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Pay Me Now, or Pay Me Later, Iceland Style
Topic Started: Mar 7 2010, 06:47 AM (337 Views)
QuirtEvans
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I Owe It All To John D'Oh
Quote:
 
Iceland's leaders are scrambling to blunt the impact of a referendum Saturday in which voters are set to defeat a measure to repay the U.K. and the Netherlands for bailing out depositors in a failed Icelandic Internet bank.

Iceland's prospects for an economic recovery, billions of dollars in international aid money and its bid for membership in the European Union are at risk.

Dutch, British and Icelandic officials have been wrangling for nearly a year over a compensation deal in which the island nation would repay the U.K. and the Netherlands a total of €3.9 billion ($5.3 billion) for bailing out depositors in a failed Icelandic Internet bank, Icesave.

The failure in 2008 of all three of Iceland's major banks swamped the country's tiny deposit-insurance scheme, leaving British and Dutch savers with Icesave accounts high and dry. The U.K. and the Netherlands stepped in to pay their own residents' claims. But they quickly asked Iceland for their money back.

Iceland's parliament approved a deal in December after several false starts. But in January, citing mass public opposition, the president vetoed it. That set up Saturday's referendum.

A Capacent Gallup survey conducted over the last weeks of February showed 74% of those who had decided planned to vote "no." That figure has widened steadily since early January.

An Icelandic negotiating team remained in London on Thursday in a last-ditch bid to seal a new pact that could—at least temporarily—eliminate the need for a referendum on the older agreement. Any new deal would once again need to pass a divided parliament and be signed by President Ólafur Ragnar Grímsson.

British and Dutch officials declined to comment on the talks.

Iceland's finance minister, Steingrímur Sigfússon, said on national radio Thursday that the two sides had made progress but remained apart. He said it was "highly unlikely" the referendum would be called off.

An overwhelming "no" carries real risks. "It will definitely make it more difficult to come to an agreement afterwards," says Tryggvi Thór Herbertsson, a member of parliament from the conservative opposition Independence Party.

The London talks have focused on the interest rate Iceland would pay, which many Icelanders find excessive. Britain and the Netherlands say it is reasonable given the risk of lending to a nation whose financial system has collapsed. Under the agreement to be voted on Saturday, Iceland has 15 years to pay the money back, at 5.55% interest. There is a seven-year grace period in which no payments are due, though the interest clock is ticking.

The Icesave matter comes down to one question: Suffer the pain now, or suffer it later? Blocking the deal now could save Iceland from onerous repayments in the future. But there is a cost: Without a repayment deal, Iceland has been unable to access aid from the International Monetary Fund and other donors that it badly needs to repair its hobbled economy and allow its damaged currency to float freely again.

Icelanders are to vote on Saturday on a bailout referendum to repay 5 billion dollars to Britain and the Netherlands. Video courtesy of Sky News,

Most worrisome is €1 billion in foreign debt that matures in December 2011, and an additional €200 million maturing the next year. Iceland's foreign-currency reserves stand at just €2.7 billion, and Iceland would be deeply strained if it had to make those debt payments without an infusion of outside aid.

"The magnitude of those payments are such that we could survive them with the resources that we have, but we'd have little left for anything else," Gylfi Magnusson, Iceland's economic-affairs minister, said in a recent interview.

Mr. Magnusson said energy- and technology-sector investments— viewed by the government as critical to getting Iceland's economy back on track—could be delayed further. "All these projects need capital," he said. Iceland's bid to join the EU is also effectively on hold until a deal is worked out.

Iceland's prime minister, Jóhanna Sigurdardóttir of the Social Democrats, has staked much of her political capital on herding her skittish coalition into backing an Icesave deal. Failure to reach one would be a serious blow.

Mr. Herbertsson says he is optimistic of a new deal. "It is absolutely clear that all the political parties in Iceland want to settle this somehow," he says. "Everyone understands the cost of dragging this further."


http://online.wsj.com/article/SB10001424052748703502804575101600106854096.html?mod=WSJ_hp_editorsPicks
It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010.
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Mikhailoh
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If you want trouble, find yourself a redhead
You have to wonder if it could come to a similar situation with the US and China. 'Ah, f*** it. We're not gonna pay you back all that cash we borrowed'.
Once in his life, every man is entitled to fall madly in love with a gorgeous redhead - Lucille Ball
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Axtremus
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HOLY CARP!!!
Mikhailoh
Mar 7 2010, 06:53 AM
You have to wonder if it could come to a similar situation with the US and China. 'Ah, f*** it. We're not gonna pay you back all that cash we borrowed'.
Remember: Our national debts are all denominated in the currency we print.
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Mikhailoh
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If you want trouble, find yourself a redhead
I'm well aware of that and what effect it it might have on American lives.
Once in his life, every man is entitled to fall madly in love with a gorgeous redhead - Lucille Ball
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Piano*Dad
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Bull-Carp
I don't know anything about the Icelandic deposit insurance scheme and whether it really covers international depositors in weird institutions like this failed 'bank.' If it did cover these depositors then shame on the Icelandic government for not monitoring that bank more closely, because it has just put the general population's future income in jeopardy.

If I were a citizen of Iceland, I too might vote no. The consequences of that choice may be the same as a general default on government debt, but that's OK. Countries do recover from default over time. Sometimes you have to declare national fiscal bankruptcy in order to avoid a worse situation, like paying back foreign depositors some huge fraction of Iceland's national income. In any case, the depositors seem concentrated in a few European countries, so Iceland's relations with them may go in the deep freeze for a few years. If needed, Iceland can seek closer ties to the US and distance itself from Europe. I know that's not what they would like to do in some perfect world, but this is not some perfect world. Their EU aspirations may have to wait.
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John D'Oh
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MAMIL
First Bobby Fischer, and now this. We should invade and steal all their, er..... stuff.
What do you mean "we", have you got a mouse in your pocket?
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Improviso
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HOLY CARP!!!
What stuff? Their ice?
Identifying narcissists isn't difficult. Just look for the person who is constantly fishing for compliments
and admiration while breaking down over even the slightest bit of criticism.

We have the freedom to choose our actions, but we do not get to choose our consequences.
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Piano*Dad
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Bull-Carp
Magma. That's what the UK really needs. :lol2:
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jon-nyc
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Cheers
Steal their geothermal energy!
In my defense, I was left unsupervised.
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John D'Oh
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MAMIL
We could rape their fish, but they've probably beaten us to it if I know anything about big men with orange beards called Magnus Torquildosson.
What do you mean "we", have you got a mouse in your pocket?
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Piano*Dad
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Bull-Carp
Actually (pardon the seriousness), Iceland has perhaps the best resource conservation program going. The US and the EU could learn of lot from them about how to manage a common property resource like fish.
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Red Rice
HOLY CARP!!!
Iceland produces more supermodels per capita than any other country in the world.

I would pillage their women.
Civilisation, I vaguely realized then - and subsequent observation has confirmed the view - could not progress that way. It must have a greater guiding principle to survive. To treat it as a carcase off which each man tears as much as he can for himself, is to stand convicted a brute, fit for nothing better than a jungle existence, which is a death-struggle, leading nowhither. I did not believe that was the human destiny, for Man individually was sane and reasonable, only collectively a fool.

I hope the gunner of that Hun two-seater shot him clean, bullet to heart, and that his plane, on fire, fell like a meteor through the sky he loved. Since he had to end, I hope he ended so. But, oh, the waste! The loss!

- Cecil Lewis
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