The Economist states: "ON MARCH 6TH Icelanders go to the polls to vote in an historic referendum. They must decide whether to accept or reject a deal made by their government to repay to the British and Dutch authorities €3.9 billion ($5.3 billion) lost by British and Dutch savers in Landsbanki, a failed Icelandic bank".
This deal provides that Iceland repay back it's debts to British and Dutch investors because as the two nations think, "Icelanders were happy to enjoy the fruits of the boom years, and should not try to wriggle out of the consequences now that their country’s enormous financial bubble has burst". However, Icelanders think that because they have to endure the losses, then so should the British and Dutch investors.
The problem lies in the fact that if the Icelanders vote no, a stance in which polls show about 70% of people support, then the already weak Krona would inflate and the IMF would probably no longer help them financially. Britain and the Netherlands have also threatened to block admission into the EU in the case of a no vote. However, because Iceland has only 320,000 people, it's already massive debt would take them decades to pay off, and also become a risky investment for more loans given to them. " The Landsbanki debts alone amount to over €12,000 for each of the country’s 320,000 citizens; total debts are approaching 1,000% of GDP", meaning that it is wild to think that Britain and the Netherlands would push so hard for this money when they would see the disadvantages for a weak economy in Iceland if they were to join the EU. Would this not just be another Greece waiting to be bailed out by Germany?
This is a difficult situation for the EU and Iceland, and it's impact could influence the decisions made in the EU nations that are near bankruptcy. Therefore, what do you think Iceland should do and why? What does a yes or no decision mean for the EU? In a time when the financial system in Europe is already strained, then why should Iceland be permitted to enter into the Euro-zone? Do you think it is wise for Iceland to join the EU? What does this mean for the EU nations wishing to be bailed out, and what does it mean for the nations such as Germany and France, who will front the money for the bailouts?
Based on the information given in this article it seems like a terrible idea to allow a nation that has debts 1000% greater than its GDP. If Iceland is allowed to become part of the EU and use the Euro it is likely to require the same type of bailout as Greece sooner or later. Iceland needs to try to solve its bankruptcy issues before it is even considered for introduction into the EU. At the very least it should be able to show substantial improvement in its debt levels, otherwise Europe will just end up having to come to the aid of another nation with debt problems. With the euro already decreacing in value because of collapsing economies I believe it would be best for Iceland to be made to wait until it can support itself.
ReplyDeleteI do not think Iceland should join the EU. Greece has already shown that smaller countries are at a disadvantage in the union; at first they can borrow a lot more than they would have been able to previously, but then they have to face all of the debt that they've accumulated. I think Iceland should try to work out a deal with the British and Dutch investors and pay back their debt in installments, as paying it back all at once will probably hurt the economy even more.
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