Some compare the plan to the Versailles treaty’s harsh demands of Germany. A better analogy is the 1982 Latin American debt crisis, in which even Chile, poster boy of Chicago School economics, saw the state take over a mountain of private debt. A decade of stagnation followed. The same could be in store for Iceland.

Would that benefit anyone? It would alienate the Icelandic people, already angered by Gordon Brown’s use of anti-terror laws to freeze Icelandic assets. Icelanders’ support for the recent application to join the European Union is rapidly cooling. The risk is an Iceland geopolitically adrift with its strategic location and important natural resources. Russia is no doubt paying attention: it was the first to offer Iceland economic assistance.

From the Financial Times

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