Cold Cash: Europe's Complications over the Iceland Bank Crash

Aysegül Er writes for EA:

After the bankruptcy of Lehman Brothers on September 2008, there were other bank collapses. One of these was of an Iceland bank, Icesave, which held substantial accounts from overseas clients, including in Britain and the Netherlands.

The British and Dutch Governments eventually agreed with Icelandic officials that Reykjavik would repay money to depositors. In December 2009, Iceland's Parliament approved Bill to reimburse more than 3.8 billion Euros. However Iceland’s President Olafur Ragnar Grimsson refused to sign the Bill. On Sunday, a public referendum was held to decide whether Iceland should repay.

The voters --- by a margin of 93 to 2 percent --- said No.



The Icelandic Government declared “There is widespread frustration over the claim on ordinary citizens in Iceland to pay the price for the irresponsible behavior of reckless bankers.” It added, somewhat wishfully, that it had “clearly stated its intention to honor its international obligations and remains fully committed to implementing the bilateral loan agreements with the UK and the Netherlands".

Foreign Minister Össur Skarphedinsson took a tougher line alongisde the referendum, arguing that the two creditors should heed the cry of defiance delivered by Icelanders and agree to soften the terms of repayment. He added reason for manoeuvre, saying that the December legislation being voted had already been superseded by a recent offer from Britain and Netherlands to lower the 5.5 per cent interest rate.

Beyond the conflict is Iceland’s application to join the European Union. This month, the European Commission recommended proceeding with accession talks, but support is needed from all 27 member states for Iceland's membership. Dare Britain and Netherlands withhold their Yeses in response to the No of the Iceland voters?