Iceland government falls

[Jan Klimkowski]

Hopefully the people of Iceland are about to give the Shock Therapists of the IMF, the City of London et al what they deserve: :thefinger::thefinger::thefinger:

Even the very name of this proposal - IceSAVE - is an Orwellian piece of propaganda, when its consequence would be to screw Icelanders for a generation and more.

Iceland Lawmakers Threaten to Reject Icesave Bill a Second Time

Dec. 21 (Bloomberg) -- Iceland’s parliament may reject a foreign depositor bill for a second time in a move that would sour relations with the U.K. and Netherlands and that Fitch Ratings has signaled will weaken the sovereign’s credit grade.

“It’s difficult to think through what will happen if Iceland doesn’t pass the Icesave agreement,” Economic Affairs Minister Gylfi Magnusson said in a Dec. 18 telephone interview.

The depositor accord, which polls show almost 70 percent of Icelanders oppose, is the last milestone the government must reach to repair international relations. Settling claims stemming from Icesave, as the deposit accounts were known, is “key to everything else” and needs to be “resolved pretty shortly,” Fitch senior analyst Paul Rawkins said in an Oct. 21 interview. Fitch ranks Iceland BBB-, one notch above junk.

All 28 opposition lawmakers in the 63-seat parliament will try to block a bill that obliges Iceland to cover the depositor claims using borrowed funds from the U.K. and Netherlands, party leaders told Bloomberg. Thrainn Bertelsson, an independent member of parliament who used to be in the opposition, said in an interview he can’t guarantee he will support the bill.

In the government, Left Green lawmaker Lilja Mosesdottir, who sided with the opposition in an earlier vote, said in an interview she remains “skeptical.” Left Green lawmaker Ogmundur Jonasson declined to say he won’t reject the legislation a second time and fellow Left Green lawmakers Atli Gislason and Asmundur Einar Dadason indicated to local media they may reject the second bill after it was presented to parliament on Oct. 22.

The third and final debate will take place before the New Year, Deputy Chairman of the budget committee Bjorn Valur Gislason said in a Dec. 17 interview.

Anti-Icesave Petition

“Failure to pass the agreement will delay the resurrection of the economy and stall any progress in Iceland’s international relations,” Magnusson said. “It would also delay Iceland’s access to international financial markets.”

Moody’s Investors Service rates Iceland’s debt Baa3, and Standard & Poor’s gives the sovereign a BBB- grade, both ratings are one level above junk. Magnusson said on Nov. 12 he was “optimistic” the island will keep its investment grade status.

Even if the depositor bill does pass through parliament, it must still be ratified by President Olafur Ragnar Grimsson. More than 34,000 people have signed a petition calling on him not to sign the law. If he bows to public pressure, as he did in 2004 on a media ownership bill in response to a petition carrying 32,000 signatures, the bill will be put to a referendum.

‘Healthy’ Banks

Progress on other parts of Iceland’s economic reconstruction has helped improve investor sentiment. The government on Dec. 17 said it spent 250 billion kronur ($2 billion) less than planned in recapitalization costs for the state-created units of the three failed banks after creditors agreed to take on equity stakes. Finance Minister Steingrimur Sigfusson said then Iceland now has three “healthy and fully financed banks.”

Credit default swap spreads on Icelandic debt have narrowed to 420 basis points on Dec. 18 from a peak of 1,096 basis points on March 9. A lower CDS spread reflects investor perceptions of improved credit quality.

The Icesave bill has received more media attention than the island’s other creditor disputes after the failure of Iceland’s banking system last year meant thousands of U.K. and Dutch depositors risked losing their life savings. The U.K. deployed anti-terror legislation to freeze Icelandic assets as uncertainty about cross border banking rules left doubts about which country should bear the cost of covering the claims.

Prime Minister Johanna Sigurdardottir on Oct. 19 presented an accord between her coalition of Social Democrats and Left Greens providing Iceland with a 2.35 billion-pound ($3.78 billion) loan from the U.K. and 1.2 billion euros ($1.71 billion) from the Netherlands to cover the claims.

Eight Times GDP

The October agreement was an amended version of a June accord after lawmakers rejected the first bill.

The failure of Glitnir Bank hf, Kaupthing Bank hf and Landsbanki Islands hf in October 2008 left creditors seeking to recoup about $80 billion in debt, almost eight times Iceland’s gross domestic product. The island has relied on a $4.6 billion International Monetary Fund-led loan since last year to rebuild its economy.

Failure to pass the depositor bill will disrupt the island’s economic program with the fund, Mark Flanagan, head of the IMF’s mission to Iceland, said in an interview. Earlier delays in resolving creditor claims prompted the IMF to push back until October a loan payment due in February.

Opposition Resolve

The chairman of the opposition Independence Party Bjarni Benediktsson said all 16 lawmakers in his party will vote against the bill, while Gunnar Bragi Sveinsson of the opposition Progressive Party said all nine parliamentry members of his party were opposed. Birgitta Jonsdottir, a spokeswoman for the opposition party calling itself The Movement said none of her party’s three members will back the bill.

The deal requires Iceland to pay back the loan, which carries an interest rate of 5.5 percent, over 15 years. It will be interest-only for the first seven years.

http://www.bloomberg.com/apps/news?pid=n...85sXUNswAw