Iceland To Be or Not to Be

1
Iceland To Be or Not to Be

• Act No.125/2008

2
The Act 125 from 2008

• gives the Minister of Finance the right to
  nationalize private property in extraordinary
  circumstances
• And to make money injections up to 20 of the
  total value of a bank
• This right is given on behalf of the Treasury

3
For example, under act 125\2008

• The three man banks of Iceland, which contribute
  16 of Icelands GDP have been nationalized
• These banks , Ladsbanki , Glitnir and Kaupbing
  now have no real access to financial market and
  stay in a state of supervision

4
The Conditions for applying the act in such a way
are

• An undertaking has lost its solvency
• It is bankrupt
• It cant meet its capital requirements (cant pay
  its creditors)
• It jeopardizes the economic stability of the
  Icelandic market

5
Implications

• If circumstances are dire, the Financial
  Supervisory Authority can also assume the power
  of the shareholders meeting for every financial
  structure (bank, company etc)
• In parallel, the Authority can appoint a
  resolution committee of five people to replace
  the board of the undertaking
• This committee has only the obligation the
  execute act 125 and can not be hold responsible
  for financial damage

6
Additional jurisdictions

• The Financial Authority can be given the right to
  prohibit the disposal of capital of private
  undertakings ( banks, firms and the like)
• It can dispose of their liabilities , leaving the
  Treasury to bear the cost.
• The Treasury can then compensate such a company
  in Icelandic crones

7
International impact and time limits

• If a multinational company has a branch in
  Iceland, it can be privatized under this act (and
  a legal notice will be send to the authorities in
  the other countries where it operates
• This act is not a temporal one, and neither are
  its implications It has gone into force
  immediately and will be revised only in January
  2010

8
Passage of the Law

• Iceland is governed by coalition that has 43
  seats out of 63 in the Parliament
• Power is distributed horizontally rather than
  vertically
• Communication is facilitated

9
Role of the leader

• As a former Minster of Finance, Iceland Prime
  Minister Geir Haarde is the economic expert
  pushing for the policy
• However, it is the economic hardship that calls
  for action, not the particular demands and policy
  preferences of the leader

10
Voting of the Law

• Passed by an absolute simple majority of 52 votes
  (out of 63)
• Reading of the law were reduced from three to one
• Approved by the President

11
Structuralist explanation for passing of the law

• Depleting foreign reserves and devaluating
  currency
• Rising Inflation
• Widening budget deficit
• No support from the Nordic Union and IMF

12
International aspects

• Iceland formed a foreign dependency on Russia by
  borrowing a loan to finance its economy
• Britain invoked a Terrorist Act upon Iceland as
  Icelandic banks refused to pay back the money of
  British lenders

13
Criticism