The application of anti-terrorist laws against Iceland at the beginning of the banking crisis last October was unnecessarily harsh; this is the finding of a British parliament committee set up specifically to investigate events in the Icelandic economy and their effect on the United Kingdom. The committee also found that the laws need reviewing and clarifying to decide if it is right that they are used for situations such as the one that rose with the Icelandic financial crisis. The committee feels that the UK government should have alternative ways to react to these kind of situations.
In the report the committee reviews the explanations Alistair Darling gave to his actions, and when interviewed by the committee he told about the phone call he had with Arni Mathiesen, the then Icelandic Finance Minister. The committee does not agree with Mr. Darling that Iceland was not going to honour its commitments.
Iceland would become a financial leper. Nobody would want to touch it with a 10-foot pole. They’d be on their own, and the foreign value of ISK would go straight to zero – effectively, an infinite exchange rate.
Since Iceland isn’t autonomous and relies heavily on imports, that means that anyone willing to sell them something (knowing that the treasury’s empty) would be able to impose ridiculous payment obligations because, well, it’s either that or Iceland goes without whatever it needs. That, of course, wouldn’t help economically and would only worsen the economic situation, creating fresh new debt. In time, either foreign powers would manage to acquire all of Iceland’s worthwhile resources this way, or Iceland would insist on keeping those but would end up in such a situation that finally, nobody would trade with them.
Trade is trade. If your money isn’t worth anything (due to the fact that everyone knows you can’t pay your debts), and if you’re unwilling to trade away the things that other people do want from you, then you will simply find no counterparty to trade with you.
To break free, Iceland can basically only count on diplomacy and the generosity of other countries (which is to say, diplomacy – because there’s no such thing as a free meal, and especially not in international relations). The only debt Iceland can afford to write off is the one which creditors agree to give up.
In the globalreseach article linked above (a very interesting read, by the way) the author repeatedly reminds readers that the USA are also technically bankrupt and uses it for leverage for his argument. That may or may not be so, but I feel he misses the point: Iceland is not the USA. Iceland doesn’t have anywhere near a fraction of the economic, diplomatic or military power of the USA’s. Pointing out to the world that the USA is in a similar condition as Iceland’s would only earn it additional condescention from the international community – and certainly no friends – even if it were true.
The IWR also mentions Michael Hudson as well as John Perkins, a chap with a similar message. They’ve both been on Silfur Egils (in English).
Essentially, they’re saying kick the IMF out and default on all (foreign) debt.
It’s a shame that they miss the opportunity to go into the details on what they’d expect that’d do to the Icelandic economy. Without saying which of the two routes would be preferable (i.e. accept loans & pay debts or refuses loans and default), I’d assume that the exchange rate would freefall and inflation would rocket. Anyone know what might happen?
“The clause allowing Britain to do so happened to be contained within the Anti-Terrorism law. It was a “bad drafting problem” – the clause should have been pulled out and enacted as a separate law outside the Anti-Terrorism bill.” said Vilhjalm Antonsen
This is a misunderstanding of UK lawmaking. The law referred to is not the only ‘non-terrorist’ part of the law. Like most laws in the UK, this was a conglomerate act bringing together a range of issues. In a country of 60 million this is the only way to get the time to cover all issues – it is not unusual to see a bill covering a range of local government functions all together, or a range of finance issues etc. Each government department is given a limited amount of parliamentary time for enacting law – there is even an allocation of clauses within each bill!
So, it was not a bad drafting problem – this is the way things are done in larger democracies. The US is even more complex – you’ll see all sorts of weird things attached to a bill (usually to keep wayward representatives on board, by adding in something that will benefit their area – so-called ‘pork barrel’ measures).
VILHJAM, WHAT THE ICELANDIC BANKERS TRIED TO DO WAS PIRATERY, ROBBERY ACTING IN A WAY ONLY TERRORIST DO…
@Easy – And a surprisingly interesting interview (makes you re-think your assumptions) from the author of that Global Reach article: http://www.youtube.com/watch?v=3pwAFohWBL4
I think the issue is that there were no other powers available. Given the situation I think most countries will have behaved in the same way.
The problem is this:
How do you regulate foreign branches of foreign banks operating in Britain, when they commit abuses?
The answer is: you can’t.
The British FSA has no authority over foreign banks. The only thing Britain could do was to freeze the assets of the foreign banks. That’s what they did.
The clause allowing Britain to do so happened to be contained within the Anti-Terrorism law. It was a “bad drafting problem” – the clause should have been pulled out and enacted as a separate law outside the Anti-Terrorism bill.
>Well, that report says a “less blunt instrument would be more appropriate”, but it doesn’t seem to suggest what such an instrument could be
I take it to mean that the asset freezing part of the legislation should, in their opinion, be introduced as a separate Bill. The original Act would not be changed, so the asset freezing aspect within it could then still be used in an anti-terror role.
However, if there was a Landsbanki II, the new legislation (and I’ll put forward that suggestion from a while back that it should be called the “Fluffy Bunny Act 2009”) would be used.
[…] Bericht 1 und Bericht 2 von IceNews (beide auf […]
Well, that report says a “less blunt instrument would be more appropriate”, but it doesn’t seem to suggest what such an instrument could be.
This is very shoddy reporting. I suggest you read the document itself, rather than do a newspaper report on a newspaper report – it’s very easy to do! The link is http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/402/402.pdf
This is what the relevant sections says. It does not say Darling was wrong, and it does point out there were no other powers available to protect UK savers:
“50. Although the Icelandic banking system was vulnerable to the crisis that has affected
the international financial system since 2007, the actions of the UK Government in
making statements on the capacity and willingness of the Icelandic Government to
provide assistance to non-Icelandic citizens, whether or not such statements were
accurate, turned the UK Government from being a seemingly passive observer of
events, to an active participant in the market. Given the volatility of the situation, and
the vulnerability of Icelandic banks at the time, it appears that the Icelandic Authorities
found the UK Government’s approach ultimately unhelpful.
51. The use of the Anti-Terrorism, Crime and Security Act 2001 had considerable
implications for the Icelandic authorities in maintaining a functioning financial
system. We call on the Treasury to consider how appropriate the use of this legislation
would be in any similar circumstances in the future. The use of this Act inevitably
stigmatises those subject to it and a less blunt instrument would be more appropriate.
We are concerned that no appropriate legislation is available and call on the Treasury
to address this matter.”
Olafur. The detail from the report:
It seems like a fair conclusion by that committee. The UK probably had to do something, but applying the anti-terrorist laws was obviously over-the-top. Does anyone know if that committee recommended what alternative the UK should have done instead?