Iceland In Some Serious Financial Trouble

Olafur Grimsson, Iceland's President, voted against a new structure for repaying Britain and the Netherlands $5 billionIceland voters are planning to vote against paying money owed to Britain and the Netherlands, according to a recent poll.

I love that somehow this is being voted on by the people of Iceland. Can you imagine if Americans were able to vote on paying back loans to other countries or to ourselves or bills or our… credit cards, say? That would be amazing.

It’s $5 billion. The way the U.S. rolls, that’s not that much money. But after Iceland’s financial crash a few years back, I think $5 billion is about how much they have total. And apparently it’s on loan. So what’s the deal here?

Well, there is a deal up for vote that has been dubbed “The IceSave Deal.” Essentially, Iceland had a whole lot of high-interest bank accounts that lost everything in 2008. When that happened, Britain and the Netherlands stepped in to pay the people their money back. Now, Britain and the Netherlands want THEIR money back.

At stake for Iceland is the aid that they continue to receive from Britain and the Netherlands as well as their own potential admission to the EU.

Icelandic President Olafur Grimsson (awesome) looked at an amended law that came across his desk calling for the money to be paid back to Britain and the Netherlands and said no- he refused to sign it. Under the Icelandic Constitution that means that the people will have to vote on it, and when a survey went out to figure out if people would support or reject the payback, 6 in 10 said that they plan to reject the bill.

Now, weren’t there any kind of conditions when the money was paid? Like, what did Britain and the Netherlands think was going to happen? You give billions of dollars to a country that just lost everything and then you want the money back like a year later? That doesn’t seem like good logic- common sense-wise or financially. I can understand their desire for the payback, but… Iceland is still not in good shape. Reuters describes them as being in a deep recession, which seems to be the new media term for depression or financial ruin. We could call it a really, really deep, deep, dark recession, perhaps.

Iceland is currently held financially together by a program through the IMF- not the people you want to owe money to in the end. They have a long and solid history of rough credit terms. The countries loaning Iceland money right now are their Nordic allies- Finland, Norway and Denmark. Those countries say that their loans are contingent on Iceland meeting its international obligations.

Which from my perspective leaves Iceland in a bit of a spot- they apparently don’t want to or can’t pay back Britain and the Netherlands, but they have to in order to keep any money coming in- essentially, they have to pay out money to get money. I wonder if there is a cash flow middle-point where they would be better off not taking loans and not having to pay money out?

Any which way you look at it, though, they are not doing well.

Photo Credit: bragithor (via Flickr under CCL)