When Gordon Brown and Alistair Darling were talking tough to Iceland a few weeks ago – seizing the UK assets of Icelandic banks and promising to stand behind all UK savers with money in those banks' accounts – I felt a great national pride. After all, the Icelandic Government had apparently told us that they had no intention of honouring their obligations in the UK – even though hundreds of thousands of savers had deposited money in the UK subsidiaries of their banks.
Once the assets had been seized, of course, both banks inevitably collapsed. But with UK savers' money secure, it felt like our Government had done the right thing.
Over the following days, however, it started to become clear that there were a number of victims who were not going to get much, if any, of their money back. For a start, the dozens of local authorities who had stuck council taxpayers' money into Landsbanki and Kaupthing were told they would not be reimbursed by the UK Government. Then there were the thousands of individuals who had put their money in Landsbanki and Kaupthing's offshore operations – most of whom were UK nationals, but who would also not qualify for the British Government bail-out because the Isle of Man and Guernsey are independent territories.
As these angry groups realised that they may be hung out to dry, they began to question whether Britain had taken the right decision to seize the Icelandic banks' assets in the first place.
The answer appears to come down to whether the Icelandic government really ever did threaten to walk away from its banks' UK liabilities. Iceland now claims it said no such thing, and has challenged the British to provide proof that it did. Furthermore, some Icelandic bankers have suggested that had Britain not intervened in the way it did, these banks would not have collapsed at all – and no one would have lost a penny.
The savers who lost money in the offshore subsidiaries of Kaupthing and Landsbanki understandably feel aggrieved. Though offshore banking tends to be associated with wealthy tax dodgers, many of the savers in question were simply ordinary UK citizens who worked overseas and could not open UK savings accounts while they were not resident here. Instead, they opted for banks as close to home as possible – and paid dearly for making the wrong choice. Many now stand to lose their entire life savings, and are furious that their own Government will not stand behind them.
However, if the British Government had not intervened, I would quite agree with Darling's decision to turn his back on these savers. After all, if you put your money in a French bank that went bust, you wouldn't expect the British Government to bail you out. So why should it be any different for the Isle of Man and Channel Islands, which are not really any more a part of the UK than France is? Savers should have checked what protection their money would be afforded. And if they were advised to put it there, and were told it was safe, then they should sue their adviser. But why should Britain bail them out?
If, however, the British Government's actions – which included the use of anti-terrorist legislation to seize the Icelandic banks' assets– were part of the problem, then we must certainly bear the responsibility to compensate these people. Sadly, it may take class actions and years in the courts to ever prove such an accusation, by which time some of those affected will have been forced to declare themselves bankrupt. A sorry situation.