Iceland’s voters have overwhelmingly rejected a proposal to repay £3.4bn of loans to Britain and the Netherlands. The UK and Dutch governments had bailed out depositors in Icesave, a subsidiary of Landsbanki, which collapsed in the credit meltdown of late 2008. They now want that money back. But a repayment deal passed by parliament earlier this year was vetoed by the president, which triggered the referendum. Talks to resolve the issue continue.
What the commentators said
Icelanders object not to repaying the debt, but to the terms, as The Independent pointed out. You can see why. £3.4bn is 50% of Iceland’s GDP and the annual interest owed would be 5.5%. At more than $16,000 for each of the country’s 317,000 people, it’s “too great a burden”, said Matthew Lynn on Bloomberg.com. Given that Iceland’s already suffering from a deep recession – GDP fell by 6.9% in 2009 – “it could be crippled for a generation”.
But Iceland could pay a heavy price if the issue isn’t resolved, said Economist.com. It could jeopardise EU entry as well as a $4.75bn IMF support package, as the Nordic countries who are contributing about half the sum are refusing to go ahead. Iceland already has to find $2bn next year and half that in 2011.
To make matters worse, ratings agency Moody’s has threatened to downgrade its debt to junk. A deal should be possible, said Breakingviews’ Nicholas Paisner. Before the vote the two sides were closer to agreeing a lower interest rate. Indeed, the difference was less than 1%, which “doesn’t look insurmountable”.