Iceland thumbs its nose at the UK and the Netherlands

Iceland shown on this map of Europe in the top-left corner in brown.

Iceland shown on this map of Europe in the top-left corner in brown.

You may or may not have heard that Iceland’s President has vetoed a bill that would repay money owed to the UK and the Netherlands for deposits made in an Icelandic online bank called Icesave. The bill was already approved by the Icelandic parliament but President Olafur Ragnar Grimsson decided to veto it, which is only the second time in the country’s history that the veto was used. This means that it will go to a nationwide referendum to decide whether to repay the money or not. This decision is likely the result of a petition that was passed around in Iceland that demanded they don’t go through with the repayment and approximately 20% of the population signed it. This is something that is much easier to accomplish in a lightly populated country like Iceland.

This is important not only to the countries involved but to the entire world for several reasons. Firstly, we should all be aware by now how connected and dependent every country is to one another (this recession proved that). Secondly, Iceland was on its way to becoming an EU member and this puts the brakes on that at least for now. What happens in the EU is important because it represents many of the worlds’ industrialized countries and is very influential economically. However, to me the most important part of this story is that Iceland, an industrialized, western European country is breaking international law. In fact, it is breaking a law that recently, when a lot of banks around the world ran in to problems similar to Icesave’s, every other advanced nation abided by the law, including the mighty United States and the UK who is now on the short end of the stick.

The people of Iceland are understandably displeased that they have to pay the tab on behalf of one of their banks that mismanaged funds and they are even more understandably worried about how exactly they will even be able to pay it all back as it is over $5.5 Billion USD. Just so you understand how much this actually is to Iceland, we are talking about a country with a population of about 320,000 or so. This equates to an additional tax of about $17,000 USD per person, not including interest. On top of that, this is a country that is in perhaps worse shape compared to where they were before the global downturn than any other country in the world. So even if they did decide to repay the money like they are required to by an international agreement that they signed on to, it is unclear where they would find the money.

This is still a fluid and ongoing story as now the country will have a referendum to decide what to do and also, their future EU membership is still at stake, in addition to a very much needed second IMF loan which may now be pulled if it follows normal protocol when a member country break an international law like this. This is an interesting story and it has the potential to set a precedent for how to deal with member nations when they are stuck between a rock and a hard place.

Logo of Icelandic bank at the heart of this issue

Logo of Icelandic bank at the heart of this issue