Iceland's citizens refuse to pay banker's debts

Iceland's three hugest banks failed, partly as part of the leading edge of the crisis that hit the entire world economy, partly as the result of deliberate attacks by rumor spreading short-selling international hedge funds. Icelanders woke up to their economy in ruins, their standards of living about to take a nose dive and governments in Scandinavia and England demanding they pay the bill for excesses of the financial sector.

Iceland has held a referendum on plans to repay the UK and the Netherlands debts owed from the collapse of Icesave bank.

Despite overwhelming opposition to the proposal, the country faces years of financial pain.

Iceland's 320,000 citizens voted on whether their government should repay Britain and the Netherlands more than 3.8bn euros (£3.4bn) - equivalent to each person contributing 99 euros a month for eight years.

Britain and the Netherlands say they are due the money following Iceland's financial meltdown in 2008. But Icelanders say the terms of the repayment are too onerous and rejected the package in its current form.

The collapse of three of Iceland's biggest banks overwhelmed the country's deposit-insurance scheme.

Some 340,000 British and Dutch depositors in the Icesave online bank (owned by Landsbanki) had to be bailed out by their domestic compensation scheme.

Now these two countries want their money back from Reykjavik.

At stake is nothing less than Iceland's ability to restore its economic credibility in the eyes of the world

According to Dragana Ignjatovic, analyst at IHS Global Insight: "In order for Iceland to even hope to rebuild its battered reputation, a compensation deal needs to be reached."

Speaking to the BBC, Chancellor Alistair Darling said the UK would get its money back, if not for many years.

"It's not a matter of whether the sum should be paid. There is no question we will get the money back but what I am prepared to do is to talk to Iceland about the terms and conditions of the repayment," he told the BBC's Politics Show.

Asked about how long it would take for the UK to be repaid, Mr Darling said it would take "many, many years".

But there was never any suggestion many people would vote "Yes".

That's why the referendum became an explosive political issue.

Most Icelanders argue that they should not be penalised for their government's failure to rein in spending and for the excesses of a few banks.

As we are seeing in Greece, and elsewhere in Europe, the majority of people don't want to be penalised for the actions of a few.

There have already been unsubtle threats to link IMF assistance to debt repayment. There's a strong sense of Déjà vu to all this...

A $30 Billion Heist

There are currently two investigations under way on the foreign banks' role in illegally sending money out of the country. Acting on information compiled by Radical Party lawyer Juan Carlos Iglesias, federal judge Norberto Oyarbide authorized at least 30 raids of foreign financial entities, including HSBC, BBVA-Banco Francés, Citibank, and Bank of Boston, in which computer files, and other documentation on capital transfer out of the country, were confiscated.

Of particular interest is the charge that 385 armored trucks transported billions of dollars in cash to Ezeiza International airport in Buenos Aires at the end of November, to be sent to the United States, while money sent to smaller airports ended up in Paraguay and Uruguay. The Central Bank is also being scrutinized, for failing to adequately supervise the financial system. Oyarbide is looking into capital flight of an estimated $25 billion, and has hinted that the heads of HSBC and BBVA-Banco Francés could be charged with "misappropriation of funds, fraud against the State, and illicit association."

This is the predator/prey approach to international finance capitalism. A game with people's lives.

Some quotes from Icelanders rejecting the imposition of private debt on the public:

Óskar Freyr Hinriksson, Reykjavik

We said a big "No" in this referendum. My family's livelihood comes from selling seafood to the UK and some of my best friends are there. Unfortunately politicians on both sides have taken the Icesave matter out of context, as the over-inflated Landsbanki bank should have been bankrupted from day one of the crash. Neither Icelanders nor the UK public should pay for the Icesave crash, but each state has a tendency to move private debt over to the public and let it pay for decades. Iceland is facing now what the UK, EU and US are facing very soon.
Ivar Palsson, Reykjavik

I voted "No". This referendum was not about rejecting a deal, as a new one is being negotiated as we speak. This vote was about ordinary citizens in a democracy saying "we will not accept socialised losses for the masses". The outcome is a token of the people's unhappiness with a flawed system.
Jon Audunarson, Reykjavik

I voted "No" because I just can't see the logic in a taxpayer like myself bailing out a private bank that runs on profit. It makes as little sense as me bailing out a jewellery store that is going broke. The bottom line is that it has nothing to do with me so therefore I should not be forced to pay for their mistakes.
Saevar Gudbjornsson, Reykjavik