By Michael Baxter 8 Jan 2010 [2 Comments | 379 views]
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There is no shortage of media coverage slamming Iceland for its decisions not to honour the debts its banks built up.
If you get into debt then you have an obligation to repay it, goes the argument. If you refuse, then you lose credibility, and suffer a loss of trust. Countries that default are relegated to pariah status. The ultimate sanction against Iceland is now being discussed. Refuse it permission to join the EU- oh how that must hurt.
Besides, there is no need to default. If you get into debt, there’s those nice boys and girls at the IMF.
It is time to spray some de-icer on those cruel arguments.
First of all, bear in mind the size of Iceland’s debts. We are talking around $5.5 billion for a country with a population of 300,000. So that’s over $10,000 for every Icelandic man, women and child.
Tough, you may respond, that is irrelevant. You have to pay the price for your recklessness.
It is just that the people of Iceland were not reckless at all. Sure their bankers were, but then so too were bankers across the world. What about the recklessness of the people who put their money in Icelandic banks?
So your average citizen of Iceland was at fault because he or she forgot to take a good look at Icelandic banks’ balance sheets. The kids were especially culpable, what were they doing at school if they weren’t examining balance sheets?
It is just that while it is true to say that all citizens and its children should be experts on bank balance sheets, one might argue that investors in the banks should be too.
You can’t have things both ways. If you say bankers must pay for their errors, what about their customers. Shouldn’t they pay too?
Then there’s bankers themselves. RBS is still here. Most staff kept their jobs. The banks were bailed out, and now the bonuses are rolling in. And yet we hold an entire country to ransom.
There is such a thing as taking responsibility for your own actions.
The media has focused its ire on banks, on corporate greed, and rarely have they mentioned that greed from the public, who borrowed against the illusion that they had grown richer just because their property had gone up in value. It was an illusion the media encouraged, and now they are saying the people of Iceland should pay the price.
The retort runs like this. The British and Dutch governments lent Iceland the money to refund depositors at its banks. Therefore the country has an obligation to repay the loans.
But this argument overlooks another important point, The country was given very little choice about taking these loans. Remember at the time, the British used anti terrorist legislation to try and force the repayment of some monies.
Icelandic politicians were hurled up in front of the world’s media and subjected to humiliation and verbal torture. And in those circumstances they agreed to a loan they probably shouldn’t have agreed to.
The errors that were behind the banking crisis were everywhere. Iceland has been made a scapegoat, and well done for its people to stand up to the bullies from Britain, and especially the British media.
I believe that Iceland had government backed guarantees for the 1st 25,000? on each account, why should these “guaranteed” amounts not be paid, these were in force when the accounts were taken out.
A mirror position to that of another (bank with a) small county (attached): Ireland. See a very similar argument from economist David McWilliams: http://www.davidmcwilliams.ie/2010/01/06/iceland-shows-importance-of-putting-people-before-banks