AMONG IRISH taxpayers there will be an instinctive sympathy, a feeling of kinship, with the majority of Icelanders who believe they should not have to foot the Bill for the collapse of their irresponsibly managed banking system. Even if the repudiation of that debt might be a step too far – and one which, reports to the contrary notwithstanding, Iceland is not proposing. There is, unfortunately, a need to go back to the IMF well again and every prospect it will be found to be dry unless what the money men regard as national obligations are honoured. On Tuesday, to make the point, Fitch Ratings cut Iceland’s long-term sovereign foreign currency credit rating one notch to junk status.
When the largely ceremonial President Ólafur Grímsson on Tuesday refused to sign a Bill providing for the repayment to the British and Dutch governments of the €3.8 Billion they had forked up to 300,000 of their citizens, savers in the Icesave arm of Landsbanki, he triggered a constitutional provision requiring the country’s first referendum. It will be held on February 20th and, if polls are right, will see a 70-30 defeat of the deal agreed by the government with London and The Hague.
The fact that they have to pay the money back is not at issue for most Icelanders but the terms very much are. In August a previous version of the Bill was agreed by parliament, the “Althingi”, with amendments that were unacceptable to what are perceived as the bullying British and Dutch, notably one which made repayments conditional on Iceland reaching GDP targets. Opponents argue that the current Bill’s requirements are simply unsustainable given the dire state of the economy. The August Bill’s provisions and repayments will apply if the voters reject the later one.
That the argument, which has some justice, should be championed by Mr Grímsson is ironic. A fourth-term president, he presided over - and vaunted internationally – the ultra-liberal regime that fed the banking boom. Now it is a left-wing government, elected last year in protest at the gross mismanagement of the bankrupt economy, that is preaching the conservative virtues of honouring debt. It will probably fall.
The crisis may delay Iceland’s new vocation for EU membership, not least because member states each have a veto on new applicants. But Brussels, which was rattling sabres at Reykjavik yesterday, should not be making matters worse by promoting a particularly severe settlement of what is essentially a bilateral commercial dispute. Iceland deserves some slack.