Bailout cuts no ice with Reykjavik

Iceland’s president Ólafur Grimsson kicked up a storm with London and Amsterdam by announcing on 4 January that he would put to a referendum the proposed legislation on the repayment of his country’s debts. The UK and the Netherlands are eagerly awaiting repayment of the €3.8bn their investors lost when Icesave bank went bust in 2009. “Until President Grimsson dropped his bombshell this week, Iceland's recovery from its disastrous descent into economic catastrophe had been going pretty well,” claims The Independent. With the debt repayment in the offing, “for the first time in a long time, the economic signs were turning positive”. But then everything got all tied up in knots between “an egotistical president sharply at odds with the will of his parliament, a furious foreign minister dismayed at the British response, and a serious failure of communication at the heart of the Icelandic government”.

“But it's also a story of something simpler,” resumes the London daily: “a country that got sick of being told what to do.” To wit, “the EU stipulated that the average Icelandic citizen should pay €12,000 each to cover this debt,” economist/journalist David McWilliams reports in the Irish Independent. “The EU and the IMF said further aid to Iceland is dependent on this deal. This president has stated that if the price of this EU and IMF help is penalising the citizen, then it is a price so high that it must be passed by referendum. In short, the outsiders (the citizens) should not be forced to bail out the insiders (the banks).” “The Icelandic story is a mirror image of Ireland's,” observes McWilliams, whose country has likewise borne the brunt of the financial crisis. “However, unlike the Irish case where the average person is being asked to pay the bondholders of the banks... the Icelanders are taking a different tack.”

“Iceland is a country with a banking system attached. In contrast, Ireland is a banking system with a country attached to it,” quips the economist. “In the past five years, the Icelandic banks behaved precisely like our own. They lent to anyone and anything but, in the main, they lent to their mates. When they ran out of Icelandic deposits, they borrowed abroad to finance their expansion. They issued debts and when they could no longer issue enough debt, they took in deposits. When the system crashed, the foreign depositors and the bondholders got caught. You can rightly ask what in God's name were English depositors doing putting their life savings into Icelandic banks that they had never heard of?” Over in Amsterdam, the Volkskrant denounces Dutch and British leaders’ “strong-arming” approach to the standoff. “The only thing missing was for the British and Dutch marines to be deployed to Reykjavik,” cracks the daily, which advocates a gentler tack: “This situation calls for compassion.”

“Great Britain and the Netherlands don’t stand to gain from pushing Iceland into bankruptcy,” warns the Dutch daily. “Excessive debt could block the country’s economic recovery and trigger a brain drain. The day there’s no-one left but a handful of fishermen, the Netherlands and Great Britain can whistle all they like” for their money back: it won’t be forthcoming. The Volkskrant exhorts London and Amsterdam to “look into what they can do to help resolve the situation, like cancelling part of the debt or interest”. But that seems hardly likely to the Jyllands-Posten. The Danish daily views the whole story as an object lesson in international solidarity (or rather the lack thereof) and fears that countries like Latvia, Greece and Hungary are liable to find themselves in the same predicament shortly. And as one economist quoted by the daily bemoans, “There’s a limit to that help, and we are now seeing that the international community doesn’t write off debts.”