Why Iceland Voted "No" | Michael Hudson |

[jakeXT]

By Michael Hudson

(the following is an extended version of an article that will appear in the Financial Times)

About 75% of Iceland’s voters turned out on Saturday to reject the Social Democratic-Green government’s proposal to pay $5.2 billion to the British and Dutch bank insurance agencies for the Landsbanki-Icesave collapse. Every one of Iceland’s six electoral districts voted in the “No” column – by a national margin of 60% (down from 93% in January 2010).


...

Creditors did not give accurate advice when they told Ireland that it could pay for its bank failures without plunging the economy into depression. Ireland’s experience stands as a warning to other countries about trusting overly optimistic forecasts by central bankers. In Iceland’s case, in November 2008 the IMF staff projected yearend-2009 gross external public and private debt at 160% of GDP – but observed that an exchange rate depreciation of 30% would push the ratio to 240% of GDP, which would be “clearly unsustainable.” But the most recent IMF staff report (January 14, 2011) shows end-2009 gross external debt at 308% of GDP, and estimates end-2010 gross external debt at 333% – even before taking the Icesave and other debts into account!

The main problem with Iceland’s obligation to Britain and the Netherlands is that foreign debt is not paid out of GDP. Apart from what is recovered from Landsbanki (now with the help of Britain’s Serious Fraud Office), the money must be paid in exports. But there has been no negotiation with Britain and Holland over just what Icelandic goods and services these countries would be willing to take in payment. Already in the 1920s, John Maynard Keynes pointed out that the Allied creditor nation had to take some responsibility just how Germany could pay its reparations, if not by exporting more to these countries. In practice, German cities borrowed in New York, turned the dollars over to the Reichsbank, which paid Britain and France, which paid the money back to the U.S. Government for their Inter-Ally Arms debts. In other words, Germany tried to “borrow its way out of debt.” It never works over time.

The normal practice would be for Iceland to appoint a Group of Experts to lay out the strongest possible case. No sovereign nation can be expected to acquiesce in imposing a generation of financial austerity, economic shrinkage and forced emigration of labor to pay for the failed neoliberal experiment that has dragged down so many other European economies.

http://www.creditwritedowns.com/2011/04/why-iceland-voted-no.html

[snagglepuss]

1. To read later.

[ret5hd]

2. I have yet to read or hear a cogent logical argument...

on why people of a country should be obligated to pay the debts of a failed private institution.

I am not being snarky or partisan or purposefully obtuse.

I am not saying that i have heard an argument and that i disagree with the premise or conclusion.

I am saying i have never heard a good argument.

If any one here has, and it is cogent and logical (even if you disagree with it) please give me a link or describe it.

Not being sarcastic or snarky, honestly asking.

[loudsue]

5. I agree with that. If banks think someone is going to bail them out, they have no incentive to

act responsibly. It creates chaos in a society when there is no financial stability to be had. Chaos in a society is bad across the board: it saps creativity and undermines the synergistic advantage that time gives toward building for a (relatively) certain future.

That is one of the failings of our society today: there is no possible long-term stability, only uncertainty. There are no rules that apply to everyone...just different sets of rules that apply to different groups.

[Citizen Worker]

3. A 60% no vote down from 93% from a bit over a year ago. The propagandists are headed back to their

drawing boards and there will be an intense year long propaganda campaign at the end of which there will be a third vote. This time opposition will fall just below 50% and the banksters will win again. The way the democratic process has been perverted in the last generation or two is really quite remarkable when you think about it. Don't like the way voters have voted? Go to work on the propaganda and have the people vote again and again until the preferred outcome is achieved. Funny how that works, right?

[ArcticFox]

4. Agree with ret5

I've never seen any reason given as to why Iceland should pay other nations that lost money because a bank failed.

I've always seen that notion presented as sort of a fundamental law of nature.

Wasn't it Iceland that got royally screwed, which caused that bank to fail in the first place?