Iceland and Darling: post-match analysis

The fact that the media is all over this report comes as no surprise; but the Icelandic and British media are choosing to focus on different sections of it.

British papers are flagging the committee’s recommendation that charities should be reimbursed by the UK government for lost savings in Icelandic banks, but that local councils should not (because they should, apparently, have known better).

Meanwhile the Icelandic media are focusing their attention on the recommendation that the UK should create a specific law to deal with such cases, because using the Anti-Terrorism Crime and Security Act 2001: “inevitably stigmatises those subject to it and a less blunt instrument would be more appropriate”. Last autumn the British argued that they did the right thing to protect their national interest, while the Icelanders argued that the terrorist act being used against them did little but sour diplomatic relations, damage Icelandic businesses and severely worsen an already bad situation. Both points-of-view seem to be right: Using the ‘terrorist laws’ against Iceland did do a lot of damage, but it was still the most appropriate thing to do – but only due to the lack of a better and more relevant alternative.

The committee also recognises that although the law was only used against Landsbanki (and also the Icelandic government itself for a short while), the public perception was that all of Iceland was being targeted – something which inevitably had a serious effect on Kaupthing, which the Icelanders hoped might not need to be nationalised.

Chancellor Alistair Darling comes in for particular criticism for his ill-chosen words and possible wrong conclusions, upon which the decision to use the Act was partially based.

At the most sensitive time possible, at the height of the crisis, the Chancellor went on BBC radio and told the British nation: “The Icelandic Government have told me, believe it or not, have told me yesterday they have no intention of honouring their obligations there”. The Icelanders have protested ever since – not just the accuracy of the statement, but also the motivation for choosing to make such an inflammatory statement at that time and in such a public way.

When the Financial Times later published a transcript of the telephone call between Darling and his then Icelandic counterpart, Arni Mathiesen, it caused yet another debate (on this very website, among many others).

The fact is that Mathiesen was having a telephone conversation in a foreign language during which he was being put under tremendous pressure. Even if he had said that the Icelandic government “have no intention of honouring their obligations there”, Darling would still have been better advised to wait for further confirmation than a hastily arranged telephone conversation before going public with the news. As it happens, Mathiesen did not say any such thing anyway.

The phone call’s basic conclusion was that Iceland would do all it could to meet its Landsbanki (Icesave) obligations in the UK; but that it was just too big an amount to be able to fully guarantee at that precise moment. The committee’s conclusion states: “We note that the published transcript of the Chancellor’s conversation with the Icelandic Finance Minister does not confirm that the Icelandic Government had stated that it would not honour its obligations but we have seen no evidence to contradict the Chancellor’s view that UK depositors and creditors were unlikely to be protected to the same extent as Icelandic ones.” October was an unprecedentedly panicky time in banks and government offices the world over and rash decisions can maybe therefore be partially forgiven under the circumstances; but who could possibly have benefitted from trashing excellent bilateral relations between two neighbouring and allied nations over a piece of evidence so monumentally flimsy? The answer is ‘nobody’.

Did the British government force the collapse of Kaupthing? “We (…) have seen no evidence that Kaupthing would have survived if the Chancellor had not expressed his views,” the committee concludes. That is to say that there is no direct evidence to prove that Darling killed Kaupthing; but also no evidence that he did not.

The deposed former Finance Minister Arni Mathiesen is gleeful today. Talking of “serious blows to Darling’s political career” and implying that he should resign. Misery does indeed seem to love company.

But this transcends mere personal reputations and intergovernmental feuds. There are huge lessons to be learned on all sides: on how to treat smaller friends in need, on how a bad situation can be improved with honest and clear communication, on not assuming everybody is as comfortable speaking English as an Englishman, and (as the whole world is now getting to grips with) the fact that there needs to be proper regulation of a responsible and sustainable global banking industry.

The fact that the always-ready-to-attack-the-government British press is not ripping Darling to shreds over this report is something of a mystery. Could it be a question of solidarity? With British charities still in trouble because of Icelandic banks, maybe the Icelanders are the bad guys. And if the Icelanders are the bad guys, then the logical extension is that the British government are the good guys (for a rare change) – and to criticise the good guys is simply not cricket. But surely this entire calamity has already taught us that nothing is ever that black and white?

(Perhaps now is the best time to flag the fact that this is an editorial column and not intended as an impartial news article, in case there was any doubt remaining. Therefore (as always) reader comments are very welcome.)