Icelandic banking news - Daventry’s £8 million what are the chances now?

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) September 1, 2009 --

According to a translation of a government announcement which appears here courtesy of the Icelandic Blog the Iceland Weather Report, “Last week [August 28, 2009] at the “Althing” the Icelandic Parliament they passed legislation authorising a state guarantee for the loans granted by the Governments of the United Kingdom and the Netherlands to the Depositors’ and Investors’ Guarantee Fund of Iceland. Now this money only covered deposits into the Icesave Bank.” More details on this topic can be found in an earlier article in idaventry.com Daventry District Council may shift blame for £8 million deposit in Iceland banks.

According to the legislation, the state guarantee will be subject to certain criteria and preconditions. These are aimed at ensuring debt sustainability and allowing Iceland to restore its financial system and its economy while at the same time honouring Iceland’s international obligations.

The Prime Minister Johanna Sigurdardottir said in a statement welcoming the Althing’s decision:

“This is one of the largest financial and economic issues ever faced by Iceland and it has greatly preoccupied the Althing and the people since the collapse of the banking system last Autumn. The guarantee of the combined loans from the United Kingdom and the Netherlands constitutes the single largest financial commitment ever undertaken by the Government of Iceland. Therefore, as I am sure that every parliamentarian will appreciate, the Icelandic parliament has a solemn duty to ensure an economically sustainable future for the country. This has been its goal. Its conclusion of the matter aims towards securing the recovery of Iceland’s financial system and economy. This is for the mutual benefit of both lender and borrower.”

The Icelandic Prime Minister also said that her Government was hopeful that the Icesave issue would now be concluded in a mutually satisfactory manner.

Alda Sigmunds author of the Iceland Weather Report commenting on the press release said, “This went pretty much as expected, then. I don’t have much more to say about it than I’ve already said, i.e. the fact that we, the regular citizens of this land, have to pony up for Icesave sucks big-time, but with the above-cited preconditions at least there is some understanding of the fact that you can’t get blood from a stone.”

So should HMG pay the money the local council lost here in the Daventry and other councils throughout the UK?

Eva Joly, Norwegian-French investigating magistrate and judge

Eva Joly, Norwegian-French investigating magistrate and judge

One view probably shared by people here in the UK and Iceland is that Prime Minister Brown is partly to blame. In a recent high profile article Eva Joly, a Norwegian-French investigating magistrate and judge, employed by the Icelandic government early this year to act as an advisor to the special investigator into the bank collapse, is quoted saying:

“Let us look, first of all, at the demands of the UK and the Netherlands. These countries are concerned by the failure of the Icelandic banks because they had welcomed their subsidiaries and branches with open arms, even though their authorities had been at least partially alerted to the risks hanging over those banks. They are now demanding that Iceland pay them astronomical sums (more than €2.7 billion to the UK and over €1.3 billion to the Netherlands), plus interest at 5.5%. They consider that Iceland was responsible for guaranteeing the funds deposited with Icesave, the internet arm of Landsbanki that was offering unbeatable rates. The British and the Dutch decided to set that guarantee not at around €20,000 per deposit, as provided for in European and Icelandic legislation – which would already have been impossible for the Icelandic government, who quickly announced after nationalising its banks that it could only guarantee deposits made in Iceland itself – but at €50,000 to €100,000 per deposit, or even higher.

Moreover, the measures that they are taking to get their way are scandalous. Indeed, at the very start of October, the UK began with a measure of extreme retaliation: freezing of the assets of not only Landsbanki but also Kaupthing Bank, which was totally unconnected to Icesave, using its anti-terrorism legislation. In doing so, the UK lumped the Icelandic people, their allies in NATO, together with organisations such as al-Qaeda… And since then, it seems to be using all of its influence to ensure that no international aid is really given to Iceland until its demands have been met. Indeed, Gordon Brown told his parliament that he is working “with the IMF” to establish how much it considered the UK was entitled to claim from Iceland. Mr Brown is wrong when he says that he and his government have no responsibility in the matter. Firstly, Mr Brown has a moral responsibility; having been one of the main proponents of this [banking] model which we can now see has gone up the spout. But he also has a responsibility in the sense that he cannot really hide behind the legal status of Icesave – which made it formally dependent on the Icelandic banking authorities – and say that the UK had neither the means nor the legitimacy to supervise its activities. Could anyone realistically think that a handful of people in Reykjavik could effectively control the activities of a bank in the heart of the City [of London]?”

During the early days when it became public that Daventry District Council had made this very unwise investment decision, idaventry.com was vitriolic of their strategy. We have never believed the somewhat naive view that 95% of the money will be repaid as was reported earlier this year. However, despite this and under the circumstances the neglect was perhaps easy to understand. DDC were advised by people who should have known better and in a more commercial world would probably have been sued for giving wrong advice.

We will probably never get to the bottom of why such a large a mount of money was placed at risk and at the same time we must ignore the Councils casual dismissal of the loss saying it won’t affect services. Daventry District Council are projecting a fall in their reserve funds from the current £2.521m to £0.213m by the end of 2012/13 and going into deficit in 2013/14. Wait for it – this does not take any account of losses on the Icelandic investments. Based on this you can be safe making a prediction that by the end of 2013 , Daventry District Council could be nursing a deficit up toward £10 million - unless the government repay all of the Icelandic banks debts – but don’t hold your breath.

Are we stupid? No we are not stupid. And it beggars belief that we can be told by our elected councillors that the loss of this £8million is not going to affect our services. Let’s face it the only way that can happen is by increasing taxes dramatically.

The conclusion to all of this is that in reality Daventry has to be prepared for the total loss of the £8 million. What is disturbing is our own Councillors seem either ignorant to this fact or remain in denial. It’s no good waiting until 2013 and then discovering we have a £10 million deficit. The program has to be in place soon to try and plug this huge financial hole in the Towns revenue. There are exciting expansion plans on the table for Daventry District, but is it realistic to continue with some of them. Even when on the surface the money to fund these various projects often comes from third-parties, even modest amounts for surveys and consultants could prove crippling. It seems apparent that interest rates will stay low into the foreseeable future and wages and incomes likewise. Increasing local taxes and Rates by any amount is going to meet with major objections both by business and residents. If it’s not already happening then one approach is to put as much pressure on the government now to accept a plan for the complete loss of the money councils placed into Icelandic banks. Otherwise our local leaders had better get their thinking caps on and find ways to raise money from external sources. The alternative is going to be a major crisis looming for this part of the world at any rate.

More information can be found online at http://www.idaventry.com