A new mood of proud nationalism is emerging in economically resurgent Iceland after an out-of-control banking system sank the country into financial meltdown exactly five years ago. Riding this wave of confidence is 38-year-old Icelandic Prime Minister Sigmundur David Gunnlaugsson, elected in April on populist promises of mortgage relief for every homeowner.
Gunnlaugsson earned his spurs in years of outspoken campaigning against the foreign creditors who still haunt Iceland, particularly the British and the Dutch governments, which intervened after the collapse of Landsbanki <<->> the bank behind Icesave <<- >>on Oct.7 2008.
Hundreds of thousands of ordinary British and Dutch savers had previously switched their savings into online Icesave accounts, attracted by market-beating interest rates and promises that: "You can also rest assured that with Icesave you are offered the same level of financial protection as every bank in the UK."
When the crash came, however, Iceland’s deposit guarantee proved worthless, forcing the UK and the Netherlands to use their own taxpayer funds to compensate ordinary savers and sparking a poisonous diplomatic row.
It was a spat that, against the odds, Iceland won. While many other politicians in Iceland had urged a policy of appeasing the enraged British and Dutch governments, Gunnlaugsson had insisted they should go hang.
"Icelanders, as descendants of the Vikings, are highly individualistic and have difficulty putting up with authorities, let alone oppression," he said in one of his first speeches as prime minister.
Having helped win the famous Icesave victory from outside government, Gunnlaugsson has promised to carry that uncompromising approach with him as prime minister, hinting at a new wave of attacks on the interests of foreign creditors to Iceland’s three failed banks: Kaupthing, Glitnir and Landsbanki. Between them, these institutions had assets more than nine times the size of Iceland’s economic output when they failed in 2008.
From the wreckage, only three modest domestic banks emerged, allowing Iceland to keep functioning. The country was also able to let its overheated currency devalue, and impose capital controls to bring some stability.
SQUEEZE ON BANKS
Meanwhile, however, international bondholders and depositors were left out in the cold, waiting to recover what scraps they could from the banks’ administration processes. Five years on and they are still waiting.
Meanwhile, Gunnlaugsson’s main pre-election pledges were to squeeze these foreign creditors <<->> characterized as "hedge funds" or "vulture funds" <<->> in order to bankroll a 10 percent mortgage relief program for all homeowners.
Political opponents savaged the pledge.
"It was like promising to bring back [the boom of] 2007," reflects the Left-Green former finance minister Steingrimur Sigfusson.
However, the Icelandic electorate loved it.
And with creditors’ interests still locked in slow administration processes, and behind tight capital control walls, Gunnlaugsson believes he has a strong hand to play.
During the election campaign this year, he said: "This does not revolve around the confiscation of assets. The loss has already been incurred. It was mostly borne by foreign creditors who have recognized the loss and got out. In their place came hedge funds that have profited enormously from the collection now of much that was considered lost and written off."