Iceland: Balking at paying back foreigners

The Icelandic people don’t want to pay their debt—and we can hardly blame them, said the Netherlands’ Volkskrant in an editorial. When the Internet bank Icesave went under in 2008, it left the Icelandic government $5.3 billion in debt to the Netherlands and Great Britain. Iceland’s government struck a deal with the two countries to pay back the debt with interest. But its president insisted the deal be put to a referendum, and last week Icelanders gave it an overwhelming thumbs down, with more than 93 percent saying “Nei” to the payment plan. Icelanders were understandably furious that “they should be made to pay for the shenanigans of a small group of bankers that ended in disaster.” Unfortunately, pay they must, or risk losing all credibility on international markets. If Iceland doesn’t want the deal that just went to a vote, its leaders will have to come up with a new payment plan.

That’s fine with us, said Iceland’s Morgunbladid. Icelanders understand that we have to pay something. But whatever new deal we strike will have to be “flexible.” Now that the Icelandic people have spoken, our government can’t simply continue negotiations “on British and Dutch terms, as if nothing had happened.” The 5.5 percent interest rate that the British and Dutch wanted, for example, is no longer an option; it is “heavier than we could possibly bear.” The big bailouts for Landsbanki and other failed Icelandic banks have already placed a huge economic burden on future generations. Iceland’s overall foreign debt is projected to soar to an incredible 320 percent of its GDP by the end of this year. In such a climate, our people can’t possibly pay crippling interest to foreigners.

Spare us the sob story, said Gunnar Herr­mann in Germany’s Süddeutsche Zeitung. Icelanders would have us believe that the EU banking system is at least partly responsible for the collapse of their banks, and that therefore the EU should help them pay their debts. But let’s not forget that “Icelandic politicians accepted and exploited the rules” of that system, and they’re the ones who failed to rein in their bankers. Some officials may have been “naïve, or some may have been corrupt.” Either way, we’re talking about the elected representatives of the Icelandic people. “That means the Icelanders themselves are at least partly to blame for their misery,” whether they profited from their bankers’ speculations or not.

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True, but such finger-pointing is not useful now, said France24.com. The failure to approve payments to the Dutch and the British could have immediate consequences for Iceland. A badly needed $4.6 billion loan from the International Monetary Fund can’t go forward until Iceland settles its Icesave debt issue. And “this is not the only fire on the horizon: Rating agencies have also been making noises of rumbling discontent.” Iceland will have to reach a deal quickly so it “can begin to benefit from foreign-backed aid” and “rebuild its battered international reputation.”