Lets make this clear. Despite the hysteric coverage by the foreign media, the president’s veto does not mean that Iceland is not going to pay its debts in the IceSave affair. It just means that this exact agreement with the Dutch and the British is not agreeable.

The foreign press might be as confused as the people who signed this petition of the InDefence group:
“I challenge the president of Iceland, Mr. Olafur Ragnar Grimsson to reject the new IceSave bill. I think that it is fair to demand that the economic burden imposed on the Icelandic public and the future generations of this country will be put to a national referendum where the Icelandic nation gets to vote on it.”

It might be fair to conclude that a good number of those who signed the petition thought that they would be voting on whether to pay or not.

Britain and the Netherlands need to wake up to the fact that this is not going down easy in Iceland.

Eirikur Bergmann in the Guardian:

“There is also a legal twist. The EU directive upon which the UK and the Dutch base their claim is rather unclear. It stipulates only that states are obliged to set up special deposit-guarantee schemes. It does not speak of a state guarantee. Many people in Iceland are frustrated by the fact that the British and the Dutch have refused our claim for an impartial court to rule on the issue.

The general perception in Iceland is that our government has been bullied by an overwhelming foreign power into signing an unjust agreement. It is generally accepted that our government and the parliament only accepted the deal to achieve other ends, rather than feeling an obligation to pay out. It was simply a necessary evil to gain access to the IMF, and ultimately also to the EU – and thereby the euro. Whatever the reality might be, it is widely thought that the UK has been throwing its weight around so as to hinder Iceland from obtaining international help.

And then there is the cost. £3.4bn might seem a small figure by UK standards but divided by Iceland’s small population the bill amounts to more than £10,000 per head, or over £40,000 per household. Anyone can see that this places a devastating burden on an already debt-ridden population.

Iceland will have to repay the debt: that much was agreed in a bill that became law this summer. The question is when – and like the president, most Icelanders believe their country needs more time to recover from the enormous shock inflicted on our economy during the 2008 crisis.”

Belgian economist and Iceland Central Bank board member Daniel Gros has pointed out some scary scenarios that the UK itself could face:

From Voxeu.org

Iceland’s giants in the garden all failed. If Iceland gets its house in order then it must have a clear demand on changes being made in the international financial system. What is the UK going to do if Barclays’ fails?

Fitch Ratings has now moved Iceland into its junk category. It is the same ratings agency which spoke so favourably about the Icelandic banks for so long. You can imagine how much attention the regular Icelander pays to the cuckoo economics practised by Fitch.

The IMF says that IceSave is not a condition of its agreement with Iceland as long as the loan program is financed by Nordic partner countries.

“When it comes to the Nordic countries’ loans to Iceland, the first part of the payment has already been approved,” Markus Sjoqvist, press secretary for Swedish Finance Minister Anders Borg, said in the Wall Street Journal.

“The second part of the payment, we will now have to consider in conjunction with board discussions in the IMF.”

 

 

 

Related posts:

1. IceSave Round II Might KO Government
2. IceSave: Really About Domestic Politics In Iceland – UK & Netherlands
3. IceSave Referendum: Foreign Press Reaction
4. IceSave: Nothing Ever Gets Built From Trenches
5. Complexity Of IceSave Too Much For Althingi?