10 DOWNING STREET
LONDON SW1A 2AA

23 June 2009

Dear Prime Minister

I am delighted that our great countries have reached an agreement regarding the sensitive ICESAVE dispute. However, it has been brought to my attention that conformation from the Icelandic Parliament has not been assured.

Let me make it clear that should the Icelandic parliament reject our agreement, such a humiliation would not be easily tolerated by Great Britain. I am sure you understand that we consider parliamentary support only as a formality in diplomatic relations between countries.

Should the Icelandic Parliament reject the agreement I ensure you that there will be no further negotiations. You must understand that my government can not appear weak when dealing with a country of only 300,000 citizens. We will therefore be obliged to use our influence within the European Union as well as the International Monetary Fund to slow down any aid or development. This might result in cancelling loans and postponing the Icelandic application for EU membership. More serious consequences would follow with gradual isolation of Iceland from the international community.

It will eventually be realized that the Icelandic parliament will have no other options than to confirm this agreement but the time wasted until conformation is indeed unfortunate.

I am deeply sorry for sharing such unpleasant concerns, but I wish you to be fully informed on the vital importance of having our differences solved quickly and easily, so I hope you are able to influence your respected members of parliament. Only if necessary, you may share the contents of my letter to relevant parliament members on a confidential basis.

Let me at last ensure you that it is the full intention of Great Britain to maintain the strong friendship between the two nations. We will certainly acknowledge special interests of Iceland regarding its application for membership in the European Union.

I believe that our two countries will become even stronger allies in the future as we sail through these difficult times.

Yours sincerely,
Gordon Brown
(sign)

I wonder if this letter is genuine after all,
Gordon Brown cant spell.

http://www.thesun.co.uk/sol/homepage/news/campaigns/our_boys/2720283/Prime-Minister-Gordon-Brown-couldnt-even-get-our-name-right.html

http://www.guardian.co.uk/politics/2009/nov/09/gordon-brown-misspelled-soldiers-name

From an EU perspective, Iceland would have to be punished and be seen to be punished. Defaulting and expulsion from the EEA would be the least of the country’s problems. The inevitable sanctions would hurt much more. Additionally, there wouldn’t be a credible government to manage during the sanctions as the current coalition would inevitably collapse soon after parliament failed to ratify its loan agreements.

>>>>That $5bn is pretty-much elective. They don’t have to borrow it, but people from both sides of the political spectrum want to because they fear the effects of not borrowing it.

Thanks for good evenhanded overview. You are correct, Iceland does not HAVE TO borrow it, but it will be pretty much forced to. There is lot of reports coming out in the last few days and weeks, about other debt Iceland has that will have to be serviced. This includes:

a) loans by various local governments

b) earlier loans by the central bank to build up the FX reserves (which were completely inadequate). One of these really large FX loans is due in 2011 according to the report that was published alongside with the IceSave legislation. See Mynd 4 (picture 4) in:
http://www.island.is/endurreisn/stjornvold/adgerdir-stjornvalda/samantekt-adgerda/icesave-samningurinn/greinargerd-med-frumvarpi/#

c) loans by Icelandic energy companies to finance their various recent and past infrastructure projects

d) loans by larger Icelandic companies (other than the banks) to finance their investments and projects

It is very difficult to get accurate information about the size of these loans, since most of the official reports only publish aggregate numbers and they are all in ISK (which is useless for comparison, as it fluctuates too much).

But from what is coming out in the recent press in Iceland, is that the total amount of these loans could amount up to another GDP or about 10B dollars or so (this number is easily off by few B). Of course against these loans are various assets, but they still need to be serviced each year on top of any IceSave/IMF/Nordic obligations we take on.

>>>>Something like 4bn euros? That’s what this article is talking about. Failure to back them may lead to a few things though:
1. Not being allowed into the EU (no biggie, as most of the population don’t seem to want to join)
2. Being kicked out of the EEA. A problem as most of Iceland’s trade is with Europe.
3. No IMF/Nordic loan. Not good, see http://en.wikipedia.org/wiki/Dark_Ages.

All of these are on the table, if the Icelandic parliament decides to refuse the IceSave guarantee. From the most recent news, it looks like the Icelandic government does not have the enough votes to pass the legislation in unchanged form.

If the IceSave guarantee is refused, it will be very important that the different governments in Europe keep their cool. Forcing Iceland prematurely into a sovereign default could have enormous consequences, and not only just for Iceland.

With such a high debt load, banks around the world would suddenly have to realize now huge losses from Iceland, that would otherwise have been considered serviceable. And this would also almost certainly preclude Iceland to pay even part of IceSave in the future.

Various discussions are now going on in Iceland to see if its possible to pass the guarantee, with some limits on the payments from the government. This is what I then somewhat jokingly called the purple options in an earlier post:

http://www.icenews.is/index.php/2009/07/01/iceland-icesave-deal-“there-is-no-plan-b”/comment-page-1/#comment-83787

>>>>Anyway, my economics is rusty, so there may well be inaccuracies in the above.

