Steingrimur Sigfusson - Iceland's Finance Minister HARDtalk

Burma's campaigners. Now it is time for HARDtalk.

Three years ago, Iceland was on its knees. A tiny nation ruined by

financial hubris. Today its economy is growing again, anger and despair

are now tempered by tentative signs of recovery. But there is a problem.

Iceland has not paid the bill for the financial havoc caused by its

risk-addicted banks. My guest today is Iceland's finance minister,

Steingrimur Sigfusson. If Iceland is serious about seeking EU

membership, isn't it time to get serious about meeting its

Steingrimur Sigfusson, in Reykjavik, welcome to HARDtalk. Good morning.

My first question for you, I referred to the meltdown in Iceland

three years ago, what is the state of the economy today? Are you still

in intensive care are ought -- for our new recovering? We're

definitely recovering and making a lot of progress. We successfully

completed the IMF standby arrangement programme this end of

August. We re-entered the international capital markets in

the June and successfully issued $1 billion. There are many signs both

internally and also externally proving that Iceland has come a

long way since October 2008. But of course the problems are not over.

We're not out of the woods entirely. This has not come without sacrifice

and cost to the Icelandic population. We will talk about

sacrifice and cost in a moment but sticking with the notion that you

have staged a remarkable recovery. You have got growth expected it of

2.5% this year. Many people in the EU would regard that as a triumph

right now. It is that contrast with the EU that I am interested in. You

in Iceland have taken decisions over the past three years that

would have been impossible inside the EU. Do you think that there is

a lesson there? You are right. In terms of having our own currency

that has devalued and created a very handsome, competitive

advantage for our exports and competitive industries. That is one

factor. Also through these the economy adapted very quickly to

changed circumstances. We also ran a rather UN traditional programme

with the IMF and did it our own way. It's we are protected our message

in such a way to bring the as line -- the Icelandic society as softly

as possible through this. We are a Nordic society after all and we

want to prove that. In many ways it has helped Iceland to be small,

independent. After all, it is quicker to turn a small boat around

then a big ship. And to have our own tools and beans to work

ourselves out of this. It has made a difference. Some would say that

it has helped being small and adaptable, but it has also helped

in a way, being irresponsible. Unlike a country like Ireland,

which saw an obligation as a state to take on the terrible debts of

his private banks, Iceland took a very different view and said to the

banks, you go past, we will not bail you out. This had nothing to

do with irresponsibility. The fact of the matter was the banks were

far to cook -- fight to beat for the small economy of ice plant to

even attempt to rescue them. -- the economy of Iceland. It was not a

matter of free choice. It was simply like this. The banks, with

extensive international operations, and with a balance sheet about ten

times the economy of Iceland, it was totally impossible that we

could have rescued them. It was real irresponsibility of the

political class of a whole, of which you are a part, to let that

happen in the first place. You were living in a fantasy land. We did a

lot of mistakes in the year leading up to the collapse of the banks. We

have looked that in the eye. We have looked in the mirror. We had a

very thorough investigation launched by the parliament that

showed us the weaknesses, the mistakes that were done in the

years before. I am not saying that we are not, that we do not carry

responsibility. But when it comes to the banks, Iceland did not have

a choice. We had to do something along the lines that we dig in

October 2008 when we pulled the emergency law in place to avoid a

total meltdown of the Icelandic economy. It would not have helped

anybody if Iceland had completely fallen apart. The rescue operation

since October 2008 at the end of the day will also benefit those who

had lent Iceland Bunny. objected to my use of the word,

irresponsibility. But if you do not mind I will stick with that word.

You have received as a nation over the last three years billions and

billions of dollars in support from the IMF, the EU, the Nordic

countries, the UK, the Netherlands and Germany. As a result your

economy is showing signs of improvement. But as the economy

improves, you do not appear to be prepared to assume the

responsibilities to those people who Iceland still owes money to.

