Iceland Stands Up to Britain and the Netherlands

Last week I posted an article regarding Iceland and its national vote about whether or not to pay back British and Dutch investors, who invested in an internet operation, "Icesave", owned by a failed Icelandic bank called Landsbanki. This vote came after heavy pressure from the British and Dutch government, who bailed out these investors, and are now expecting Iceland to pay them back. This amount totals about $5.3 billion, and the people of Iceland overwhelmingly rejected to pay back Britain and the Netherlands by a 93% negative vote. According to the Economist, this vote may create serious problems for Iceland, who has been threatened with rejection into the European Union (EU) by Britain and the Netherlands, as well as a freezing of funds for "Iceland’s $4.6 billion International Monetary Fund programme. The fund says that this should not depend on the Icesave dispute. But the Nordic countries that are offering bilateral loans in support of the IMF’s rescue package are refusing to go ahead. Without their backing, the IMF deal is frozen". As we discussed in class about the future of the euro currency in regards to Greece, if Iceland is allowed into the EU, then wouldn't this then further weaken the euro because of their financial troubles? Also, how does this relate to the proposed countries to be bailed out, like Greece, who are being told how to run their countries by foreign political pressure?

By rejecting the political pressure from Britain and the Netherlands, Iceland has risked its financial future, and needs "to satisfy its creditors, Iceland must find some $2 billion in 2011 and $500m in 2012". Furthermore Iceland may "be dwindling chances of a deal over Icesave may lead it to join other rating agencies in downgrading Iceland’s debt to junk", further hurting it's economy. The people of Iceland have also shifted their opinions about joining the EU, as "polls suggest that half the voters are now against joining the EU, and only a third in favour", even though EU admission talks should be shortly beginning.

However, Reuters reported today that Icelandic Prime Minister Johanna Sigurdardottir stated that, "Iceland's government hopes to meet Britain and the Netherlands in a few days to discuss a new deal on repaying "Icesave" debts". This gives some economic hope to the people of Iceland, who need "to solve the impasse so it can get international aid flowing to its economy, which contracted around 6.5 percent last year and is expected to remain stuck in recession this year". However, the Icelandic people feel that "they are being held to account for the actions of a few bankers and the failures of foreign market watchdogs" and it is extremely unfair". These talks should be of great interest to Portugal, Ireland, Italy, Greece, and Spain, who should view this as the type of treatment and foreign political pressure they will get if they accept bailouts from other EU nations like Germany.

Iceland is certainly in dire straits, but Portugal, Ireland, Italy, Greece, and Spain, as we have discussed in class, will be up for the next round of discussions of bailouts, except by EU countries like Germany and France. These talks, and Iceland's possible admission into the EU will definitely have an impact on the stability and value of the euro, as well as the European Union's economic health.

Should Iceland have accepted the pressure of Britain and the Netherlands and agreed to pay the $5.3 billion back? How do you feel about the vote? What does this mean for countries like Portugal, Ireland, Italy, Greece, and Spain, which we have talked about in class? How will this effect the euro and the EU? Should Iceland be allowed into the EU?