The Anti-Greece Also Wants To Be The Anti-Argentina

Iceland is giving hedge funds a piece of its mind.
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If you cut a deal, Björk will personally deliver your share of these rocks.

After seven long, cold years, Iceland is almost ready to let foreigners have their money back, with plans to lift capital controls imposed after all three of the island’s banks collapsed in a matter of days during the financial crisis. This has earned the tiny country the proud title of Anti-Greece, although it remains to be seen whether being the Anti-Greece can actually keep you from becoming Greece once you lift those handy capital controls that Greece didn’t have access to. And one of the things that could turn the Anti-Greece into a smaller, snowier and less-beachy Greece is the thing that keeps Argentina Argentina: hedge funds. Litigious hedge funds. Litigious hedge funds who own a whole bunch of the failed banks’ debt, and who might be thinking of wrecking Iceland’s carefully laid-out plans through litigation.

Think again, Prime Minister Sigmundur Gunnlaugsson says.

“If they wanted to make some kind of an example out of Iceland, to threaten people, then this wouldn’t be a good case for them,” Prime Minister Sigmundur D. Gunnlaugsson said in an interview in Reykjavik on Monday. “This is founded on solid legal ground.”

The “this” in question is Gunnlaugsson’s legislation that would lift capital controls, albeit with a caveat: Cut a deal like the banks’ creditors committees have done, taking bonds, cash and shares in new banks, or take a 39% haircut. Choice is yours.

“We’re very confident in the legislation we’ve just presented and have no doubts about its legal validity,” Gunnlaugsson said in an interview with Bloomberg Television’s “Market Makers” on Monday.

Some hedge funds will try to “safeguard their interests quite strongly,” he said. “But it’s important to keep in mind that it’s in their interest to get a resolution. And this is exactly that, a resolution both for the Icelandic society and these investors. So I think the parties can be satisfied.”

Gunnlaugsson is so confident because Iceland isn’t just the Anti-Greece and Anti-Argentina, it is also in effect both Germany/the IMF/the ECB to the bank creditors’ Greece, as it is the one driving the hard bargain, and also the U.S. courts to the hedge funds’ Argentina, since any disputes will be heard in its courts and under its laws. So, uh, you’ve got about seven months to hammer out a deal.

The winding-up committees representing creditors in the failed banks can avoid the tax by reaching a composition agreement that’s approved by the central bank and finance ministry by the end of the year.

Meanwhile, Belgium is doing its best to be the anti-U.S., at least in terms of becoming the kind of place where the Argentinas of the world are brought to heel. (The Greeces of the world? On their own.)

A Belgian parliamentary committee agreed to a proposal that would cap what so-called “vulture investors” recoup in Belgium on sovereign bonds if a country defaults, a lawmaker said Tuesday, as the draft enters into the homestretch before it likely becomes law….

“This presents a clear signal that [Belgian lawmakers think] finance shouldn’t be used as an instrument that destabilizes countries in default,” said Ahmed Laaouej, a Socialist party member and lead author of the proposal.

Iceland Warns Hedge Funds Against Suing After Imposing Tax [Bloomberg]
Iceland to Lift Capital Controls Imposed After Financial Crisis [DealBook]
Iceland Moves Closer to Unwinding Capital Controls [WSJ]
Belgium to Block ‘Vulture’ Funds From Profiting on Government Debt [WSJ]

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