware "we've no money".

Very true. During the last election, I really had a problem with the far left parties populating the idea that defaulting was a soft option. They made it seem that it was simply a matter of saying "we're not paying" and then all of the austerity goes away.

Of course, it doesn't work like that.

professore

femur61 wrote: »

We Irish are calling for a referendum on the bailing out of the banks, but where will the money come from to pay all of the PS. the gaurds, nurses, teachers, social welfare, running of schools. I have no love for the entitlements or wages of the PS but if no bailout the governement will have to raid the deposits in banks of ordinary people just to keep the country running. Are people unaware "we've no money".

Where will it come from after 2013?

karlth

kenrr wrote: »

Very simplistically, my understanding is that, prior to the banking collapse, depositors and senior bond holders should bear any losses equally, which is the same as in Ireland. Iceland then retrospectively changed the law and made administrative decisions that took money from the banks assets to pay domestic depositors in full; overseas depositors got zero; senior bondholders got what was left of the assets, i.e. domestic depositors got burned 0%; overseas depsoitors were burned 100%; senior bondholders were burned about 70%.

Actually this is not correct. All deposits, domestic and foreign, were placed above senior debt.

The government created a new domestic bank out of the bankrupt bank and placed all domestic deposits in that one. To cover the deposits it took all domestic assets and put them in the bank as well.

Now and this is the important point: The new bank paid the bankrupt bank the difference between the domestic assets and domestic deposits.

Due to deposits claims having higher priority than senior bonds deposits will be covered in full. The difference being that foreign deposit holders, being paid back in Euros and Pounds instead of Kronas, escaped the devaluation of the Icelandic currency so they essentially were covered better then domestic deposit holders.

Senior bond holders though got burned very badly.