The gravest risk involved in the Icesave agreement is that the debt load on the Icelandic nation will increase significantly with mass emigration, according to the Institute of Economic Studies at the University of Iceland.
The institute’s evaluation on the Icesave agreement was presented to the Economic and Tax Committee of the Althingi parliament yesterday, Fréttabladid reports.
Inside Althingi. Copyright: Icelandic Photo Agency.
The evaluation states that it is likely that a number of Icelandic citizens will move out of the country in the coming years, although it is difficult to estimate how many exactly.
However, it is not considered likely that the Icesave commitments as such will have an impact on emigration patterns.
The institute criticizes both the Central Bank’s evaluation of the Icesave agreement and the Financial Supervisory Authority’s report on the matter for not mentioning certain risk factors and for overlooking the negative impact that the Icesave commitments can have on economic growth.
“[The institute’s evaluation] doesn’t overturn the general picture that we have but rather confirms it,” said Minister of Finance Steingrímur J. Sigfússon.
The minister said that ideas of mass emigration are not new and that it is evident that such a development would make it more difficult for the Icelandic nation to honor the Icesave obligations.
“It is something that everyone is aware of and has often been discussed, not just in relation to Icesave but generally in relation to the [economic] collapse,” Sigfússon said.
The institute’s evaluation also states that the debt load of the Icesave loans depends on how easily Icelandic authorities can access foreign credit while repaying the loans. The debt load increases if it proves difficult to obtain foreign credit.
“Some would say that these are strong arguments for finishing the Icesave case,” Sigfússon said, explaining that reaching an agreement on Iceland’s commitments towards Icesave account holders and solving the dispute surrounding it is one of the basic prerequisites for regaining trust and credibility in financial markets.
Gudbjartur Hannesson, MP for the Social Democrats and chairman of the Economic and Tax Committee, said that although the institute’s evaluation is likely to delay the committee’s handling of the Icesave proposition, he hopes that it can be completed later this week. It is uncertain whether a cross-political agreement can be reached.
According to Morgunbladid [01.08.09], the Economic and Tax Committee is planning to complete its discussions of the Icesave proposition by August 10 so that it can be further discussed by the Althingi parliament on that day.
The International Monetary Fund (IMF) will not review the government’s economic program until after the parliament reaches a conclusion on Icesave. Therefore it is likely that reviewing the program will be postponed until the end of August or beginning of September.
Icesave was the online savings unit of the Icelandic bank Landsbanki, which has now been nationalized, in the UK and the Netherlands.
The Icelandic government has agreed to compensate Icesave account holders in these countries, reaching an agreement with British and Dutch authorities in June, but the agreement has yet to be approved by the Icelandic parliament.
Click here to read more about Icesave.