must correct you. We have not got a single penny from the EU. On the

contrary. Individual member states of the EU have given money, or at

least financial guarantees. It is like this. We entered the IMF

programme and got some funding from them, and then the Nordic countries,

and Poland and the Faroe Islands contributed to financing the

programme. Nobody has given us anything. These are loans we will

fully repay. When it comes to the dispute between the ice land, the

UK and the Netherlands, that has been a difficult case. It's but

what we did in October 2008 through the emergency law was to safeguard

the depositors of failed banks as much as possible. We made the

deposits the priority. The good news is that the economy -- the

recovery is improving. The least as -- the latest figures are 100%. It

is almost certain that in the coming years the whole principle

amount will be repaid. That is not the point. There has been a report

from the surveillance Authority. The point ears, the rules down you

to pay 20,000 euros compensation to any depositor who lost money in an

Icelandic bank. You did not do that. It fell to the British and

Netherlands governments because you would not do it. The EU now bio

millions of dollars, billions I should say, to the UK and

Netherlands, but you are refusing to say it -- to pay. It is like

this. We were not in the position. The bank failed and it could not

pay out. We were not in the position immediately after to pay

out that money. The UK and the Netherlands authorities decided to

do so themselves. They calm things down. We have all the time being

willing to try to negotiate to try to find a solution to this. But we

have pointed out that nowhere in this directive or anywhere in the

European regulations does it state that there is a state guarantee

behind this. That legal dispute has been at the core of this all the

time. But the rulings have gone against you. They have looked at

this carefully. You objected. The most recent ruling from the

ultimate surveillance Authority is that you were wrong and they had

given you three months to meet your obligations. Will you do it?

disagree with the surveillance Authority. Now the case rests with

them. But as I say, the good news is that payments will start soon

and the principal amount will be recovered from the bank. You do not

know that. You cannot be quite sure what the assets are and you cannot

be quite sure whether they will meet the real, huge numbers that

you owed to the UK and the Netherlands. And indeed to town

councils to the UK who are crying out for finance, and they have many

millions of dollars locked in Icelandic accounts which are now

been collected and the outlook is good. We are optimistic that the

recovery will be 100%. The deposits are the main priority. By making

them priority claims, we safeguarded the depositors,

including the British communities and charities, including what the

UK and Netherlands authorities paid out, including the top pops. In all

fairness, this should be looked at as well. Without getting too

technical, you cannot even guarantee that they will be

priority creditors, because other creditors are now looking at that

pile of money that the bank will eventually have to pay back and

saying, why give priority to the depositors and councils and

charities? They want a piece of it. You cannot be sure that they will

not win their legal argument. are right. We will get a court

ruling on this any day now. All we are optimistic that it will for our

way. The District Court of Reykjavik will confirm the validity

of this law. But I would like to mention there is another side to

this. If we're going deeply into the contact between the UK and

Iceland, the actions taken against us in the UK in October 2008 were

very harmful for ice land. They froze out assets using anti-

terrorism law. We have just got a report showing what this cost the

general Icelandic businesses -- businesses. It's there potential

trade was broken. They suffered a loss of reputation. The figures

amount to something something -- to something like $5 billion. I am

speaking both about... With respect, should not the Icelandic people as

a halt realise that they hacked to take a huge hit because of the

collective responsibility -- irresponsibility that believed it

could become a major player in international banker. Every single

person in your country had to pay a price for that. Yes. And there is

not much fairness in that. The ordinary people in Iceland and

guilty of nothing in this respect. But you are right. The leaders, in

banking, in businesses, they carry a huge responsibility for the

things that happened in Iceland. I am not trying to blame anybody else.

We must face the fact that we carry the main responsibility. I was

Leader of the Opposition in the years leading up to this. I tried

to warn and criticise but there were very few of us and we were not

much listened to. I want to stop you there. We will get two more of

your political thoughts in a minute. Let's focus on the immediate future

and the European Union. You have said that you do not recognise the

rules which the surveillance Authority has imposed on you when

it comes to paying back the debt. You say you do not recognise those

rules. In that context, how on earth can Iceland proceed with an

EU membership application when you are not even agreeing to be bound

by the rules of the EU economic space that you currently reside in?

It is a disagreement about interpretation. The courts will

sort that out. It's that is not the first time in the world's history

that you disagree on interpretation Iceland is trying to convince the

European Union that you want membership. You need to dig a

little bit deeper into the Icelandic psyche. You do you want

to be members of the European Union at all. He wanted a bit of short-

term protection. You decided to appeal to the European Union for

membership. Now that things have gotten better people have decided

that they have a lot of very sticky Rolls. -- roles. The question of

membership has always been a very controversial one. It has nothing

to do with how we stand economically for the time being. It

will always be a very controversial case for Iceland. This is because

of our vital interest in the agricultural and officially sectors.

