You can't a-fjord not to pay, Britain tells Iceland

Relations turn frosty again after the Icelandic president vetoes a bill to repay the UK and Holland.

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Last Updated: 28 Jan 2013

As far as the UK was concerned, it was a done deal. A bill to repay UK and Dutch governments for bailing out Icesave account holders was approved by Iceland’s parliament in December, so all it needed was the rubber-stamp from President Olafur Grimsson. But after a quarter of Iceland’s population signed a petition in protest, the President has decided to veto the bill (only the second time he’s ever done this) and put it to a referendum instead. Not surprisingly, Britain is hopping mad. You can't blame the Icelanders for opposing the bill, but the fact remains that they’ll have to cough up at some point...

The original legislation paved the way for Iceland to pay back the £3.6bn Britain and Holland shelled out to savers when Landsbanki (and thus its Icesave arm) went south last year. But it caused uproar among the people of Iceland, who – not surprisingly – aren’t too keen on footing the bill for their bankers' excesses (imagine how you’d feel if you were forced to pay off an RBS debt somewhere overseas). Now Grimsson has bowed to public pressure, claiming that it should be up to Iceland’s 243,000 voters to decide whether they’re willing to make the repayments – which equate to about €12,000 per citizen. No prizes for guessing what the outcome of that vote is likely to be…

Predictably, the British Government isn't at all happy. The Treasury’s city minister Lord Myners warned the Icelandic people not to vote against the bill in the referendum, suggesting that it could further tarnish Iceland’s reputation abroad and possibly freeze the country out of the EU. ‘The Icelandic people, if they took that decision, would effectively be saying that Iceland doesn’t want to be part of the international financial system,’ he growled.

Iceland knows it will have to pay up eventually (in fact the referendum has already caused a split in the corridors of power, with PM Johanna Sigurdardottir opposing the President). But the question is when, and how. It thinks the current terms (a hefty 5.5% interest and total repayment within 15 years) are far too steep, and it also resents being ‘bullied’ by its bigger European neighbours. Take Britain’s use of anti-terrorism law to freeze Iceland’s assets back in 2008, which bracketed the country with the likes of al-Qaeda. Not very neighbourly – and Icelanders think this contributed to the banks’ demise (hence the UK should share some of the pain).

But however much sympathy we may have for the plight of individual Icelanders, the fact remains that if Iceland wants to avoid becoming an international pariah, it needs to start paying its debts. And given the deplorable state of the UK’s public finances, it’s not surprising ministers are willing to play hardball...


In today's bulletin:

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Buffett batters Kraft's Cadbury offer
You can't a-fjord not to pay, Britain tells Iceland
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A Traveller's Tale: Looking back on the world in 2009

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