British and Dutch authorities were urged to take on an increased part of the burden that comes with compensating Landsbanki’s Icesave depositors in an editorial in The Financial Times yesterday—otherwise Iceland’s economy might come to a long-term standstill.
The headquarters of Landsbanki in Reykjavík. Photo by Páll Stefánsson.
The editorial, “In the same boat,” states that Britain and the Netherlands had not foreseen the anger of Icelandic voters when the agreement on the Icesave obligations was made with the Icelandic government in June and that it seems as if the Icelandic parliament will reject the government’s proposition on the matter, Morgunbladid reports.
“The £3.3bn Reykjavik agreed to reimburse is a paltry sum for most countries, but it amounts to more than £10,000 for each citizen of the subarctic island. This economic burden – about half a year’s economic output – for compensating overseas savers is similar to the cost to the British government of tackling a UK recession less severe than Iceland’s,” the editorial reads.
“Some compare the plan to the Versailles treaty’s harsh demands of Germany. A better analogy is the 1982 Latin American debt crisis, in which even Chile, poster boy of Chicago School economics, saw the state take over a mountain of private debt. A decade of stagnation followed. The same could be in store for Iceland,” the editorial continues.
The editorial goes on to ask: “Would that benefit anyone? It would alienate the Icelandic people, already angered by Gordon Brown’s use of anti-terror laws to freeze Icelandic assets. Icelanders’ support for the recent application to join the European Union is rapidly cooling. The risk is an Iceland geopolitically adrift with its strategic location and important natural resources. Russia is no doubt paying attention: it was the first to offer Iceland economic assistance.”