Should Iceland be made to pay?

It has to be said that the news that Iceland’s voters have rejected the idea of repaying Iceland’s debt to Britain and the Netherlands is not exactly shocking. The result was overwhelming:

With about 98 percent of the votes counted Sunday, roughly 93 percent of voters said no to the plan, in the first public referendum ever held on any subject in Iceland. Less than 2 percent voted yes, and the rest of the votes were invalid.

However, despite the ‘no’ vote the Icelandic government will still repay the money. I have nothing but sympathy for the people of Iceland however who, ultimately, are being asked to repay a debt that is not their fault. In that vein; Britain’s strongarming of the Icelandic government is unacceptable and the right-wing Spectators celebration of the result is hypocritical considering it is the actions of bankers it usually lauds that has put Iceland in  this position.

The reaction of the right-wing is conditioned by the current occupant of Number 10 being from the Labour Party;were David Cameron in the hot-seat they would settle for no less than a full-scale invasion and annexation of Iceland. So, to answer the question posed by the House of Twits, should Iceland be forced to repay?

Of course, most people will say that yes Iceland should be forced to repay a debt caused by the collapse of an Icelandic bank. However,  is it really right to collectively punish an entire populace for the mis-deeds of those at the top and for a failure of regulation? Surely the answer has to be no. What really needs to be addressed is the lack of international protection and regulation that protects customers when banks like Icesave collapse.

What really needs to be addressed is the weakness of governments when it comes to standing up against the markets and this is something that Britain’s government is just as guilty of as Iceland’s. The debt Iceland owes represents nearly 40% of Iceland’s GDP; demands for repayment are punitive and therefore should be rejected. It is not right to cripple a nation because of the actions of its financial elites.

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About darrellgoodliffe

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8 responses to “Should Iceland be made to pay?”

  1. Phil says :

    But did the government not say prior to the default that they would cover Bank looses? Did the government cover bank looses to it own people but not forien investors?

    If the government does not cover looses but tried to get forien investment by stating that it would, then this country is not to be trusted again. And you need to be very weary of purchasing or selling to any country that has a poor reputation. Could push them to a 3rd world country in short order.

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  2. darrellgoodliffe says :

    Phil,

    While you make some valid points on the surface of it to my mind the crux of the problem with your argument is the difference between the government and the people and it is the people who are being asked to pay here. Sure, that government represents the people who elect it but surely the mistakes of their representatives cannot be blamed on the people.

    Collective punishmentof nations is a dangerous road to go down…..

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  3. mommsen says :

    I don’t know whether it made sense for the British government to rescue the UK’s banks by giving them so much of the British taxpayers’ money. (Unlike in France or in Germany, the financial industry has become the most important pillar of Britain’s economy during the last two decades, although I am not really sure whether “pillar” is a good word in this context.)

    But in Germany it certainly did NOT make sense to save the banks from bankruptcy by making German citizens pay for them. The bail-outs are part of a new policy which has nothing to do with any free market philosophy. It’s a policy which Gore Vidal has called “socialism for the rich”.

    When banks do not know how to do business, why should any government want to save them? Let them simply go bankrupt. Fortunately, this is what many US Republican congressmen wanted to do in the autumn of 2008 instead of saving the failed banks on Wall Street – but neither in Britain nor in Germany did any major political party reject the stupid idea of letting the taxpayers pay for the silly business ideas of irresponisble and incompetent bankers.

    Of course, the free market works very well. It always does.

    That’s why the free market would not have let the banks survive.

    But these days even the Tories have stopped to support the idea of having a free market. That’s why they supported the bail-outs of British banks in the House of Commons.

    Had the people been able to make these most important political decisions themselves, perhaps they would have made the same decision as the people of Iceland.

    Darrell says that he has “nothing but sympathy for the people of Iceland”.

    So do I.

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  4. darrellgoodliffe says :

    mommsen,

    I supported the bail out because frankly, the alternative was too horrfic in terms of the social cost etc. Whether we have got value for money in terms of the control the government exercises is another question entirely, obviously to my mind it has not.

    Agreed that it has nothing to do with free-market philosophey but then again since I dont support free markets this is not a problem. As I have said the consequences of such a policy would have been too horiffic to support.

    Sorry, but I dont agree. Thanks for the comment though, would it be fair to suggest your a left-libertarian mommsen?

    The people of Iceland made the decision they did because they didnt see themselves as liable for the losses of foreign customers. I dont neccessarily see it as a vote against bail-out per se.

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  5. mommsen says :

    Darrell

    Would it be fair to suggest me a left-libertarian?

    A “left-libertarian”?

    Wow.

    I’ve never tried to define my political point of view, but calling me a “left-libertarian” makes a lot of sense.

    The longer I think about it, the more I like your definition of my political attitude.

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  6. Joe Otten says :

    The problem is that the government already guaranteed the deposits of customers of the high street banks. The question is then what is the most cost-effective way of meeting that guarantee. In Northern Rock’s case it probably was nationalisation.

    Going forward, I doubt a banking system without deposit guarantees would earn the necessary public confidence. In which case we are stuck with the risk of bank failure. But regulations should change to:
    a) ensure that shareholders are wiped out and bonuses clawed back, when a bank has to be rescued: to do any less is to increase moral hazard
    b) maintain a rescue fund paid for with a special tax on banking, so that when the next crisis comes – which it will, one day – there will be a pot of money to patch things up.

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  7. mommsen says :

    Darrell

    You wrote that you supported the bail out because the alternative would have been too horrfic in terms of the social cost etc.

    May I therefore draw your attention to the following article which has been published by The Guardian:

    http://www.guardian.co.uk/commentisfree/2010/mar/11/banks-lied-darling-puppet-city

    If it was only me or any other German who thinks that bail-outs don’t make sense, I would not have been able to add this British newspaper link to my comment.

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  8. darrellgoodliffe says :

    Mommsen,

    Glad you like the tag lol.

    Joe,

    As you probably know; cost-effiency would not be my criteria for judging these kind of policies. I think, in principle, the banks should be nationalised.

    I agree that bonuses should be clawed back and can see the merit in making sure shareholders are keep a tighter rein on their board by inducing some self-interest.

    In terms of the rescue fund; I cant see why if such a thing is going to be created then why they should not be entirely nationalised.

    Mommsen,

    Thanks for the link. I am not saying how you feel is linked to you being German incidentally. I think the article also argues for the alternative course which I have just mentioned in my reply to Joe; they could have been nationalised which ideally is what I would like to happen.

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