Why Icelanders Have A Case for Repudiating It
No to Odious Debt!
On April 16, 2011, the voters of Iceland, a small country of 320,000 people north of the Arctic Circle best known for its fishing fleet and sagas literature, rejected by a 60% vote an agreement that the Icelandic government and thus the population itself be held responsible for repaying the debt of Icesave. Icesave was a scheme in which several billion euros were borrowed by Iceland’s three largest banksfrom British and Dutch creditors. However, these three big banks collapsed in the wake of the 2008 world financial crisis. Had Icelanders voted for the agreement, each citizen of Iceland would have owed almost $18,000to British and Dutch banks!Nonetheless, upon hearing of the popular vote, British and Dutch bankers and government ministers were irate.
Were the Icelanders just free-loaders and cheats who refused to pay the legitimate debt which the Icelandic population owe to the investment banks and high-rolling creditors of Britain and the Netherlands? Perhaps not! A case can be made that this debt is odious or illegitimate, and Icelanders have the democratic and legal right to repudiate it.
What is “Odious Debt”?
Odious debt is a principle of international law that states that no people or its current government should be required to pay debt previously incurred under “odious” or illegitimate conditions. First claimed by the U.S. government in to repudiate the “odious debt”of Cuba to Spain claimed after the Spanish-American War of 1898, it has become an important legal concept. It was most recently used by the post-apartheid South Africa to repudiate debt incurred by the white supremacist and authoritarian South African regime before its overthrow in 1994.
What are the conditions that make a debt odious?
- Debt incurred without the consent or knowledge of the people who are supposed to owe it, as in the case of loans taken out by an unaccountable or previously undemocratic government
- Debt taken out for purposes that do not benefit the people or may even harm them, e.g., looting the public treasury or repressing the people
- How this happens today: debt taken out under conditions of “moral hazard”: where lenders are confident that they will be “bailed out” by a government at public expense if the principal debtors (e.g., the 3 Icelandic banks) refuse to repay
The Case for the Icelandic People:Repudiating Odious Debt
- “See no evil, hear no evil, speak no evil” — The debt was incurred through the three large privately held banks (Landsbanki, Kaupthing, and Glitner) through secret dealswith Icelandic Central Bank officials and government ministers, who with their cronies received generous loans from the banks, andallowed the banks themselves to report on their own financial condition (“the fox guarding the chicken coop” syndrome). The banks were organized in ways to deceive the people and hide their own fragility (“the banks established elaborate carousels of co-owned companies in places like Luxembourg, the Isle of Man,the British Virgin Islands, even Cuba, that bought each other’s shares and leveraged up each other’s balance sheets. “ – R. Wade and S. Sigurgeirsdottir 2010). Since 2008, criminal and civil charges have been pressed against bank managers and government officials for fraud and corruption. Thus, most of the details of the debt were concealed from the Icelandic people and incurred without their knowledge or consent.
- “Raiding the public treasury” — Despite the fragile condition of these banks, the managers of these banks gave themselves huge bonuses in the years leading up to the 2008 crisis. Knowing the probability that the Icelandic government would have to pick up the bill if the banks failed, this was basically a pre-emptive looting of the public treasury. Meanwhile during the same years, bank brokers criss-crossed Iceland and enticed Icelanders to take on even greater personal debt through speculative currency trades whose risks the latter could not evaluate for themselves, thus engaging in fraud. These practices harmed the Icelandic people.
- “Socialism for bankers, capitalism for everyone else” — Icelandic bankers and government officials, along with the British and Dutch investment banks and ministers who set up the borrowing mechanismof Icesave, assumed that in the event these bank failed, the Icelandic people would be liable for any debt. (“Governments’ dependence on the financial sector, and mood of self-congratulation, led them to signal that they would use state revenues to bail out large financial organizations that made ill-judged investment decisions. . . Financiers became confident that ‘we won’t face the downside if we screw up’. They modeled stress tests for only modest levels of difficulty since, as one British banker put it, ‘the authorities would have to step in anyway’ in the event of trouble’.” – R. Wade and S. Sigurgeirsdottir 2010). The assumption by banking and governing elites in all these countries was that if bankers’ speculations failed, the people would be required to pick up the bill – not the banks themselves.
Bringing it All Home
- Peoples of countries in the Global North are now joining peoples of the global South in being pressed to repay odious debt. Will Icelanders be joined by the Greek, Portuguese, and Italian peoples in refusing to pay for debts incurred by the anti-democratic, secretive and harmful practices of their governments?
- Question: Is odious debt limited to the national level? Can individuals and households also be the victims of odious debt?
To Read More About Odious Debt and Iceland’s Vote
1. Jubilee USA, “The Concept of Odious Debt,” http://www.jubileeusa.org/truth-about-debt/dont-owe-wont-pay.html
2. Robert Wade and SillaSigurgeirsdottir, “Lessons from Iceland,” New Left Review 65, Sept-Oct. 2010
3. “Iceland voters reject Icesave agreement.” http://theglobalrealm.com/2011/04/17/iceland-voters-reject-icesave-agreement/