Sunday, March 14, 2010

Iceland Said 'Nei', So Why Couldn't We?

By Jennifer O’Connell

The Icelandic people got a special, pre-Eurovision treat last week. 

It came in the form of a motivational video originally made for staff at Landsbanki - the bank behind the Icesave debacle - which was nationalised in the meltdown of 2008.The video debuted on YouTube in recent weeks and became an instant cult hit.

It features a blonde-haired, sparkling toothed, bank teller who looks like one of the forgotten members of A-Ha.

He throws off the shackles of his telephone headset, and rises up from his chair, belting out a catchy little number about ‘gildin okkar’ - ‘our values’.

As the song progresses towards its Johnny Logan-esque crescendo, the teller bursts into a meeting of senior managers and reminds them of their obligations to promote the values of respect, honesty, enthusiasm and, er, professionalism.

For the viewers in Iceland, the best part of this must have been the knowledge that the video, since it was made in 2009,was paid for by their own cold, hard krona.

At least Landsbanki was good enough to give the people who are coughing up for this unique form of cultural enrichment an insight into where their money’s going. This is unlike our Central Bank and Anglo Irish bank, both of which continue to stubbornly hide away their art collections from the eyes of their actual owners.

For the Icelandic people, it was just another reason to smile in a week in which voters resoundingly rejected the opportunity to foot the €3.8 billion bill for money owed to investors in Britain and the Netherlands, following the collapse in 2008 of Landsbanki’s internet arm, Icesave.

As a country, we could learn a lot from the events that have unfolded in Iceland over the past three years - and the last three months in particular.

Icesave opened its doors to the British market in 2006. It offered competitive rates - some of its savings packages paid interest at 6 per cent - and it quickly became the darling investment product of the British media.

More than 300,000 British customers opened an Icesave account - which meant that, incredibly, there were almost as many British savers in Iceland as there are Icelandic people.

Nobody at the time appears to have stopped to question why Landsbanki was so desperate for money that it was willing to pay so far over the odds.

In fact, amidst mounting concern in international circles about the golden circle at the heart of Iceland’s financial and corporate sectors, other sources of finance had dried up. Landsbanki had become almost totally reliant on the influx of money from British and Dutch savers.

So when, as the global financial crisis reached its nadir in October 2008, these retail customers decided that perhaps leaving all their savings in a foreign-owned internet bank wasn’t such a good idea, there simply wasn’t enough money left to repay them.

More than 400,000 depositors with Icesave accounts in Britain and the Netherlands were left high and dry until their own governments stepped in to compensate them.

Now the British and Dutch governments want their money back.

In essence, what the Icelandic people were voting on last week was a package hammered out between the IMF, Britain, the Netherlands and the beleaguered Icelandic government to repay €3.4 billion at 5.5 per cent interest.

In a country with a population not substantially greater than that of Belfast, this means every Icelander would personally have inherited a debt of around €12,000 to be repaid over the next eight years.

At their core, the problems there are fundamentally quite different to those in Ireland. So why, then, does so much of it sounds strangely familiar?

As here, financial regulators in Iceland - and in Britain - are facing accusations that they didn’t act quickly enough when it became clear there was a bubble developing; when the banks unexpectedly attracted billions of pounds of international internet savings.

As here, the evolution of a golden circle in business and political circles created an environment where best practice was not always followed.

As here, questions are being asked about the role of the media in puffing the bubble up to bursting point. As here, those who took the greatest risks will walk away unscathed, while several generations of taxpayers foot the bill: the so-called ‘rate tarts’ in Holland and Britain who moved their money from institution to institution with little regard for the potential risks involved have been fully reimbursed by their own governments.

This money Britain and Holland now intends to get back from Icelandic taxpayers.

However, that’s where the similarities between Iceland and Ireland end. 

Because while we have opted for the curl-into-a-foetal-position-and-wish you’d never-been-born line of resistance to Nama, the Icelandic people decided to say ‘‘nei’’.

Armed with half the contents of their kitchen cupboards, they got out on the streets, banging pots and pans.

They took to the internet, waging a publicity campaign on YouTube and Facebook.

They ignored warnings that this bill was vital to their economic recovery, and that they would be exiled from international finance if they did not pass it. They shrugged their collective shoulders when they were told that rejecting it would mean they may not be able to join the EU.

Unabashed, one in every four of voting age - 56,000 in all - signed an online petition against the legislation.

They lobbied their president Olafur Grimsson - who, like our President, ostensibly has limited powers - until he could declare he had no choice but to overturn the legislation and call a referendum.

Last weekend, the legislation was overwhelmingly rejected. In a turnout of more than 63 per cent, only 1.8p er cent voted in favour of the bill.

Of course, a proportion of the money paid out to British and Dutch investors still has to be repaid by Icelandic taxpayers.

But what they have achieved is no less remarkable for that: they have now made it clear that they intend to be consulted. It wasn’t their mistake, but it is their money - and they’d like to have a say in how it is spent.

We could learn a lot from the people of Iceland.


This column first appeared in The Sunday Business Post on March 14, 2010