The Unification Epicenter of True Lightworkers
Icelandic Anger Brings Debt Forgiveness in Best Recovery Story By Omar R. Valdimarsson
Icelandic Anger Brings Debt Forgiveness in Best Recovery Story By Omar R. Valdimarsson
Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.
Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.
A cyclist passes an Icelandic national flag hanging in a popular shopping street in Reykjavik, Iceland. Photographer: Paul Taggart/Bloomberg
“You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”
The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.
The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.
Crisis Lessons
“The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. “It’s the broadest agreement that’s been undertaken.”
Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.
Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.
Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”
People Vs Markets
Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.
Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.
Activists say the banks should go even further in their debt relief. Andrea J. Olafsdottir, chairman of the Icelandic Homes Coalition, said she doubts the numbers provided by the banks are reliable.
“There are indications that some of the financial institutions in question haven’t lost a penny with the measures that they’ve undertaken,” she said.
Fresh Demands
According to Kristjan Kristjansson, a spokesman for Landsbankinn hf, the amount written off by the banks is probably larger than the 196.4 billion kronur ($1.6 billion) that the Financial Services Association estimates, since that figure only includes debt relief required by the courts or the government.
“There are still a lot of people facing difficulties; at the same time there are a lot of people doing fine,” Kristjansson said. “It’s nearly impossible to say when enough is enough; alongside every measure that is taken, there are fresh demands for further action.”
As a precursor to the global Occupy Wall Street movement and austerity protests acrossEurope, Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, forcing police to use teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.
A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown.
Legal Aftermath
Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.
Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.
That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.
The U.S. subprime crisis sent home prices plunging 33 percent from a 2006 peak. While households there don’t face the same degree of debt relief as that pushed through in Iceland, President Barack Obama this month proposed plans to expand loan modifications, including some principal reductions.
According to Christensen at Danske Bank, “the bottom line is that if households are insolvent, then the banks just have to go along with it, regardless of the interests of the banks.”
To contact the reporter on this story: Omar R. Valdimarsson in Reykjavikvaldimarsson@bloomberg.net.
Views: 16
Replies to This Discussion
-
Permalink Reply by Besimi on
-
The President Of Iceland Tells Us How He Had The Balls To Stand Up To Britain
The president of Iceland sits in his study drinking tea from an immaculate china set.
"If a collapse in the financial sector can bring one of the most stable and secure democracies and political structures to his knees as happened in Iceland," Ólafur Ragnar Grímsson says to me, "then what could it do in countries that have less stable democratic and political history?"
The tiny country is unique not only in its stunning geography but also in its open democracy. This democracy was pivotal in the choice to let three giant banks fail during the financial crisis.
For Ólafur, the crisis of 2008 was personal. Once the darling of the left wing, he worked as finance minister for several years before he became president of the country in 1996, a largely ceremonial role that he's inhabited ever since. Like many in the country he was once a cheerleader for Iceland's financial sector, privatized at the start of the 21st century — and the sudden collapse was a painful reminder that Iceland was a small, isolated place.
Now, of course, most headlines we see about Iceland seem positive. Iceland is repaying its IMF loans early, unemployment is down, and growth is above average. The streets of Reykjavik seem calm and happy.
Other countries, of course, haven't been so lucky. The crisis remains front page news in Greece, Italy and Spain — countries that followed a very different response from Iceland's.
Ólafur argues that his country's strength came from recognizing the problem was not just an "economic and financial challenge", but a "profound social, political, and even judicial" challenge.
After the crisis, the country held a full judicial investigation, and went against "the prevailing economic orthodoxies of the American, European and IMF model." Ólafur says that he likes to think that the IMF learned more from Iceland during this time than vice versa.
Adam Taylor / Business Insider
To Ólafur's credit, the Icesave debts are likely to be settled soon, using money from the estate of Landsbanki. He believes that if the U.K. and Holland had waited a while longer there would have been no conflict.
After 2008, Icelandic relations with Europe may have been strained. It was during a dinner with foreign diplomats that year that Ólafur reportedly said “The North Atlantic is important to Scandinavia, the U.S. and Brita...
I also can't help but notice that one of the reception rooms in the Presidential residence contains prominent photos of Ólafur with Vladimir Putin and Hu Jintao — and not a single photo, to my eyes at least, of a European leader.
Ólafur dismisses the quote, going on to say that his problem isn't Europe, but the European and American banking system. He says Iceland's lesson is that "If you want your economy to excel in the 21st century [...] a big banking sector, even a very successful banking sector, is bad news."
"You could even argue that the bigger the banking sector is, the worse the news is for your economy," he adds, later blaming the huge growth of Iceland's banking sector on the prevailing European banking philosophy and incompetent rating agencies.
Instead, the country is hoping to use not only its creative and intellectual capital, now freed from the finance industry, but also its unique geographical situation.
"The Arctic has become one of the most crucial regions for the future of the world, both in terms of economy, trade and climate and health," he says, adding that he feels Iceland, a member of the Arctic Council, has a ten year head-start on the issue, which is now attracting the interest of the EU, China and South Korea — countries with no geographical claim on the area.
This future is something that Ólafur clearly sees himself as a part of. He had originally told the country that he would not run for president again — he had been in office for 16 years and felt he could work better without the day-to-day stress.
However, after an online petition circulating managed to get 30,000 signatures last month, Ólafur decided to run for a fifth term. The elections will be held in June.
While other candidates have come forward, that 15 percent of the population who have already signed up would likely give Ólafur reason to believe he will win. He says it was the "public will" of Iceland that caused him to change his mind. "If a large part of the nation wants me to continue, I will bow to that public will," he says.
"But if that turns out to not be the case, that's also fine with me."
Read more: http://www.businessinsider.com/olafur-ragnar-grmsson-iceland-icesav...
© 2026 Created by Besimi.
Powered by