I think you got it more or less right. In the current environment and with the lack of accurate information available, everyone would be allowed have some inaccuracies, so long as it is relatively low, maybe just within a billion or two :-)

Just an outsider’s opinion, but couldn’t the government of Iceland create it’s own currency valued upon the labor skills of its people and its natural resources? To whom exactly is all of this money owed that Iceland needs to go into mountains debt to pay?

That’s what they’ve got at the moment. The problem is that far too many people who don’t want to are holding markers for the future productive capacity of Iceland.

In theory that’s a self-correcting mechanism, in that the currency devalues because fewer people want it, so the country’s reserves aren’t placed under pressure (unless they choose to spend their foreign currency to try to support their own currency’s exchange rate). Imports are more expensive, so people buy less, and exports are better value abroad, so foreigners buy more.

In Iceland’s case though, they are unusually dependent on imports. So if the ISK devalues, it’ll be painful. That’s further complicated by a large number of Icelandic households being in the again unusual (for the rest of the world) position of owing money in foreign currencies. If the ISK devalues further, they default, which I think means bankruptcy and forced sale of assets at a time when things like the housing market are essentially static (i.e. no one is buying).

On the debt front, there are a number of issues. The markers I referred to above are the glacier bonds – basically existing debt in ISK. Part of the ~$5bn that Iceland hopes to borrow from the IMF/Nordic countries is going to be used to buy ISK to prevent the exchange rate falling too fast.

Part of that ~$5bn is going to be used to recapitalise the domestic parts of the banks (the New Banks).

Part of the ~$5bn is going to be used to ease the transition from what the government expected to be able to spend on services over the next 5-10 years and what they would otherwise be able to if they hadn’t borrowed the money. Remember that tax receipts will fall whilst welfare payments will increase. I’m sure that there will be harsh cuts, but the idea is to make them less harsh.

That $5bn is pretty-much elective. They don’t have to borrow it, but people from both sides of the political spectrum want to because they fear the effects of not borrowing it.

The rest of the debt is the Icesave debt (owed originally to the foreign depositors, but now to the governments of the UK and Netherlands, as they have paid the original depositors). That arises from state backed deposit guarantees (although there is some argument as to whether the state is required to back them). Something like 4bn euros? That’s what this article is talking about. Failure to back them may lead to a few things though:
1. Not being allowed into the EU (no biggie, as most of the population don’t seem to want to join)
2. Being kicked out of the EEA. A problem as most of Iceland’s trade is with Europe.
3. No IMF/Nordic loan. Not good, see http://en.wikipedia.org/wiki/Dark_Ages.

Anyway, my economics is rusty, so there may well be inaccuracies in the above.

And WHERE did these deposits from UK & NL go? Money doesn’t just disappear.”

Atually its not really the money Britain and Netherlands want, they want the country
they could go after the money if they wanted to,
much of it is sitting in tax havens and many of them are British.

This is something every one should take time to watch

http://larahanna.blog.is/img/flvplayer.swf?file=http://larahanna.blog.is/users/3b/larahanna/videos/8072-7227.flv&autostart=true&fs=true

http://larahanna.blog.is/img/flvplayer.swf?file=http://larahanna.blog.is/users/3b/larahanna/videos/8069-7227.flv&autostart=true&fs=true

this gives people some insight into the future we can expect

Gummi “Having recently finished building my summer estate near Thingvellir (8,000 sq. meters of Ikea-like splendour)

looks like its gone too :)
http://visir.is/apps/pbcs.dll/gallery?Site=XZ&Date=20090710&Category=SKODANIR03&ArtNo=908839897&Ref=PH&Params=Itemnr=4

i believe that everyone should wake up to the realization that the same folks who have funded wars in the past two centuries have risen to international banker status….

Isn’t it strange that the political elite in the United States and England are as related to each other as the citizens of Iceland are to each other ? i’m talking bush, cheney, diana, kerry, etc, sharing the same great-great-great-great-great-great grandparents (give or take)….

i thought that only happened in iceland.

but don’t worry there will be many more jobs when the rockefellers, royal families, turner’s, and other billionares implement their 90% world population reduction.

they’ve even setup monuments declaring their intentions…

“1. Maintain humanity under 500,000,000 in perpetual balance with nature. ( mass homicide )
2. Guide reproduction wisely – improving fitness and diversity. ( mass eugenics )”

the list continues…
http://www.radioliberty.com/stones.htm

unfortunately we are facing the need for a R3VOLUTION here in the states… actually a Restoration to the principles of conservatism and liberalism -> freedom of the individual. no white rights, no black rights, no women rights, no men rights…. just rights of the _individual_ , the natural rights of life, liberty and the pursuit of happiness.

something that the EU cannot and will not offer.

and where are the IceSave compromises ? If the international community wants to strong arm the Icelandic citizens into paying for the deeds of the bankers (icelandic and foreign- see above remarks on this being designed)…. then where are the creative solutions from the involved nations in assisting the Icelandic economy? for example, business partnerships, tentative agreements, etc…

but now i’m definitely rambling on…

‘afram ‘island…. sjaumst ‘i halfmanadur…