Could the blow-up that transpired between the UK and Iceland over Kaupthing’s UK-based deposits have come down to a simple misunderstanding in a phone conversation between UK Chancellor Alistair Darling and Icelandic Finance Minister Árni Mathiesen?
The Icelanders seem to think so and have been calling for said transpcript to be made public for the last week. The FT today prints that conversation and does indeed appear to confirm the Icelandic point of view:
Here is a timeline of events leading up to that conversation compiled by Gudni Elisson, a well-respected Icelandic public intellectual and columnist for Morgunbladid, an Icelandic newspaper:
Saturday, October 4 Tryggvi Herbertsson, economic adviser to the Icelandic prime minister, tells BBC Radio 4’s programme, Money Box, that the Icelandic government will honour its part of the compensation limit if Icesave runs into difficulties.. He says: “We are part of the European directive on deposit insurance and we are bound by international law.”
Sunday, October 5 The “Act providing for special powers in exceptional financial Market circumstances“ is passed in the Icelandic Parliament. One of the primary amendments to the Act on Depositors’ and Investors’ Guarantee Fund is to the effect that deposits will „be given priority in the event of insolvency proceedingsMonday,
October 6 The Icelandic Prime Minister’s office announces the “Deposit Guarantee“ early in the morning before the banks open saying that “deposits in domestic commercial and savings banks and their branches in Iceland will be fully covered. “Deposit” refers to all deposits by general customers and companies which are covered by the Deposit Division of the Depositors’ and Investors’ Guarantee Fund.” (The homepage of the “Depositors’ and Investors’ Guarantee Fund“ makes it clear that the “Fund’s guarantees extend to all customers of Icelandic banks and their branches, both domestic and foreign, irrespective of legal address“.) The “Deposit Guarantee“ announcement is also sent to Britain concerning deposits at Landsbanki and Kaupþing Edge (the latter being protected through the UK scheme). According to a high-ranking official within one of the Icelandic ministries a letter is sent to the British government. In it the Icelandic government declares that it will honour its obligations in accordance with the directive and will further support the Depositors’ and Investors’ Guarantee Fund.
Tuesday, October 7 Iceland makes use of the new emergency act to nationalize Landsbanki, the country’s second biggest bank. Mr. Darling talks with the finance minister of Iceland, Arni Mathiesen. The next morning he will declare that the Icelandic authorities have no intention of compensating British account holders for what they have lost through their savings accounts in Landsbanki’s Icesave. According to a transcript of that conversation (which has not been released by either of the two governments), Mr. Mathiesen did not make such a declaration. He said the following: “We have the [deposit] insurance fund according to the Directive and how that works is explained in this letter and the pledge of support from the government to the fund.“ (Mathiesen is referring to the letter sent to the British Government the day before.) The Icelandic finance minister in other words pledged that the government will honour its obligations. Nowhere in the transcript can there be found any indication that the UK Chancellor is of the opinion that the Icelandic government is in the process of breaking international law. The two chancellors end the conversation on amicable terms.
Wednesday, October 8 The British Government uses anti-terrorism powers to freeze Icelandic assets in Britain. Referring to his telephone conversation with Arni Mathiesen from the day before Alistair Darling, states on BBC radio that morning: “The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here […] But I have decided in these exceptional circumstances that we will stand behind those depositors so they get their money back.” Geir Haarde, the Icelandic Prime Minister, issues a statement responding to Darling’s accusations: “The governments of the two countries will immediately review the matter in detail through official channels with a view to finding a mutually satisfactory solution. It should also be highlighted that on Monday evening changes were made to the Act on the Depositors’ and Investors’ Guarantee Fund strengthening the position of depositors by giving them priority when allocating assets. There is a good probability that the total assets of Landsbankinn will be sufficient to cover the deposits in IceSave. The Icelandic government reiterates that if needed it will support The Depositors’ and Investors’ Guarantee Fund in raising necessary funds.” Later that day Gordon Brown tells members of the press that he and his colleagues “are taking legal action against the Icelandic authorities to recover the money lost to people who deposited in UK branches of its banks“.
Thursday, October 9 Gordon Brown repeatedly claims that the Icelandic government has taken “illegal action.” In an interview on Sky News he says: “The issue is basically this. The Icelandic banks have collapsed, the Icelandic authorities have to take some responsibility for it. They cannot just default and say that they’re going to take on none of the responsibility for what has happened. And we have therefore taken action to seize the assets of the Icelandic banks.”
Friday, October 10 Geir Haarde declares that Iceland is not defaulting on any obligation: “Let me say very clearly that the country as such is not in default, is not abrogating its obligations. […] [T]he government and the treasury will of course do so like always before. […] The Sovereign Republic of Iceland has never defaulted on a loan and will never do.”
Saturday, October 11 A joint declaration is made by the Icelandic and British delegation after less than two days talk expressing the intention to “reach a mutually satisfactory solution on the issues concerned.”
„Believe it or not“ The catalyst in the IceSave conflict is without any doubt the conversation between Darling and Mathiesen on October 7. The morning after his talk with Arni Mathiesen Mr. Darling announced: “The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here“. But why settle for belief when we can have the facts? Only last August Mr. Darling insisted that it was his duty to be “straight” with people. Now Mr. Darling should play it straight and request that the transcript of his conversation with Mr. Mathiesen be made public. I am certain that no one would welcome that decision more than Arni Mathiesen.
For the entire transcript see Iceland Review.
