Iceland's vote

Today the voters of Iceland give their judgment on a deal reached with the governments of the UK and the Netherlands concerning the collapse of the Icelandic banks and the shortfall made up to depositors. In a sense it is a damp squib, partly because we know the good Icelanders will vote it down, and partly because their government is trying to reach a different deal, which presumably will have to be voted on as well. Those of a nervous disposition should take note that the EU crops up in this story so you can’t take anything democratic for granted.

So, Alistair Darling baled out the depositors (actually it wasn’t Alistair Darling it was the UK taxpayers) and wants the money from the Icelanders. Of course Iceland hasn’t any money. What would normally happen in these circumstances is that the Icelandic Central Bank would simply lodge certificates of deposit (IOUs) at the Bank of England. But they didn’t. They didn’t feel they owed the money. But Mr Darling went ahead and baled out the Icesave depositors anyway.

I should mention that some of the Icesave depositors were in Labour marginal seats and some were Labour councils. You see, Icesave paid a better rate of interest than other banks (because it was a lousy credit risk).

This is where the EU raises its ugly head. Iceland of course is not in the EU, although its ruling party would like it to be. In terms of groupings Iceland is a part of the European Economic Area and the EEA had a different set of rules for compensation of depositors when the bank goes belly up. Whereas the EU’s rules were for 100% compensation, the rules applying to Iceland were for less, and varying according to the depositor. So Iceland felt certain that whilst it owed some money, it was considerably less than what Darling (we) paid out. But they were smartly told that if they wanted to join the EU they would have to abide by its rules – Britain and the Netherlands could veto the application.

I have sent several questions to HM Treasury asking for details of this, and have not, of course, received a reply. I am quite certain that the British Government felt for political reasons that it had to stump up 100% compensation, paid out without knowing they would be reimbursed and then bullied the Icelanders into repaying more than the amount they were legally on the hook for. In other words the people of Iceland are being bullied to buy votes for the Labour Party, compensating depositors who were only in it for the money.

To me this has a very unhealthy smell to it. I hope the Icelanders vote this down, if only because it might help the story get out. And we know nothing of what is being renegotiated now. Will it include telling them they are a shoo-in for the EU? Has Mrs Merkel given it the nod? I must say my proposal a couple of months ago that they pay it off in cod looks increasingly attractive to both sides: if they join the EU they'll have to join the Common Fisheries Policy and lose their cod stocks anyway, as we did. Or has that been negotiated away as well?