Below, find a letter to the Financial Times on Iceland, stressing co-responsibility between creditors and debtors for the Icesave debacle. It has not been published, and so we are making its contents available here:
So the independent people of Iceland have once more affirmed the principle that the private losses of reckless banks should not be passed on to ordinary citizens. On 7th January 2010 we wrote (FT letters) that the UK and the Netherlands should “cease to use economic force majeure on a tiny country, and accept the principle of co-responsibility for the crisis.” This is still the case. The interest rate now claimed (on a legally non-existent ‘debt’) is slightly less usurious than at the outset, but still unfair.
Under EC Directive 94/19 on guarantee schemes, “Member States shall check that branches established by a credit institution which has its head office outwith the Community [in this case, Reykjavik] have cover equivalent to that prescribed in this Directive.” Iceland did have a guarantee scheme, but under Icelandic Act 1998/99, its required assets were no more than 1% of total guaranteed bank savings – hopelessly inadequate for a systemic failure. Landesbanki set up the Icesave scheme in the UK and Holland in 2006 and 2008 respectively, by which time it was plain to all with eyes to see that the Icelandic banking system faced a high risk of disaster. All three states closed their eyes to the patent inadequacy of Iceland’s guarantee scheme – and all should share the pain now.