Amid Greek debt crisis, Iceland still recovering from its own collapse
While Greece battles its debt crisis, Iceland – where major banks collapsed in the wake of the global financial meltdown – is gearing up for a referendum on whether its taxpayers will shoulder the burden of paying back billions of dollars of debt.
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In addition, a "no" vote to the Icesave deal would also spell the end of Iceland’s hopes of joining the eurozone – a crucial difference between its predicament and that of Greece, with investors expecting a bailout for Greece from wealthier eurozone partners like France and Germany. Sigurdardottir’s opponents claim Iceland has every right to reject the deal, accusing Britain and the Netherlands of bullying the smaller country into unfair terms.Skip to next paragraph
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Weekend reports said Iceland is to meet Britain and the Netherlands in London on Monday to present a new proposal for repaying the money owed from the Icesave debacle, with the Icelandic government hoping to avoid the need for a divisive referendum and unlock the IMF aid. But with the UK and the Netherlands also facing testing economic times it remains unclear if they will be willing to give Iceland a break.
The battle is taking place at a grave time.
The President’s actions led the Fitch credit ratings agency to downgrade Iceland’s sovereign debt status to "junk," unemployment has risen past 8 percent, and many face losing homes when a moratorium on repossessions runs out later this year, particularly those with expensive foreign currency loans.
Against this backdrop, commentators like Egill Helgason say opposition to the Icesave deal is being manipulated to stage a revival by the right-of-center Independence Party, which oversaw a boom-time era of light-touch regulation and privatization during the 18 years it ruled until its ouster last year.
“Basically they have won the propaganda battle to rebrand themselves,” adds Mr. Helgason, who hosts an influential television current affairs talk show for the state broadcaster.
At the Independence Party’s headquarters, its new young leader suggests any revival of its fortunes has more to do with its policies for getting Iceland’s economy back on track. But while admitting that mistakes were made during his party’s rule, Bjarni Benediktsson also strikes a note of defiance.
“The global financial crisis was a spark that ignited a barrelful of dry powder,” he says.
“It came at a very inconvenient time for our banking sector, which could have used the months ahead of October 2008 to sell off and downsize their balance sheets. I am of the opinion that that could have saved them.”
In the end, all three of Iceland’s major banks collapsed. Benediktsson’s analysis, say critics, is symptomatic of a rewriting of history now taking place.
This new narrative veers away from holding Iceland’s former rulers responsible for a situation in which its greedily overleveraged banks were always destined to hit the rocks – bringing the country with them - with or without the global crisis.
Indeed, there are cries that the rewriting is happening in a very literal sense at one of Iceland’s largest newspapers, Morgunblaðið, where quotation marks have begun to appear around mentions of the word "collapse."