-- fisheries. Once you have a clear interpretation that is not disputed,

no-one is talking about anything else. There is a dispute. That

needs to be sorted out. No way in the directors' does it stand that

there is a state guarantee behind the deposits. You explained that.

You try to tell me that is simply a technical difference. The European

Union application will go ahead. But just get down to the nitty-

gritty. You personally believe it would be a mistake, don't you?

My party do not think it will be beneficial for Iceland to join.

That would be at the Oreste donation. This question has to be

solved. Havel future relations between the Iceland and the

European Union be and in what form? We are members of the market but

not a full member. So we can have our Fisheries and agricultural.

us go to the reasons for membership. Many believe it the idea isn't

saying. -- is insane. You're talking about radical reform of the

banking system. You would have to play by the EU's rules. You get to

fisheries. 200 mile fishing limit. Exclusive rights within that zone.

A massively successful fishing industry. That would go to. Why

would anyone in your country want to be in the EU? We are part of the

inner markets. We look at a lot of rules and regulations. We are

integrated in many ways. We have to make a decision on whether to go or

become a full member. The European Union is our biggest market. 70% of

our exports go to Europe. We are a European nation. How we build up

our contact with Europe is an important issue that we need to

work through. You signed up to a government which officially wanted

to join the European Union, not because he believed in it but

because he wanted a senior person Cabinet. It was pure politics. You

do not believe in this at all. decided to put it to Parliament,

whether there was a majority in parliament to apply. We were fully

committed to that process. At the end of the day it is up to the

Icelandic people to decide. That is the democratic way to settle their

question like that. Maybe I am misreading them. The poll suggests

that at least 60% of Icelanders have said that they do not want to

be in the European Union. You are right. There is strong opposition.

This is a controversial case. There was always bound to be so. No doubt

some of the recent events in Europe and in how contact with Europe have

not helped support membership. I am referring to the problems that the

euro is facing. I think that at the end of the day it, how successful

the euro is it will solve this problem. Why is the mood in your

country so sour, but in many ways you can argue that you dodge table

at? -- dodged a table at. Your economy is recovering. Yet the

public mood is angry and the sour. Why? That is a good question. This

was a major shock to Iceland. We thought we were very rich. The

standard of living was going up. We had a big party in Iceland after

the millennium. It was a big shock. We woke up one morning and if our

Prime Minister was on TV telling us that the country might become

bankrupt. It was a big change. A lot of people were hurt. A lot of

innocent people that carried no responsibility, living in the house

and trying to deal with their finances were taking a hit.

keeps saying these people bear no responsibility. Is that a

indication that you believe it is right to push ahead with the legal

proceedings against the former Prime Minister, who we had in the

show a year or two ago and hundreds of other people, bankers,

politicians, civil servants who appear to be under investigation.

Do you personally want to see individuals put behind bars? That

would be according to our laws and constitution. That is the only way

to sort things like that out. We have to stick to the law. I'm just

asking a more philosophical point. Do believe it is important to get

rid of this sour mood, this anger in Reykjavik and Iceland, to see

people punished and may be imprisoned? It needs to be done. I

do not Lockett as a sacrifice a punishment to make people at ease

with things. We need to as a society work through this by

getting his things behind us and are focusing on the future. It will

take time. It was a big psychological, political shock. As

I analyse the situation today, our economy is definitely improving and

recovering. Economic way, things a looking better and better. The

problem that stands today is perhaps 25% economic all but 75%

psychological. I will quote you the words of a political scientist who

has been looking at the truth committee you have had. He says

that what we have learned is that in Iceland we have had a mix of be,

greed, incompetence -- incompetence, nationalism, youthful risk-taking

and a kind of collective superiority complex. The truth is

that we in Iceland lost sight of their roots and our values. There

is a lot of truth in that. We as a people have to honestly face that.

We went off track. Completely of track in many ways. It is not just

a question of responsibility. We as a people also need to look this in

the eye. That does not mean that the ordinary people are responsible.

But many joined in. Even the media, and the bigger parliamentary

investigation expenses for a while. How was this dealt with? We have to

follow the law. We have to shoulder that responsibility. Not just

because we want to punish them but because that is how power law and

constitution works. We need to join a forces. We have not made a lot of