Taxpayers in Iceland are fed up. They have in the past year or so faced two referenda on whether they, personally, should be responsible for the costs of bailouts of depositors of privately owned Icelandic banks. Quite rightly they told the UK and Dutch governments (and the EU implicitly) to go fuck themselves.
So what is it about?
Well the Icelandic government set up a Depositors' and Investors' Guarantee for its banking sector. It was set up as a legal obligation under the European Economic Area decision to follow EU Directives on banking guarantees. In short, if Iceland wanted to maintain free access to the EU markets for its goods and services, it had to comply with EU laws demanding state guarantees for banks.
So it did. One private bank, Landsbanki set up aggressively with branches in the UK and the Netherlands, offering retail bank accounts with highly competitive interest rates. It attracted 300,000 customers in the UK and 125,000 in the Netherlands. Another bank called Kaupthing Edge was also part of the Icelandic banking boom, but for simplicity let's leave that one out for not.
The long and the short of it is that Landsbanki collapsed. It had been over leveraged with extensive foreign debt linked into banks outside Iceland. The bank was put into receivership and the Icelandic Financial Supervisory Authority declared that domestic deposit holders would be protected.
For UK depositholders the situation was clear. The UK government guaranteed them up to a relatively high limit, which meant they were safe from any risk. However, the UK government wanted this guarantee to be born by the Icelandic Depositors' and Investors' Guarantee, which was effectively bankrupt. So it confiscated the assets of Landsbanki in the UK, under anti-terrorism legislation, albeit rather late as Landsbanki had already moved most of its assets back to Iceland.
The dispute since then has been because the British government wants the Icelandic government to pay back its guarantees of British depositors. It claims that under the EEA agreement, the Icelandic government agreed to do this, which may very well be true. However, Icelandic taxpayers are not happy and don't accept it.
However, this raises the far more fundamental point - who are those who agreed to this and what right do they have to do so?
At a basic level UK and Dutch depositors took a risk in getting accounts with Landsbanki - a risk they largely unconsciously thought was not real because of national government guarantees of deposits.
The UK and Dutch governments decided to guarantee those depositors regardless of risk, and have used their taxpayers' funds to do so.
The Icelandic government signed up to certain guarantees for deposits, up to 20,000 Euro. However, there is not enough in the guarantee fund to cover this for UK and Dutch depositors. Understandably, given it is taxpayers' money, the fund has covered Icelandic depositors as a priority.
So the relevant governments argued and negotiated, but Iceland's government decided on only paying out 4% of the country's GDP to the UK and 2% to the Netherlands to pay up. Both the UK and Dutch governments refused to accept this. A new bill was submitted to the Icelandic parliament for Iceland's taxpayers to cough up 3.8 billion Euro over 14 years. They were not amused. It comes to around 12,000 Euro for every man, woman and child. They petitioned for a referendum on the matter. It was held in 2010 and 93% of Iceland's voters said no.
The reaction from the bigger countries was despicable. The Prime Minister Gordon Brown and Lord Myners (Financial Services Secretary) said they expected Iceland to meet its obligations, the Dutch Finance Minister said essentially the same. Iceland's taxpayers had said enough.
The Icelandic government negotiated another deal, spread over 30 years at an interest rate of 3%.
Iceland's voters have just rejected this once more, but with a 60% to 40% margin.
As so they should. Iceland's taxpayers primarily work in the fisheries, aluminium and manufacturing sectors. They don't see why they should be responsible for those who risked their money in a private bank they had nothing to do with. They don't see why their governments should bind them to bail out governments who decided to guarantee nationals of their countries for investment in a private bank.
They are right.
The Icelandic government should work for them. It should accept that they, as productive, hard-working people don't owe their government, let alone foreign governments, anything.
Iceland has NOT defaulted on sovereign debt, it has not got a major fiscal problem. It is not seeking a bailout because of years of socialist economics and bloated welfare.
The UK and Dutch governments should leave them alone. THEIR taxpayers should be demanding the skin of the politicians who demanded they guarantee the deposits of those willing to invest in new banks with high rates of return.
It is especially galling at a time when the UK government is quite happy to throw taxpayers money at Portugal to help bail out its fiscal incontinence.
Icelanders have told the world that they are not responsible for governments promising to use their money to rescue those who chose to invest in a privately owned bank. They are right. They shouldn't be bullied to give up their money as a result.