06 November 2015
Every Icelander will receive about US$232,802 for the sale of one of the country’s three largest banks, Islandsbanki.
Icelandic Finance Minister Bjarni Benediktsson
Creditors of the failed bank proposed the nationalisation of Islandsbanki, in which they hold a majority stake. The move will help Iceland lift capital controls imposed after the 2008 financial meltdown and will give Icelanders a fair share of the failed bank’s sale.
Finance Minister Bjarni Benediktsson announced in late October that the government will take “some decided portion, five per cent, and simply hand it over to the people of this country.” Icelanders took control of their government, so they now own the banks.
The process of nationalising Islandsbanki is part of an agreement between the creditors of three institutions which crashed during the 2008 financial crisis and the government and is an essential step that has to be taken so that money can be allowed to flow out of Iceland.
The country is concerned that lifting controls could lead to an outflow of capital, including any debts the creditors have recovered, Reuters reported. To make sure that does not happen, creditors of failed banks can choose to pay a 39 per cent “exit” tax on money they could take out in the future or make a “stability contribution.”
Although the Finance Minister believes foreign capital will fuel the economy and the nationalization of banks is the answer to the country’s problems, Guðlaugur Þór Þórðarson, Budget Committee vice chairman is not convinced State ownership would be the ideal solution. Former Finance Minister Steingrímur J. Sigfússon expressed the same view, telling a radio show “we shouldn’t lose the banks to the hands of fools.” Mr Sigfússon believes Iceland would benefit from a change in focus to separate “commercial banking from investment banking.”
Plans have not been set for when the takeover and payments to all Icelanders will occur, but the country’s approach to dealing with the 2008 financial meltdown has received international attention.
Iceland is the only European country to recover fully from the financial crisis and to manage to pay its debt to the International Monetary Fund in full and in advance of the due date. President Olafur Ragnar Grimsson said Iceland was able to fully recover from the crisis because they were “wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”
The country recently sentenced its 26th banker to jail for causing the financial collapse. After the 2008 crisis, Iceland sentenced 26 bankers to a combined 74 years in prison. Most of those convicted have been sentenced to prison for two to five years, but their Supreme Court is hearing arguments to consider increasing sentences beyond the six year maximum.