An incredible 93 percent of voters in Iceland voted against financing British and Dutch bank bailouts. The politicians in England and the Netherlands argued that they were bailing out local subsidiaries of an Icelandic bank, so Iceland’s taxpayers should pick up the tab, but those branches was operating under the rules of the European Economic Area. More important, as Hannes Gissurason explains in the Wall Street Journal, endless bailouts encourage reckless behavior. It’s time someone took a stand, so give a cheer for Iceland’s voters(they don’t deserve three cheers since it is easy to reject bailouts for foreign depositors and this is far from the right way to reduce government guarantees):
Icelanders sent a resounding message to the rest of the world: We are not paying the debts of reckless financiers. While we are few and powerless, we refuse to be bullied by our European neighbors. Some 93% said “No” to a recent deal negotiated by their government with its British and Dutch counterparts; only 7% voted for it. The deal concerned the so-called Icesave accounts that an Icelandic bank, Landsbanki, operated from 2006 in the U.K. and later also in the Netherlands. When the Landsbanki collapsed in October 2008, the British and the Dutch governments rushed in to pay depositors in their respective countries the amount insured under EEA (European Economic Area) regulations. They then demanded reimbursement from the Icelandic government, which reluctantly agreed to pay, against the wish of the great majority of Icelanders. The Icelanders argued that there was no legally binding government guarantee of the deposits. The Icelandic government had fully complied with EEA regulations and set up a Depositors’ and Investors’ Guarantee Fund. If the resources of that fund were not sufficient to meet its obligations (which was almost certainly the case), then the Icelandic government was not legally bound to step in with additional resources. Thus the British and the Dutch governments had no authority to create new obligations on the part of the Icelandic government by paying their nations’ depositors. …The Icelandic government was forced to sign the deal by not-so-veiled threats of financial isolation and by the use of the IMF as a bounty collector, as the Icelanders put it, for the British and the Dutch: The IMF refused, in effect, to render any assistance to the beleaguered Icelanders unless they signed the deal. …There is however a more general point: If you reward recklessness, you will fill the world with reckless people. Why should any government accept the “Too Big to Fail” argument about banks? Why should depositors be able to shift the risk they take over to the public? In the case of Icesave, the British and Dutch governments chose to bail out their fellow countrymen for their own reasons, with an eye toward stemming a panic within their own banking system. This they were free to do, but it wasn’t done to benefit Iceland or its banks, and Icelanders are right to question whether they should have to pay for decisions made in Amsterdam and London. This in turn raises the broader question implicated in all the bailouts around the world during the panic that started in 2008: Should taxpayers have to cover the losses of reckless bankers, and their customers, while not sharing but indirectly in their possible profits? For their part, the Icelanders have answered: No.