March 8, 2010

What a shame we didn't get to vote here, huh? Yes, despite some heavy-duty pressure (and the implied threat of being blocked from membership in the European Union), the tiny country voted no to a crushing repayment plan for the British and Dutch debts incurred by a failed Icelandic bank. That plan would have required each Icelander to pay around $135 a month for eight years — about 25% of the average family's salary:

REYKJAVIK, Iceland – Icelanders blew whistles and set off fireworks in the capital as referendum results Sunday showed they had resoundingly rejected a $5.3 billion plan to repay Britain and the Netherlands for debts spawned by the collapse of an Icelandic bank.

Voters in the tiny Atlantic island nation defied both their parliament and international pressure to display their anger at how their nation was being treated.

"This is a strong 'No' from the Icelandic nation," said Magnus Arni Skulason, co-founder of a group opposed to the deal. "The Icelandic public understands that we are sovereign and we have to be treated like a sovereign nation — not being bullied like the British and the Dutch have been doing."

[...] Britain and the Netherlands want to be reimbursed for money they paid their citizens with deposits in Icesave, an Internet bank that collapsed in 2008, along with most of Iceland's banking sector. Most ordinary Icelanders feel the repayment schedule was too onerous.

[...] The overwhelming margin reflected Icelanders' simmering anger at bankers and politicians as the country struggles to recover from a financial meltdown. President Olafur R. Grimsson — who sparked the referendum by refusing to sign the repayment deal agreed by Iceland's parliament — said Icelanders resented having to pay for the actions of a few "greedy bankers."

He said, however, the British and Dutch would get their money back eventually.

"The referendum was not about refusing to pay back the money," Grimsson told the BBC. "Iceland is willing to reimburse those two governments, but it has to be on fair terms."

Iceland, a volcanic island with a population of just 320,000, went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.

And you'll never in a million years guess how that happened! (Stop me if this sounds familiar.)

They became a free-market poster child. By deregulating the banking and financial sectors, in just five years, Icelanders saw their wealth increase by 45 per cent. The banks went from domestic lending to international financing, until foreign financing made up two thirds of their debt. Then it all collapsed.

The new left-of-center government has been trying to negotiate a plan to repay $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid to around 340,000 of their citizens who had accounts with Icesave, an Icelandic Internet bank that offered high interest rates before it failed along with its parent, Landsbanki.

Failure to settle the dispute could have repercussions for Iceland's economic recovery. The International Monetary Fund has agreed to loan Iceland $4.6 billion, and the agreement is linked to repaying its international debts.

[...] Many Icelanders remain angry at Britain for invoking anti-terrorist legislation to freeze the assets of Icelandic banks at the height of the crisis.

Oh yeah, about that last part. Iceland Prime Minister Johanna Sigurdardottir has demanded an apology from the UK for freezing their assets. I wonder how long she'll have to wait?

I don't blame them for being furious. Even Icelandic companies that had nothing to do with their banks had their assets frozen by the U.K. government.

And of course, the International Monetary Fund is a flock of vultures. Their Structural Adjustment Programs usually increase poverty in the countries they "help," because one of the main conditions is that the governments sell off their national assets - usually to western corporations at fire sale prices.

So good for Iceland! Too bad our Congress doesn't have that kind of spine.

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