Iceland to Potentially Ditch its British and Dutch Debts

In 2008, when the Icelandic economy imploded and Landsbanki’s Icesave division went under, the UK and the Netherlands rode to the rescue of their own citizens caught up in the collapse by reimbursing their lost deposits. The Icelandic deposit insurance fund had promised to make EU account holders whole in the event of a bank failure… but it didn’t. Hence the British and Dutch insistence that Iceland now pay up.

According to Citywire:

“Given the parlous state of the country’s economy, the Icelandic government therefore felt it had no choice but to give in to the demands of the British and Dutch governments, which it duly did last Wednesday after a narrow 33-30 vote in the Reykjavik parliament.

“Since then, however, public anger about the deal has grown…

“…The result today was that President Grimsson finally came out against the bill, a decision which means that – according to Icelandic law – the people will now be able to vote on the bill in a referendum.”

The referendum is likely to block the repayment. Unfortunately, as a WSJ blog points out, this conflict is unlike the previous Iceland-UK Cod Wars over fishing rights — it’s over $5 billion — at a time when government funds are especially tight, so the stakes are correspondingly higher. Read more about the standoff between these nations in Citywire coverage of whether Iceland will meet its financial obligations.

The Daily Reckoning