The amazing story of Iceland's boom and then bust is the lead story in the new chapter on trade, bubbles, and market making in the second edition of the text. The saga continues.
As part of the boom, Icelandic banks offered very attractive interest rates to foreign depositors in the UK and the Netherlands through Icesave accounts. When the bust came, the foreign governments ended up picking up the guarantees on the deposits. And, they want their money back.
As part of the bailout negotiations, the Icelandic government had agreed to repay the UK and the Netherlands for the amount of the guarantees (which come to about $17,000 per citizen in Iceland - ouch!), and its parliament recently passed a bill authorizing the re-payments. Yesterday, however, President Olafur Ragnar Grimsson vetoed the bill, which about 70% of the population reportedly opposes.
My understanding of the situation is that the banks in Iceland explicitly did not provide guarantees to depositors. That the UK and Netherlands governments decided to make good. That both those governments, the EU, and the IMF put pressure on Iceland to provide ex post guarantees, by making implicit, and sometimes explicit, threats about future access to international credit markets. That the government of Iceland caved.
ReplyDeleteIt's a slightly different story told in this way.
I might add that every account I read of this situation provides a different description of the actions of the Icelandic banks, of the government of Iceland, and so on. I think I'll wait until I read something somewhat definitive.
ReplyDeleteI agree. I looked at a number of articles as well and didn't see a whole lot of consistency. It does seem that the government of Iceland is between a rock and hard place on this one.
ReplyDelete